Blogs

Shift into top gear with the power of rolling forecasts

Founder and CEO, Applied Analytix, Inc.

Rolling forecasts are a popular topic within the finance industry. Their proponents preach the power of rolling forecasts to help companies rapidly adapt in a changing marketplace. Indeed, with accurate modeling of hypothetical scenarios, up-to-date cost projections and real-time sales and profit performance, rolling forecasts can help finance organizations shift into high gear.

Use rolling forecasts to drive your growth

However, many companies are reticent to adopt rolling forecasts. For such companies, the pace of forecasting is much slower, requiring prohibitive time investments on the parts of managers and other staff members, who must assemble data from multiple sources, collate it and present it in a usable format. Worse, by the time such data has been fact-checked and presented, it is often days or even weeks out of date.

Even so, many companies are reluctant to adopt rolling forecasts, for implementing a simple, real-time forecasting system is far from simple. Forecasts require data from diverse sources across the company, involving business processes run by separate departments within an often shifting landscape of responsibilities and roles. In most cases, required data is used and stored in separate finance models for strategy, forecasting and planning purposes—further heightening the complexity of the challenge.

But don’t let the absence of a shortcut to implementing rolling forecasts deter you from implementing them. In fact, as Hope and Fraser’s seminal article in the Harvard Business Review makes clear, the advantages of rolling forecasts are so significant that growth-focused organizations cannot afford to ignore them. What’s more, organizational performance correlates strongly with use of rolling forecasts. In the highly volatile modern marketplace, the ability to model what-if scenarios and adjust strategy on an ongoing basis has become essential for business survival.

http://www.ibmbigdatahub.com/sites/default/files/rollingforecasts_blog.jpgDeploy your rolling forecast system smoothly

Done right, building a rolling forecast system is a lot like shifting gears: As your platform takes shape, you need to build momentum. Put the platform in place, and you can shift to a higher gear, accelerating and streamlining your forecasting processes as you implement further elements of the system.

When building a real-time rolling forecast system, first gear has nothing to do with numbers, nor even with technology—it’s all about the people. Without the right people in the room, you’ll have difficulty building a model that serves everyone’s needs, and you can expect your system to fail. By contrast, CFO-led initiatives bring distinct advantages, as does the involvement of the vice president of finance, along with the line managers—thus ensuring that you’re getting input from operational staff members, aligning your system with your organization’s strategic direction. With strong leadership from the CFO, and with a unified view of the company as a main goal of the collaboration, you will be ready to shift into a higher gear.

In second gear, build the planning model. Being the most detailed of the models you will build, it will take the longest. Getting the planning model right is critically important, for the planning model is the foundation on which you will build all the other models.

In third gear, build the forecasting model, using the planning model as your foundation to avoid fragmenting your view. With all your data already assembled, and having solid processes in place, you can expect the pace of your work to quicken.

In fourth gear, build the strategy model. Having a solid forecasting model in place, you can now base a strategic model on a few key performance indicators, feeding summary data from the first two models into a “mini-model” useful for strategic planning. To learn more about shifting gears, read Aligning Finance Models to Streamline Business Processes, which discusses how to build and align financial models that can help your organization streamline its business processes.

As you shift into each successive gear, you can expect to find your work processes functioning ever quicker and ever more efficiently. Eventually your finance team will be ready to shift into top gear, producing real-time, accurate rolling forecasts that feed into your strategic model to allow quick, confident responses and decisions.

To learn more, explore a detailed how-to guide describing how you can build your three key financial models, allowing you to bring the benefits of rolling forecasts to your organization. And don’t forget to learn more about how next-generation budgeting and planning technologies can empower financial forecasting and drive business growth.