1. What is Rolling Forecasting?
A rolling forecast is a financial forecasting approach that regularly updates and extends a company’s financial projections by incorporating actual data and adjusting future expectations. It is a dynamic forecasting technique that replaces the traditional static annual budgeting process with a continuous forecasting process.
2. Benefits of rolling forecasts
2.1. Improved accuracy
In a traditional budgeting process, a company might create an annual budget based on the previous year’s data and some assumptions about growth and market conditions in the coming year. However, once this budget is set, it often remains fixed for the entire year, even if the assumptions on which it was based change. This can lead to inaccuracies in the budget as the year progresses, especially if there are significant changes in the business environment.
2.2.Enhanced agility
Rolling forecasts create a dynamic and adaptable planning process that can adjust to changes in the business landscape. Because these forecasts are updated regularly, they reflect the latest market conditions, operational results, and strategic initiatives. This ongoing visibility into future performance allows companies to adjust their strategies and operations more quickly than they could with a static annual budget.
2.3. Better scenario analysis
Rolling forecasts amplify the power of “what-if” scenario analysis by constantly updating with the latest data and trends. For instance, a retail company seeing a sales dip in a product can swiftly adjust its forecasts, running scenarios to gauge future impacts and adjust strategies accordingly. This real-time adaptability, beyond just annual budgeting, allows businesses to respond promptly to market shifts. A manufacturing firm, for example, can quickly analyze the repercussions of supply chain disruptions, ensuring they’re always prepared for unforeseen challenges.
2.4. Stakeholder engagement
Stakeholder engagement in rolling forecasting is essential. By involving all relevant parties, businesses get a clearer, more accurate picture of future trends. This collaboration builds trust and ensures everyone is aligned in their strategies.
3. Tips on implementing rolling forecasting
Know your why: Figure out the main reason you’re using rolling forecasting. It could be for faster decisions, better planning, or just a new way to do things.
Talk to leaders: Make sure the top people in your company are on board and understand the change.
Decide the length: Think about how far ahead you want to forecast. Some companies look a year ahead, others even longer. Pick what’s right for you.
Keep it simple: Focus on the big things that matter to your business. Don’t get lost in tiny details.
Get good software: Use software that makes forecasting easy and accurate.
Update often: Change your forecasts regularly, like every month or so, to keep them fresh.
Use forecasts for decisions: Make sure you’re using your forecasts when making big decisions.
Train your team: Teach everyone how to use the new system.
Listen and adjust: If something’s not working, be ready to change it.
Be patient: Changing to rolling forecasts is a big step. Help your team see the good side, support them, and celebrate small wins.
Stay ready to change: Business can change fast. Be ready to adjust your forecasts when needed.
4. Potential risks of rolling forecasting
Rolling forecasting, while advantageous in many ways, does come with its set of challenges. Some of the primary pitfalls include:
Risk of overcomplication: As businesses aim to capture real-time data and trends, there’s a temptation to delve into excessive granularity. For instance, a tech company might try to forecast sales for every individual product variant in every region, leading to an overwhelming amount of data that’s hard to manage and act upon.
Resource strain: The continuous nature of rolling forecasts demands consistent attention. A retail chain, for example, might find its finance team overwhelmed when trying to update forecasts monthly without the right tools, especially during peak seasons like the holidays.
Risk of inconsistency: With frequent adjustments, there’s a chance that different departments or teams might not always be on the same page. A global manufacturing firm might have its European division making decisions based on one forecast, while the Asian division uses another, leading to misaligned strategies and potential inefficiencies.
Danger of overreacting: While rolling forecasts aim to be adaptive, there’s always the danger of overreacting to short-term fluctuations. An e-commerce platform, for instance, might see a temporary spike in sales due to a viral trend and overinvest in inventory, only to find demand waning a month later.
5. Using a dedicated FP&A tool for rolling forecasting
Navigating the challenges of rolling forecasting requires both strategy and the right tools. A dedicated FP&A tool can be a game-changer. These tools streamline the forecasting process, providing:
Minimized over-complication: By focusing on essential metrics and automating data collection.
Resource efficiency: Through automation, teams can avoid manual work and concentrate on bigger goals.
Consistency: Centralizing data ensures all departments work from the same information.
Informed decision-making: Differentiating between short-term trends and lasting changes.
With the right tools in place, businesses can sidestep common pitfalls of rolling forecasting and enhance their decision-making process.
6. Free Download - Rolling Forecast Template
Embarking on the rolling forecasting journey can seem overwhelming, especially if you’re unsure of the starting point. To ease this transition, we’re offering a free Excel template tailored to streamline your forecasting endeavors.
Here’s a snapshot of what our template offers:
Sales Planning: This is all about a bottom-up approach, focusing solely on the SKU level. It eliminates the complexities of customers, regions, or territories, providing a straightforward overview.
COGS Overview: The template allows for the entry of COGS as a final figure. Given the absence of detailed COGS components, it’s best suited for businesses outside of the manufacturing realm.
Cost Planning: Navigate your expenses at a broader level. Instead of getting entangled in specific accounts, you can concentrate on particular departments. What’s more, you have the autonomy to adjust these departments as per your company’s needs.
Workforce Cost Projections: Efficiently forecast your workforce-related expenses. The template facilitates calculations based on headcount and average costs, and you also have the flexibility to allocate these costs to distinct brands.
Given its design and features, this template serves as a high-level plan, making it an ideal fit for any company involved in distribution or sales.
