Rolling Forecasts in Four Parts

Juan Porter

October 26th, 2011

This is a four-part blog series on rolling forecasts:

Part I Transition Traditional Forecasting to Rolling Forecasts

Part II – Implementing Rolling Forecasts

Part III  – Advanced Methods in Rolling Forecasts

Part IV – Understanding Your Forecast

Transition Traditional Forecasting to Rolling Forecasts

For planning and forecasting never has the old adage “You can’t manage what you can’t measure,” been more true. To make sure you are working with the most accurate information, the information has to be right.

In every industry there is always talk about businesses needing to stay competitive. The only way to do this is through informed decisions and agile business practices. These only come about with quality forecasts that shape future outcomes and the ability to immediately react to changing events. This is why many companies are looking for alternatives to annual budgets.

Traditional Planning Process

The traditional planning process usually occurs annually. It is out-of-date when finalized and yet, companies still insist on going through this time consuming (usually three to six months to complete) and expensive process (mainly manpower). The focus is detailed data preparation and it includes a heavy reliance on offline spreadsheets. In most cases, the deliverable from this undertaking is not followed, yet it becomes the basis for comparison/variance, which is key for the planning cycle; and worse, it is deemed as an authorization to spend because “it’s in my budget.”

The annual budget also is often used as a measurement for compensation, which can cause a tendency toward inaccuracies since negative variances directly affect the responsible party’s paycheck.

Traditional Forecasting Process

The traditional forecasting process takes place monthly or quarterly. It focuses on the current year, it’s derived from a plan or prior forecast, and the window to forecast is usually two to three days. Compare that to the traditional planning process—four to six months devoted to the annual plan and two to three days to recast it. The result is no time for scenario modeling. Adjustments are made on what’s happened so far with no consideration for future possibilities. The data is often summarized and maintained in offline spreadsheets and the level if detail is different than the annual plan. All of which does not add up to the accuracy needed to make smart business decisions.

What is a Rolling Forecast/Perpetual Plan?

At the highest level, a rolling forecast is a more fluid approach to planning and forecasting. If you are doing this, there is no need to do an annual plan.

You will always find change happening in your business, and even the smallest amount of it can impact on your numbers, focus, plans, etc. With a rolling forecast, you can emphasize the forward movement of the business, because it is always looking ahead 12 to 18 months. You avoid the cliff event like end-of-year with a continuous process that combines the traditional plan and forecast.

Chart of a Rolling Forecast

Why Rolling Forecasts?

Rolling forecasts eliminate the need for an annual plan (perpetual), because they are forward looking. Moreover, this approach is tightly linked to strategy, which means you can review what is taking place in your business, assess the impact, and make necessary corrections. Also, this approach allows you to look both backward and forward, providing a richer view for better decision-making.

Another key benefit is rolling forecasts are driver-based. Not only does this allow you to derive forecasts based on volumes of activity, it also ensures that people only focus on the data they can control.

Most important, though, is the fact that rolling forecasts emphasize ongoing results instead of a single period of time, offering more visibility and balance. You can also use them to model difference scenarios based on varying points-of-view, again deriving more accuracy. In sum, they focus more on factors and analysis rather than data gathering, providing up-to-the minute data for decision-making.

So how is all of this different? It’s a more proactive approach to financial planning. When you are doing financial planning, you want people involved for continuity. This approach allows the entire team to become true business partners. People are focusing on the data that matters to them. They can closely monitor what is going on—e.g., a line-of-business manager is able to understand more. Add to this by perpetually forecasting (rolling fashion), people can learn by doing, synchronizing efforts with the business—process, metrics, etc. –allowing for better analytical decisions.

In terms of your bottom line, rolling forecasts reduce cost of doing business. You have less burnout and more time for other activities

Check back Wednesday, November 2, for Part II – Implementing Rolling Forecasts – of the series.

This is Part III of a four-part blog series on rolling forecasts:

Part I – Transition Traditional Forecasting to Rolling Forecasts

Part II – Implementing Rolling Forecasts

Part III – Advanced Methods in Rolling Forecasts

Part IV –  Understanding Your Forecast

Download E-book: Rolling Forecasts in Four Parts

Juan Porter

About Juan Porter

Juan Porter, Chief Solutions Officer, founded TopDown Consulting in 2000. He has over 30 years combined customer, vendor, and consultant experience with Hyperion, which enables him to bring unmatched insight into the strategic impact of performance management solutions as well as in-depth understanding of the day-to-day realities of managing global applications while supporting users’ needs. Prior to founding TopDown, Juan managed all aspects of Hyperion applications, on a global basis, for ABB, Novell, and SGI. He is considered a visionary with an exceptional, proven ability to effectively address complex global business problems through EPM solutions. He has served as a member of the Oracle Hyperion Partner Advisory Council, was the chair of Hyperion’s national steering committee, and has led many Hyperion enhancement committees and user groups. Recognized as a thought leader, Juan presents regularly at various industry events, including Kscope, Budgeting and Finance Summits, and Oracle EPM/BI Days. He has also authored a number of articles and blogs for various industry publications.

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