Combining the Old with the New to Navigate these Dynamic Times
Tips that will Save You Time and Money
What is Rolling Forecast and how effective is it?
First introduced as “Beyond Budgeting” in the early 90s, Rolling Forecast methodology provides finance managers a solution to anticipate short-term issues and influence related outcomes based on the latest operational returns and figures.
It is an alternative approach to the time-consuming, over-centralised and outdated annual budgeting process, characterised by fixed targets and performance incentives. In 86% of organisations, Finance is still the primary owner of critical business processes. As a result, more than 60% of analysts only look at financial outcomes rather than other corporate performance indicators.
Budgeting vs Forecasting
Annual Budgeting is a retrospective view of costs in the previous fiscal year and can foster a “guesstimation” and “use it or lose it” mentality amongst department heads.
Forecasting, on the other hand, allows decision-makers to adjust resources and costs to accommodate for unexpected changes in the current period based on recently recorded actuals.
Forecasting Can Save You Money
Annual budgets can encourage managers to spend every cent of their budget to ensure they receive the same allocation of funding the following year, resulting in over-spending, over-compensating, and a general lack of nimble and effective management of finances.
On the other hand, Rolling Forecasts provide managers with a rolling view of the future based on a set horizon and actual expenditure in the previous 12 months. It gives decision-makers a strategic view of seasonal fluctuations and recent market trends to help them better manage cash flow and shareholder expectations.
Using Automation to Lower Labour Costs and Improved Efficiency
In the past, Rolling Forecasts were used to monitor financial reports, market trends, etc. They were a time-intensive process and required a platoon of dedicated accountants to continually update.
Today’s Rolling Forecasts are vastly different and are created on automated platforms that update instantly as factors change and keep you nimble and agile to changing circumstances without waiting for the next budgetary period.
And because they use recent data, a Rolling Forecast will give you the flexibility to run thousands of what-if scenarios so you can make an informed decision on the best outcomes.
Smart Companies use Rolling Forecasts to produce…
Dynamic and Accurate Data
Learning how to use rolling forecast saves you time and money because you can adjust expenditure and costs in the current period, according to the most up-to-date information and looks as familiar as an Excel spreadsheet. Rolling Forecasts also provides the added advantage of eliminating inaccuracies and errors in your calculations.
Have You Been Trusting Excel too Long?
For years, Excel has been the principal tool for budgeting and reporting processes. It has always been well respected and a reliable tool when used the way it was designed to be used. However, when pushed beyond this, Excel has several drawbacks including lack of collaboration, version control issues, tedious and time-consuming to maintain, untraceable errors, siloed reporting, lack of drill-down, and broken linkages between spreadsheets.
Setting the Parameters of your Rolling Forecast
1. Map out your goals
Goals help you better understand your planning processes and tactics that may go wrong as you move forward.
2. Determine the Rolling forecast duration
Choose the duration for your rolling forecast on a case-by-case basis, depending on your business needs and cycle. If you decide to make it roll quarterly, or monthly, then stick to it.
3. Determine the comparison periods
Ensure the comparison periods of your rolling forecast are equal i.e., current month to previous month, or current quarter to previous quarter.
4. Separate capital and strategic projects from your Forecast
Capital and strategic projects have different variables, so they may not fit into your Forecast timeframe and can therefore affect its accuracy.
5. Implementation of Incremental changes
It takes time for an entire organisation to adopt a rolling forecast. Try implementing it in incremental stages, following a predetermined implementation timeline as you roll out the process changes across all departments.
6. Use your Forecast as a Baseline.
This will help you identify if deviations and trends will have a positive or negative impact. Having a pre-developed framework for managing changes and fluctuations will help you to act quickly and better prepare for future circumstances.
7. Integrate the Forecast into your strategy
Organisations often struggle to translate the short-term strategic objectives in their budgets. Forecasting will give you better foresight into trends, costs, resources, and other factors that impact your bottom line.
Cornerstone is a leading business performance management consultancy in Australia and the wider APAC region, and is an IBM Platinum level partner who was recently awarded IBM’s Top Cloud and Cognitive Partner for the region and are the only consultancy in Australia that focuses solely on Business Analytics and Financial Performance Management. Contact Cornerstone today to request a demonstration of what a modern and automated Rolling Forecast can do for your business.
