The appeal of rolling forecasts is obvious. Dynamic budgeting potentially fixes a number of common problems, including the glaring issue of inaccurate forecasts derived from factors in the rear-view mirror. In practice, though, rolling forecasts often fail to live up to expectations and simply create more complexity for finance and for key business stakeholders. The key to success is to ensure finance limits the number of inputs and keeps the process focused on improving the speed and accuracy of business decisions.
The move to rolling forecasts is an evolution, not an event
“When implemented properly, rolling forecasts provide greater visibility into future outcomes, help identify risks and opportunities, and inform operational and strategic decisions,” says Nancy Geofroy, principal executive advisor at Gartner. “Improper implementation is the most common source of dissatisfaction.”
In fact, managers at over half (52%) of companies using rolling forecasting are dissatisfied — some even to the extent of abandoning it — according to CEB, now Gartner, data.
Read more: Rolling Forecast Do’s and Don’ts
To smooth implementation, CFOs should take three steps to avoid some of the common pitfalls that derail the efficacy of a move to rolling forecasts:
- Choose wisely. Prioritize what and when you update. Rolling forecasts require continual updates to a large amount of data. Don’t be tempted to take on too much change at once, such as trying to implement new technology systems while simultaneously changing incentive schemes. It’s far better to define clearly — even before the transition — which forecast variables will be updated, and how often. For example, one large transportation firm defines its forecasting schedule based on the attributes of each variable. The finance team decides the appropriate frequency of update and time horizon for each based the variable’s volatility, its impact on economic profit and the amount of control they have over a response.
- Implement gradually. The move to rolling forecasts is an evolution, not an event. Finance leaders rarely anticipate all the challenges that arise after the transition to a rolling forecast. They see the shift as a one-off adjustment, when in fact ongoing iteration is critical. You should start with a comprehensive overview of current processes to mitigate management’s resistance to change and then help line managers improve their forecasting consistently over time. Progressive companies continue to refine their process and make many adjustments, sometimes quite significant ones, in the years that follow the initial adoption of rolling forecasts.
- Influence business decisions. Spend more time on analysis than mechanics. Companies often spend more time and resources reviewing and creating forecasts than they do actually analyzing data. You shouldn’t — it’s the output that counts. Collaborate with senior leaders to determine how they will use the rolling forecast reports for mid-cycle resourcing decisions. Integrate risk and opportunity assessments into the forecasting process. Also consider using range- and scenario-based forecasting techniques that focus on the key decision drivers for each business unit.
Rolling forecasts can inform business decisions dynamically
Now more than ever, finance teams and their business partners need access to real-time information that helps them shape performance and address emerging risks and opportunities. Traditional forecasting is often too static, short-term and financially focused. Rolling forecasts can inform business decisions dynamically — but only if finance leaders plan and execute the transition with business needs in mind.