Discover why a rolling forecast is becoming the new standard
Budgeting and financial performance are key concerns for every business. However, in a rapidly changing marketplace, it's no longer practical to simply draw up an annual budget and stick to it regardless of changing circumstances. Even if you produce a revised forecast each month, once you get near the end of the year, your forecasts look forward only one month. In this article we will show you how a unified solution will enable you to step away from traditional forecasts and start rolling!
Traditional Forecast Example, the “Q3 forecast”
In this case, the forecast ‘horizon’ is only 3 periods.
With traditional EPM/CPM tools, producing such forecast may already be quite a hassle. One has to export and import the latest set of Actual data in seperate EPM/CPM modules. You have to make sure that your forecasts results difference is not caused by differences in tool, which can for example be caused by fx rates, elimination logic or translations. When using OneStreams unified EPM/CPM solution, these are worries of the past.
Modern businesses need not only the flexibility to revise their budget throughout the year, but also keep a forward looking planning ‘horizon’ so you don’t have a shrinking number of periods to plan. This is where rolling forecasts come in.
What is a rolling forecast?
A rolling forecast is a process that allows you to plan ahead for a set number of months or years ahead, regardless as to whether you are in the year. When executed in Excel, this is a challenging operation. When using the right EPM/CPM tool, it is very achievable.
Once you trigger the rolling forecast, the tool continually updates to reflect the time period. If you run a 18-month rolling forecast, it automatically adds another month to the cycle when one month ends. This means that you're always planning 18 months into the future, and you will always be able to compare rolling forecasts with an annual budget. In fact, why not just make one of the rolling forecasts the annual budget?
Businesses case for rolling forecasts
Businesses use rolling forecasts because of the advantages over traditional forecasting. These benefits include:
- Regular forecasting (especially if performed each month) truly reflects business performance on a month-to-month basis.
- The flexibility to respond to business performance fluctuations.
- A forecast that's based on current and predicted performance, rather than past results that are based on outdated information.
In all these cases, it is critical that your EPM/CPM systems enable quick forecast revisions to be made and allows proper alignment with the Actual performance. If the consolidation tool is separate from the planning tool, then implementing a rolling forecast every month becomes a large burden on the finance staff, and introduces risks of variances caused by using separate consolidation and planning tools. The reliance on disconnected EPM products is one reason why revisions to forecasts are only done quarterly rather than monthly.
Regular rolling forecasts allows you to make decisions based on long-term data while giving you the freedom to make changes as you go.
How do I implement a rolling forecast?
Traditionally, rolling forecast were not without its challenges. Common challenges that businesses faced when implementing a rolling forecast would include:
- Time to bring the finance users up-to-speed on the impact on reporting, with the larger ‘horizon’
- Re-building reports to cope with the continually shifting planning periods
- Tools like Excel struggling to cope with the demands, especially data volumes, version control, distribution of the content and disconnected variations of planning models.
- How to load the rolling forecasts back into a consolidation tool, considering the forecasts now span multiple years. There are usually impacts on consolidation tool, such as the need to consolidate multiple years and redesign reports and processes in the consolidation tool to cater for the increased time-range of forecast data.
A rolling forecasts with a unified CPM/EPM solution
The challenges listed above only are relevant when you aren't using a unified EPM/CPM tool like OneStream. There are many more benefits of using a unified EPM/CPM tool like OneStream for rolling forecasts. To name a few:
- Consider the benefits of a unified solution regarding end-user training. Even though such training material would be tailor made for FP&A teams, using a unified EPM/CPM solution you would have a common user interface, a larger commonality of reports used for both FP&A and consolidation teams, and use of workflows that guide the users through the planning process. With financial data from one single source being used across the organisation, consider the benefits from common currency translation and data validations.
- Within OneStream you can make your reports dynamic so that they show a continually variable time horizon. If you want to move from 12-month rolling forecast to 18-month rolling forecast, data entry forms and reports can be designed with this intelligence in mind so they automatically expand without having to re-design them.
- Unlike traditional EPM tools, with OneStream you can blend high-volume of data such as named staff, CapEx projects, asset registers, lease contracts, without having to maintain this in master data or build large maintenance-heavy dimensions.
- If your rolling forecasts are generated in the same tool that performs statutory consolidation, there is no requirement to export the forecasts and import them again in another tool for consolidation.
- Analyze common variances. When you standardize comments with a drop down menu this enables you to aggregate and analyze common variances.
What should I consider when implementing a rolling forecast?
To get your rolling forecast up and running, here are some tips:
- Ensure the finance team are aware of the implications on reporting, especially when performing variance analysis. For example if you want to compare with prior year actuals, then you will only be able to compare a certain 12-month range of periods from the rolling forecasts.
- Use a corporate performance management system (EPM/CPM) that eliminates the need to duplicate data, duplicate processes and re-write calculations in multiple ‘modules’ or disconnected tools, allows flexible reporting and allows you to react quickly once the latest set of Actual data changes.
- The longer your business cycle, the longer your rolling forecast should be .
Learn more about how you become agile with forecasting in our whitepaper: