For decades, the annual forecast has been the basis of business planning for organisations of all sizes, and for decades, annual forecasts have been letting companies down.
In fact, most finance teams will tell you that they agree with Mike Tyson’s famous quote: “Everybody has a plan until they get punched in the mouth”. Whether the current business climate provides a little tap, like extremely volatile exchange rates, or a punch, such as the kind of macroeconomic upheaval we have seen as a result of the war in Ukraine, it has become clear that annual plans are no longer effective.
As a result, organisations are looking to move away from static annual plans, to dynamic forecasts that better reflect business realities. Rolling forecasts enable speed, agility, and, most importantly, more actionable insights that drive better financial results, helping finance leaders improve strategic decision-making.
Rolling With the Punches
According to the 2021 FSN Agility in Planning, Budgeting, and Forecasting Global Survey, organisations that prepare rolling forecasts outperform peers that forecast 4 times a year. The research found that 42% of organisations that use rolling forecasts can forecast revenue within around 5%, compared to 38% of peers not utilising rolling forecasts. When it comes to earnings, organisations leveraging rolling forecasts can forecast earnings within that range 49% of the time, compared to 35% of organisations not using rolling forecasts.
As the name implies, rolling forecasts use a constant feedback loop where actual results are continually used to adjust plans to improve accuracy and increase financial visibility. This not only helps companies be more agile but also ensures that lines of business get better support. Sales, production, and marketing teams, for example, constantly adjust their plans to be more responsive to what the business needs. Rolling forecasts allow finance leaders to assist these teams in reaching their goals while ensuring that all their initiatives constantly remain in line with the budget and strategy of the organisation.
However, achieving this kind of success with rolling forecasts requires some groundwork. Finance teams should have an understanding of how various divisions are changing their forecasts, and since rolling forecasts are only as good as the data they use, actual metrics have to be imported into models to ensure the business is heading in the right direction. Forecasts based on drivers and real-time assumptions are more likely to be actionable, so integrating actual data with forecasts allows organisations to identify issues early and refocus priorities and resources as necessary.
Creating a Foundation
As with any other financial process, there are a few components that have to be in place in order for an organisation to gain the full benefits of rolling forecasts. A good data foundation is essential, and this includes a single source of truth. If the company uses multiple versions of data, any forecast will be hampered by data siloes, outdated information, corrupted spreadsheets, and shared files buried in email inboxes.
Collaboration is therefore key. Unifying data is the first step, followed by unified processes across the organisation to ensure all planning efforts are rolling into the financial forecast. Key stakeholders must be kept in the loop at all times, and business objectives and goals must constantly be aligned.
Most importantly, a robust rolling forecast with a sustainable, repeatable process requires the right platform, backed by the right partner. With a partner like Futuresense, and an Enterprise Performance Management solution with scenario modelling, workflow capabilities, and predictive analytics, organisations can create effective financial plans and projections to evaluate business performance, guide resource allocation, inform investment strategies, and make intelligent decisions quickly.
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