A Step-By-Step Guide To Rolling Forecasts

A sales manager is incentivized to provide overly conservative sales forecasts if he or she knows the forecasts will be used as a target (better to under promise and over deliver). These kinds of biases reduce the accuracy of the forecast, which management needs in order to get an accurate picture of how the business is expected to fare. The purpose of this article is to shed light on rolling forecast best practices for mid-sized and larger organizations, but let’s start with the absolute basics.

Each quarter, Scripps Health’s finance team makes process improvements to expedite decision-making, especially during this period of volatility. They strive to improve every quarter — prioritizing the time to think strategically and critically about issues and not allowing themselves to be solely driven by rolling forecast vs traditional budget a specific deadline. In the world of rolling forecasts, these are the key performance indicators (KPIs) that will most impact your financial outcomes. In a previous blog, I wrote about how zero-based budgeting could form the first step in transforming the Office of Finance’s FP&A function and processes.

A significant part of them are still limited by reliance on traditional budgeting processes. Overall, it is encouraging to see that adoption of Rolling Forecasts is increasing. After the discussion on transitioning from traditional budgeting to a Rolling Forecast, we heard from Anand Joslin, Cluster Director of Finance – Grand Mercure and Ibis Styles Dubai Airport, Accor. Anand shared his valuable experience on the key success factors and best practices that helped his company successfully implement the Rolling Forecast. If your business uses an antiquated tool that doesn’t facilitate a rolling forecast, the transition will be an onerous one.

1. Rolling forecasts take last year’s performance into consideration, but it’s balanced with more recent data (the past few months), which gives you the best of both worlds.
2. Revenue projections are a way of defining your business’s income goals, while cost projections help you plan for expenses.
3. They enable you to make informed decisions with actionable insights instead of relying on mere, already outdated numbers.
4. Resources are allocated based on performance and need, allowing for more efficient utilization and flexibility to adapt to changing priorities.
5. They’re continually refreshed, extending a certain period into the future—just like your streaming service adding new episodes regularly.

It is not enough to just collect data; you need to understand what that data means and plan how to act on that information. Rolling budgets work best for businesses in dynamic markets that deal with frequent changes, including changes in consumer preferences and regulations. Instead, you may want to opt for a rolling budget that you update more frequently based on new information and your business’s performance.

What is a Rolling Forecast and why you should adopt it

The time-consuming process of continuously updating the plan and adjusting assumptions often leaves finance teams looking at stale actual results (which defeats the purpose of a rolling forecast). And because version control is such a problem in spreadsheets, you don’t have as much flexibility to plan out scenarios that provide strategic insights for business decision-making. Even if your team is able to complete the complex task, you’ve likely opened the Pandora’s box of version control issues.

What is the difference between a budget and a rolling forecast?

You’ve got the knowledge, you’ve got the tools, and most importantly, you’ve got the spirit. Rolling forecasts are different from a traditional budgeting and planning process in several key ways. Many finance teams do good work with Excel, https://business-accounting.net/ including building rolling forecasts. But it’s asking a lot, and you may lose out on some of the automation available today. At minimum, your forecast should have input from the founders, department heads, and your finance team.

More Forecasting Resources From NetSuite

This article is based on the insights from the webinar and speakers’ presentations. American Management Association is a world leader in professional development, advancing the skills of individuals to drive business success. As such, it becomes critical for organizations to adopt the most effective practices and the greatest technologies to stay competitive.

Additional FP&A resources

Rolling forecasts allow you to review your original budget and make adjustments to future periods. A traditional budget is more static and rigid, which can be counterproductive to today’s ever-changing business world. What are the greatest flaws of your current forecasting system and how can that behavior be changed? For example, if budgeting is only done once a year and that is the only time a manager can request funding, then sandbagging and underestimating will ensue as a natural tendency to protect one’s territory. When asked to forecast more frequently and further out, those same tendencies may linger. Many organizations have gone generations relying upon an annual budget performed once a year and have dedicating significant time and energy to its completion.

Once the rolling forecast has been implemented, it should be tracked to see if there are any variances between the actual performance and the set targets. If there are any variances, the participants in the process should find out what led to the variances and plan courses of action to remedy the situation. The length of the forecast period may partially determine how much detail should be included in the forecast.

This will depend on your business and the type of data you are forecasting. Generally, it’s a good idea to update your projections at least once a month or whenever significant new information is available. Additionally, it may be helpful to periodically run scenarios to test how different inputs or assumptions might affect the outcome.

When companies do decide to start using rolling forecasts, they face a few additional challenges. Preparing to start using rolling forecasts can cost time and money if your forecast process isn’t already automated. Accountants will need more training, and their workload will probably increase if they’re doing constant forecasting throughout the year. Your organizations will also need to figure out how to evaluate performance, since it won’t be looked at during one specified time every year. To increase agility, many companies are adopting methodologies like zero-based budgeting and rolling forecasts.

Are you eager to boost your career in Financial Planning and Analysis (FP&A)? We understand that the finance world is ever-changing, and staying ahead requires constant learning and skill enhancement. Let’s say you’re running a small coffee shop, “Java Jive”, and you want to forecast your sales for the next quarter.