• Cathal Doyle

Rolling Forecasts: Business never stands still, so why forecast to the wall?

I’m often surprised at the number of clients we meet who will prioritise their budget & planning cycles as primary focus of change, while the rolling forecast pales into the ‘nice to have’ bracket. Why have one without the other? The budget cannot run the business. It is simply a tool to support decision-making right. For me rolling forecasts, if well prepared, form the backbone of a new and useful information channel that connects all the pieces of the organization together, and gives senior management a continuous picture of both the current position and the short-term outlook.

In the high percentage of cases companies will limit their horizons to fiscal year-end positions, to allow managers to keep a forceful track on pre-defined targets. Commonly known as 3+9, 6+6 & 9+3 these planning processes often feel like quarterly re-budgeting exercises. If the budget cycle engulfs 3-4 months of data churning, then what of these planning processes: Bottom up data collection; multiple layers of consolidation and review; adjustments to actual positions; re-alignment of targets. These processes are invariably confined to asking the questions; Why are we performing that way? and What should we be doing to improve that performance? But using the rear-view mirror of budgets and variances to manage performance when the market is changing so rapidly is surely a recipe for disaster. In such a fast moving environment these forecasts are out of date before the numbers can even be signed off.

Business never stands still, so why forecast to the wall. The conversation cannot be about organisational direction and the risks and potential opportunities in getting there, if the future magically ends when the period ends. We know that our operations do not simply reinvent themselves on day one of a new fiscal year, so why limit ourselves to the short sight of a single years plan. The true power of forecasting will come with the adoption of a rolling 12-18 month position where planning teams get the rough figures for that quarter and start to review the coming five quarters. By default, the fiscal year-end is always on the radar.

Looking outward; you have to be agile to react to market shifts at a moment’s notice. Your decisions have to be informed, quick and effective. And you have to get it right the first time round. There will be few, if any, second chances. Looking inward; you don’t have confidence in the information you are using for business critical decision-making. You don’t have the right information in the hands of the right people, and you don’t have the resource to respond fast enough to changing forecasts and budgets. I say again, a business analyst should not spend the majority of his/her time collecting or churning data rather analysing the data to improve the performance of the business; Performance Management!!

Simply adjusting or realigning your yearly budgets or targets is not a rolling forecast. Stop planning to the wall and start looking 12-18 months ahead at all junctures focusing attentively on earlier quarters using as much relevant knowledge and business intelligence as you can gather. There is a common misconception out there that greater level of forecasting detail equals greater accuracy. The only certainty about a forecast is that it will be wrong. The only question is by how much. Narrowing that variation comes from learning, experience, and good quality information systems.

Make forecasts a light-touch process; base forecasts on a few key drivers not masses of detail. In most businesses, few metrics change much from period to period. Ensure that your models are aligned and you set consistent standards across the company. And by the way the spreadsheet model does not lend itself to this enterprise alignment!

Leading organisations are placing rolling forecasts at the centre of their management processes and managers are now looking to these processes as key performance influencers above all else and not simply target monitors or corporate metrics. A recent study by our friends at Gartner show that companies integrating rolling forecasts, at least quarterly, will benefit from 12% more forecast accuracy, spend 50% less time in budget preparation & improve profitability by over 10%.

Rolling forecasting is a strategic opportunity, not an onerous task and with solutions designed specifically to counteract traditional rolling forecast prohibitions, it has never been easier or quicker for companies to define, develop and roll out a driver based solution and help you to become more agile and adaptive to changing business climates.

Come on what’s stopping you……

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