Organizations can no longer rely on traditional budgeting and forecasting approaches that become quickly outdated. The need for agility and adaptability has given rise to a powerful tool: rolling forecasts—a dynamic and iterative approach to financial planning that allows businesses to navigate uncertainty with confidence.
Unlike traditional static budgets, rolling forecasts continuously update and revise financial projections based on the latest information and business conditions. By extending beyond the typical annual planning cycle, rolling forecasts enable organizations to adapt their financial plans to new market dynamics, emerging trends, and unforeseen disruptions.
To illustrate the power of rolling forecasts, let's consider a retail company operating in a highly competitive market. Traditionally, this company would create an annual budget based on assumptions made months before the start of the fiscal year. However, significant changes in consumer preferences, economic conditions, or industry trends could render the budget obsolete.
Now imagine the same company embracing a rolling forecast approach. By regularly updating their financial projections throughout the year, including new data and insights, they can more effectively respond to changing circumstances. For example, if the company notices a decline in foot traffic within its physical stores due to a shift towards online shopping, it can quickly adjust its revenue forecasts and reallocate resources to optimize its e-commerce capabilities.
Rolling forecasts empower organizations to be proactive rather than reactive, enabling them to identify and capitalize on opportunities while mitigating risks. They provide decision-makers with a real-time view of expected financial performance, helping them make informed choices, adjust strategies, and allocate resources effectively.
In this blog, we will go in-depth into the concept of rolling forecasts in depth, examining the benefits. Let’s explore together.
What is a rolling forecast?
A rolling forecast is a business tool used to predict future performance over a set period continuously. 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.
Here's how it works:
- Imagine a 12-month rolling forecast. It starts by predicting performance for the next year.
- As each month goes by, the actual results are recorded, and the forecast is updated.
- The forecast drops the prior month's data and adds a new month's prediction, always keeping the total forecast period at 12 months.
This approach allows businesses to be more adaptable. They can adjust their plans and resource allocation based on the latest data, including changes in the market, industry, or the company itself.
Benefits of rolling forecasts
Below, we share five crucial benefits of rolling forecasts —
- Increased Accuracy: Traditional forecasts made at the beginning of the year can become outdated as circumstances change. Rolling forecasts incorporate new information as it becomes available, leading to more precise predictions.
- Improved Agility: Businesses operating in fast-paced environments need to be adaptable. Rolling forecasts allow for quicker strategies and resource allocation adjustments based on current trends.
- Better Decision-Making: With fresh data constantly feeding into the forecast, businesses can make more informed decisions. Rolling forecasts help identify potential risks and opportunities earlier.
- Enhanced Collaboration: The rolling forecast process often involves various departments contributing data and insights. This fosters better communication and collaboration across the organization.
- Reduced Planning Time: Compared to lengthy traditional budgeting processes, rolling forecasts streamline planning by focusing on shorter timeframes and continuous updates.
What is the difference between rolling forecasts and traditional forecasting?
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What are the key steps to implementing rolling forecasts?
Implementing a rolling forecast involves several key steps:
Step 1: Define Objectives
Start by identifying your goal with the rolling forecast. Is it for sales, revenue, expenses, or a combination? Knowing the goals will guide the level of detail and data needed.
Step 2: Set Timeframe and Increments
Decide how far into the future your forecast will look (e.g., 12 months, 18 months) and how often it will be updated (monthly, quarterly). A common approach is a 12-month forecast with monthly updates.
Step 3: Identify Contributors
Determine who will be involved in providing data and insights for the forecast. This could include sales, marketing, finance, and operations teams.
Step 4: Value Drivers
Pinpoint the key factors that significantly impact your business performance. These "value drivers" could be things like marketing spend, customer acquisition costs, or raw material prices. They are essential for scenario planning within the forecast.
Step 5: Standardize the Process
Establish a clear and consistent process for gathering data, updating the forecast, and communicating results. This ensures everyone involved understands their role and how the forecast is used.
Step 6: Choose the Right Tools
Consider using software specifically designed for rolling forecasts. Spreadsheets can be cumbersome for complex forecasts. Look for tools that can integrate with your existing data sources.
Step 7: Communication and Feedback
Regularly communicate the rolling forecast to stakeholders and be open to feedback. This transparency builds trust and ensures everyone is on the same page.
Step 8: Review and Refine
The rolling forecast is an ongoing process. Regularly assess its effectiveness and make adjustments as needed based on your experience and changing circumstances.
7 Best practices for implementing rolling forecasts
It's important to keep in mind that there is no single approach that applies to all organizations when it comes to implementing rolling forecasts. Each organization must create a rolling forecast that aligns with its specific set of business drivers, timelines, and dynamics. Nevertheless, the following 7 steps can provide businesses with a practical framework to develop and put into action a rolling forecast, irrespective of the organization's type.
#1 Align with Strategic Goals
Ensure your rolling forecast directly ties into your overall business strategy. What are you trying to achieve? Knowing this will guide the level of detail and metrics included in the forecast.
#2 Secure Leadership Buy-in
Gaining support from senior management is crucial for successful implementation. Executives need to understand the value proposition of rolling forecasts and champion the change within the organization.
#3 Cross-functional Collaboration
Rolling forecasts benefit from input from various departments (sales, marketing, finance, operations). Establish a collaborative process where each team contributes their expertise and data.
#4 Standardize Data and Processes
Define clear guidelines for data collection, forecasting methodologies, and communication protocols. This ensures consistency and reduces the risk of errors or biases.
#5 Invest in the Right Tools
Consider using software specifically designed for rolling forecasts. Spreadsheets can be cumbersome for complex forecasts. Look for tools that can integrate with your existing data sources.
#6 Continuous Monitoring and Adjustment
A rolling forecast is an ongoing process, not a set-it-and-forget-it exercise. Regularly review the forecast's accuracy and make adjustments as needed based on new information or changing circumstances.
#7 Foster a Culture of Transparency
Open communication is key. Regularly share the rolling forecast with stakeholders and be receptive to feedback. This builds trust and ensures everyone is on the same page regarding future expectations.
Examples where rolling forecasts can be beneficial
Below are some specific situations where rolling forecasts can be particularly beneficial:
Companies in dynamic industries
For businesses in sectors like technology, retail, or fashion, where consumer preferences and market conditions can shift rapidly, rolling forecasts provide the flexibility to adapt strategies on the fly.
Organizations with short sales cycles
If your business has a short sales cycle (e.g., weekly, or monthly), a rolling forecast allows you to make data-driven decisions about inventory management, production levels, and staffing needs more frequently.
Startups and growing businesses
For startups and companies experiencing rapid growth, traditional forecasts may not capture the full picture. Rolling forecasts can accommodate the constant changes and uncertainties inherent in the growth phase.
Businesses implementing scenario planning
Scenario planning involves considering different future possibilities. Rolling forecasts, with their adaptable nature, can be a valuable tool for evaluating the financial implications of various potential scenarios.
Creating rolling forecasts with Bluecopa
Keeping your business nimble requires adaptable tools. Look no further than Bluecopa, a platform that empowers you to create rolling forecasts. Master the below steps to become a power pro with rolling forecasts—
- Define your goals and forecast timeframe, then seamlessly prep your data within Bluecopa.
- Choose from built-in forecasting methods or import your custom model.
- Bluecopa's intuitive interface allows you to construct automatic rolling forecasts that update at your chosen frequency.
- Regularly assess and refine your forecast for peak accuracy, ensuring your decisions are grounded in the latest data.
Don't get stuck with static forecasts - embrace agility with Bluecopa's rolling forecast functionalities. Get a personalized demo to experience it fully.
