By leveraging advanced technologies such as machine learning and artificial intelligence (AI), businesses can now create more accurate forecasts considering historical data and future trends. AI-driven predictive analytics solutions can also help uncover hidden insights into customer behavior, market dynamics, and more, allowing finance teams to make better decisions and drive growth. Regularly considering new data and factors helps to quickly identify probable deviations from plan and to counteract these by taking appropriate measures.
Continuous effort
In the world of rolling forecasts, these are the key performance indicators (KPIs) that will most impact your financial outcomes. This might include sales volumes, operating costs, or market trends. Rolling forecasts are kind of like your favorite streaming series.
No more “using up the budget”
Another what is a 12 month rolling forecast key difference between rolling forecasts and static budgets is the period of historical data they use. Static budgets often rely on the previous year’s performance to forecast the numbers for next year. The issue with that is June of this year may be drastically different than June of last year.
Integration of ESG in financial planning
- Unlike a static budget, which forecasts for a fixed timeframe (like a year), a rolling forecast is regularly updated throughout that period to account for new information.
- It saves you a lot of time when it’s time to build your next annual budget because you’ve already been updating and refining your numbers all along.
- Achieving optimal projections requires a seamless combination of long-term planning, backing from top management, and technological effectiveness.
The traditional budget is usually a one-year forecast of revenue and expenses down to net income. For example, the sales team might have a great sense of the revenue pipeline but no insight into expenses or working capital issues. As such, a common issue for growing companies is that management’s decision-making ability degrades until it implements a process for regaining a full view of what’s going on. This view is needed to gauge the health of distinct parts of the business and is critical in making decisions on how to most effectively invest capital.
There are various techniques you can use, from simple spreadsheets to sophisticated software. What’s important is that your forecast provides clear, actionable insights for decision-making. As organizations navigate stricter regulations and rising stakeholder expectations, CFOs need to transform their approach to data governance from a checklist item into a financial strategy. Ensure your rolling forecast directly ties into your overall business strategy.
This is supported by the success of quantitative prediction in different sectors, demonstrating that including probabilities into predictions can decrease communication errors and enhance decision-making. As we explore further into the domain of forecasting, it’s crucial to adopt both statistical and machine learning approaches, as emphasized by the M6 forecasting competition. These cutting-edge approaches can illuminate the path forward, melding traditional financial acumen with modern analytical tools. The effective communication of prediction outcomes is as crucial as their creation. It’s about converting data into actionable intelligence that can guide an organization towards its monetary targets. The ever-changing nature of prediction requires continuous improvement to maintain consistency with evolving business landscapes and product quality enhancements.
During an energy market downturn, an E&P company implemented a Hyperion Planning application that allowed them to make real-time updates during board meetings and realign spending priorities. At a time when oil prices were plummeting, this company could not afford to spend 2 weeks on a planning cycle. “Our group is now delivering 50 times the information and analytics, 50 times faster,” said a Strategic Planning Engineer.
Just when you think you’ve reached the end of the season, surprise! A new episode pops up, extending the narrative and keeping you engaged. In the world of finance, rolling forecasts are the fresh episodes that continuously extend your financial planning horizon, enabling you to adapt to changing circumstances and make informed decisions.
- This knowledge is critical because you need to know how much money you can afford to invest in the business to grow it.
- The rolling forecast strives to address some of the shortcomings of the traditional budget.
- This allows you to respond to changes in real-time, adjusting your financial plans based on recent trends and data.
You’ve already got a solid, up-to-date forecast — so you can focus more on the big strategic decisions instead of just gathering data. Rolling forecasts have a strong foundation in data-driven decision-making, equipping decision-makers with up-to-the-minute insights into the financial health of the organization. When it comes to scenario analysis, adjust revenue projections, expense levels, or capital investments on your financial dashboard to see how different assumptions play out in practice. This enables informed decision-making, helping you evaluate potential outcomes under various conditions as well as mitigate risks and capitalize on opportunities. But what if there’s a better way to seamlessly close the books, report, plan and manage a rolling forecast?
Benefits of rolling forecasts
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. This key tool aids in evaluating current corporate spending and investments, but it also lays the foundation for evolving the budgeting model from a static to a rolling forecast. This transition from a somewhat static to a highly agile organization is necessary for business success, especially in challenging times. Let’s dig deeper into what it means to have a rolling forecast and the technology enablers to drive its success. Rolling forecasts also work with a set time frame, but with no end date.
Criticism 2: The traditional budget creates a variety of perverse incentives at the business-unit level (sandbagging).
The rolling forecast and budget means that fewer funds are committed far in advance, and teams have no reason to spend (unnecessarily) up to their limits. Each new project requires a business proposal, and finance teams know where money is going in closer to real time. With Excel, you can leverage historical trends, driver-based modeling, and sensitivity analysis to create robust 12-month or longer rolling forecast models. The “rolling forecast excel” structure allows new data to be input each period to move the forecast forward seamlessly.
Managers compile detailed budgets, which are then consolidated by leaders and ratified by stakeholders. The process, while seemingly straightforward, requires meticulous coordination and expertise. With each iteration of the prediction, its importance increases, especially as the fiscal year advances.
They can make it challenging to respond to unexpected circumstances or take advantage of emerging opportunities. Mid-year adjustments may be required for significant budget deviations. Especially if you want to respond quickly to new opportunities and risks. Likewise, the system should accommodate the use of drivers so that a change in a key driver automatically updates the impact on the P&L.
Addressing data accuracy and availability is crucial, as reliable data supports the entire prediction process. Adopting robust data management systems and conducting regular data audits can significantly enhance data integrity. A rolling 12-month forecast projects financial performance over a 12-month time horizon using the “add/drop” approach to forecasting. Unlike a budget or calendar year forecast, a rolling 12-month forecast adds one month to the forecast period each time a month is closed so that you are continuously forecasting for 12 months. This enables continuous planning of future performance based on actual performance. A rolling forecast model is a dynamic and advantageous way to plan in an ever-changing business environment.
While it’s tempting to include every imaginable data point, it’s wiser to focus on the key performance indicators (KPIs) that drive your business. Determine which metrics matter most to your organization’s success and build your forecast around them. Companies with complex debt structures involving covenants should use rolling forecasts to closely monitor cash flows and covenant compliance.
This ensures a harmonious process by clearly delineating roles, refining data collection, and enforcing a disciplined update regimen. At the end of twelve months, the forecast will show actual figures for the first year and projected figures for the remaining four. First two years on a monthly basis and the remaining three years shown annually. The problem is that the “keep-it-in-owner’s-head” approach stops working when a few employees are added to the company.
An organization should have a periodic planning process in which targets are set for managers to achieve. Those targets should not change based on the most recent forecast. A 12-Month Rolling Forecast is a dynamic financial projection that extends beyond the conventional annual budgeting cycle. Unlike fixed annual budgets, this forecasting method involves updating and reforecasting every month, allowing for real-time adjustments based on evolving circumstances. Rolling forecasts are pivotal for staying agile in an ever-evolving market landscape.