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How To Build Budgeting Agility With Rolling Forecasts

October 19, 2020 |

Agility is crucial to any organization. It defines how your team works together—and how quickly it adapts.

But organizational agility depends on the strategic and operational business processes used by your company. With the right agile processes in place, your team will be better equipped to keep up with market changes and to empower your organization to thrive.

Rolling forecasting is one such process—bringing agility to your budgeting and forecasting and deepening your visibility ahead. By extending your budget past a fixed timeframe, it allows you to continue to update across fiscal years. And as with any forecasting process, it enables you to keep evaluating resources and project allocations so that you can make changes that tie your budget to ongoing performance, allowing you to project and allocate resources to keep up with any changes underway.

A lot of finance teams opt for rolling forecasts over a traditional static budgeting or forecasting approach. To decide if it’s right for you, consider the following:

  1. What is a rolling forecast?
  2. Rolling forecasts vs. static budgets
  3. 4 benefits of rolling forecasts
  4. The challenges of introducing rolling forecasts
  5. Rolling forecast best practices

What Is a Rolling Forecast?

Updated at set periods—whether it be quarterly, monthly or even weekly—rolling forecasts do exactly what they say: they roll, taking a rolling view in arrears and into the future across revenue, expenses, cash metrics and more.

By adding and dropping a week, month or quarter every cycle, a 12-month rolling forecast—or some other variation—allows you to maintain visibility ahead, even well past the traditional static budgeting timeframe of a fiscal year. It lets you look 13 weeks, 12 months, four quarters or 18 months into the future at all times—or whatever makes the most sense based on the business process or planning outcome to which it's being applied.

Rolling Forecasts vs. Static Budgets

While rolling forecasts are rising in popularity, traditional static budgets are still a pretty common choice among finance teams—and a fixed budget with a fixed timeframe and fixed targets is still going to be the best decision for some organizations. In fact, businesses that are low growth or in a less disruptive space may find that the more traditional approach is all they really need.

But in high-growth companies or large organizations with a lot of moving parts—or amidst evolving market or industry changes—traditional budgets and intra-year forecasts may not be enough to keep up. Rolling forecasts fill that gap. By helping to maintain visibility into recent performance while better projecting future needs, they allow those quick-moving companies to remain agile to new trends and requirements while continuing to move the planning horizon forward.

Of course, it’s not actually an either/or approach. You can opt to implement both static budgets and rolling forecasts—or you might even be required to have both so that you can offer a full view of company performance to your board, investors or stakeholders. In those cases, rolling forecasts become an extension of your annual budgeting process. You can choose to introduce them as a process of review at regular intervals to keep up with current performance and changing market conditions or apply them only to certain areas, such as revenue or cash planning, with a more traditional approach used elsewhere.

4 Benefits of Rolling Forecasts

Without having to wait a full year to revisit your budget, rolling forecasts let you plan for both the short and long term—always with a view into the future, several months ahead. In doing so, they can help you better pivot to make sure you’re getting the best results at every step. Consider the benefits of rolling forecasts:

1. They help you stay ahead.

Instead of basing your budget primarily on past results—as is the case with traditional budgets—rolling forecasts let you consider current operational drivers, such as customer satisfaction, market share and category growth, to stay ahead of market and business changes.

2. They improve accuracy.

A static budget risks becoming out of date within months—or even days if the market unexpectedly changes. But a rolling forecast gives you a constant outlook, allowing you to adjust quickly so that you have the right resources in place to keep up.

3. They mitigate risk.

By maintaining a consistent horizon for your forward-looking outlook forecast, you’ll be better positioned to keep your plan aligned to current performance, recognize risks to your business and make appropriate course corrections.

4. They let you make better decisions.

With a more up-to-date eye on your forecast, you’ll also have a better understanding of when to take risks—for example, putting resources into a new growth initiative—or when staying the course is a better game plan. Also, areas of the business that work on a longer time horizon will no longer do so in a vacuum—becoming part of the bigger holistic picture instead.

The Challenges of Introducing Rolling Forecasts

While the benefits are many, there are also some potential obstacles that can get in the way of implementing rolling forecasts. Keep these in mind if you're considering introducing rolling forecasts into your business:

1. They can require added investments—both in time and money.

To be successful, rolling forecasts may require technology and training investments, as well as extra time from your team to put the best processes in place and to keep them running smoothly. Be prepared to justify the extra expenditures.

2. Success is dependent on company culture.

For rolling forecasting to work, you need your senior managers to not only support it, but also to update their own forecasts on a rolling basis—which means you’re adding to their already busy workload. But managers can benefit from the process as well—funding requests don’t need to be restricted to just once a year, for instance. Helping them understand that can get them on board.

3. They’re dependent on clean data.

You need a constant flow of performance data to inform your rolling forecasts. That data allows you to compare actuals to forecasts and ensure your plans are on track. It’s no surprise, then, that companies can let a lack of clean, actionable data get in the way of introducing rolling forecasting. Waiting for the data to be perfect, though, isn’t the answer either.

Rolling Forecast Best Practices

What does it take for a rolling forecast process to be successful? Consider six best practices:

1. Always keep your business-wide objectives in mind

Fully aligning your rolling forecast with your company strategy—and iterating your forecast as those goals and plans change—will help you ensure the right resources are available to meet your organization’s ongoing goals at any given time. Leverage a three-year or similar outlook as a guide stick until it’s time for your next annual strategic plan. This gives you the flexibility to build rolling plans that align to your strategy, whether those strategies are updated annually or more often.

2. Choose the best timeframe for your business

Whether you choose to forecast quarterly, monthly or weekly, the timeframe should match the rate at which your company is evaluating progress—as well as the pace of the industry around you.

3. Figure out how granular you want to get

Just as important as the timeframe you choose is deciding how deep you want to get into your forecasting each time. It’s best to focus your deeper analysis on the drivers that promise to most impact your strategic goals and ongoing performance.

4. Choose the right technology

The right tool will help you ensure your rolling forecast has the inputs it needs to be useful across your business strategy and KPIs. It will also ensure that you have buy-in early on longer-term commitments around cash management, inventory management and new hires. Leveraging technology makes rolling your plan a simple lift and empowers your people to run an efficient and effective rolling forecast process.

5. Incorporate the best data available

While it’s certainly important to start with a solid data infrastructure, it’s also crucial that you not let the status of your data stop you from getting off the ground. Leverage areas where your data is clean, then use the forecasting process to build transparency and accountability, resulting in your data becoming even cleaner over time.

6. Measure along the way

Use dashboards and visualizations to track execution against your rolling forecast so that you can see how it keeps up with ongoing performance. In doing so, you’ll be able to make any necessary iterations along the way—and ensure your progress stays transparent across your business.

Once you’ve established a new normal, rolling forecasts can give you exactly the agility and insight you need to help your business thrive—and ensure you’re ready for whatever is ahead.

Learn how Vena can help empower your rolling forecasts.

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