Rolling Forecast Best Practices: A Guide for FP&A Professionals

It’s no surprise, then, that companies can let a lack of clean, actionable data get in the way of introducing rolling forecasting. Involves reconciling accounts, reporting period-end results and other financial management practices. Traditionally considered the purview of accounting, financial close processes are very much a part of modern or full-spectrum FP&A. Bringing the close process into the fold provides the actuals needed for FP&A purposes including variance analysis, reforecasting, ad hoc management reporting and more. Because of their responsive nature, rolling forecasts help businesses respond to changing market conditions faster.

As you update your forecast with the latest monthly data, the data from the earliest month of your time period falls away, giving you a continuously changing forecast of your company’s financial condition. And to do that, the organization must focus on what actually impacts the business.

But in fact, rolling forecasts ensure that these goals are realistic because you’re continually updating your plan and tracking performance against them. Your annual budget lists thousands of line items, but to follow rolling forecast best practices, you should be creating forecasts at a higher level. Focus on significant business drivers such as risk, profit, and working capital. A recent article on FP&A Trends walks through a real-lifecase study involving a company that has moved to rolling forecasts. Instead of simply offering up numbers, it points out the questions that inform what gets examined in a rolling forecast. These include what’s expected in terms of annual sales, whether a particular target will be hit, management’s short- and long-term expectations and, finally, how the business might evolve.

Capability: Creating The Fp&a Team You Need Now

Given the data and modelling skills demanded, this is a key area where FP&A may need to hire specialist skills into the team and/or collaborate closely with technology / data functions. 94 percent according to FP&A trends) have Rolling Forecast Best Practices: A Guide for FP&A Professionals now partially or fully implemented driver-based forecasting for income statements. Fortunately, there are tools to help automate your processes, such as Hyperion Planning and Oracle Planning and Budgeting Cloud Service .

As a starting point, make sure your forecasting time frames are consistent with your business cycle and business needs. If sales 15 months from now are dependent on capital expenditures today, it is important to create rolling forecasts out past 15 months. It is also important to have a minimum of quarterly bias to the rolling forecast.

Communication Is Key

The risks of making poor decisions having relied on inaccurate information must be assessed; thus, the users of the rolling forecast should determine how detailed the forecast must be. If the consequences of a bad decision are large, more time and effort must be spent to improve accuracy. The level of detail is not overly complex, allowing for quick re-forecasting, easy scenario planning and simple sensitivity analysis. Sherri has spent the last 15 years working with start-ups in the information services and consumer goods markets in a variety of financial and operational roles. Most recently, she was the CFO of JOOS, LLC where she helped to build JOOS into the largest fresh-pressed, organic fruit and vegetable juice provider in New England. She joined OPEXEngine to be a part of a rapidly growing high tech Company that has an impact on how financial professionals make day to day operating decisions.

Rolling Forecast Best Practices: A Guide for FP&A Professionals

Saint Mary’s University approves budgets 70% faster and capital project analysis takes 2 hours instead of 1 week with Vena. Financial Executives International connects financial leaders through exchanging ideas about best practices, defining the profession, educating Members and stakeholders and working with the government to improve the general economy. Most people hear the phrase attributed to Syrus — “a rolling stone gathers no moss” — and know instantly what it means.

We Are The Bridge Between Finance And Treasury

Consequently, it isn’t easy to generate fast-paced rolling forecasts on demand and to model different scenarios with ease. Companies that benchmark consistently perform better than those do not according to research.

Cloud-based platforms will become the delivery method of choice for FP&A software. See how Coca-cola Consolidated grew revenue by 55% and reduced consolidation times by 90%. CFO. In the paradigm of modern FP&A, the chief financial officer is more than just the top bean counter keeping the auditors at bay. The CFO is the chief storyteller, tasked with communicating the organization’s full financial story to the rest of the C-suite. With due planning and thoughtful execution, you’ll be on a roll before you know it. As awareness around some of these approaches permeates the finance community, it may mean that more of the investments CFOs make in technology will have the payoff they expect.

This helps to keep your organization on track through better insight and better decisions. This requires knowing past performance and the current state to effectively plan for the future.

What Is A Rolling Forecast?

As we pointed out rolling forecasts can either replace or supplement other forecasts, such as the year-end forecast. There is no universally perfect answer as to which way is the right one for your organization. Carefully exploring how the options can best meet your organizational needs is key.

Software packages purpose-built for FP&A are a better choice, and cloud-based applications are becoming the preferred approach in today’s environment. The advantages of cloud-based planning applications include faster deployment, improved collaboration, reduced costs vs. on-premises applications, and the fact that cloud applications provide Finance with autonomy from IT. The technique relies on an add/drop approach to financial forecasting that creates new forecast periods on a rolling basis.

It should also be kept in mind that the legal framework and guidelines for financial statements, etc. remains the same. For that reason a step-by-step and parallel implementation is strongly recommended when replacing existing processes, in order to identify and address any issues early. It may seem obvious; but in reality, projects often fail due to lack of communication with and between stakeholders. If stakeholders do not clearly understand the value for the organization, the success of implementing rolling forecasts may be at risk. This applies to management as well as to departments and their managers. Regularly considering new data and factors helps to quickly identify probable deviations from the plan and to counteract these by taking appropriate measures.

London Fp&a Board Is Going Global

By evaluating whether or not an organization’s spending and revenue are leading to a negative or positive variance, the finance team can then reassess their current budgets and create more strategic forecasts moving forward. With the advent of big data, more companies are able to utilize their information to perform analytics, identify drivers of performance, and make better business decisions in real time. Plan on qualifying the key external drivers of your business and do not confuse rolling forecasts with targets you receive your bonus on. Regarding targets and profitability, is it better to hit your target or gain targeted market share? Leading organizations are placing forecasting at the center of the management process.

Solutions like Acterys unlocks the financial planning capabilities of Power BI, giving users the ability to build, analyze, visualize, and adjust rolling forecasts with ease and speed. So yes – it’s possible to develop detailed, driver-based rolling forecasts at the customer level, project level or person level. To dynamically understand the impact to the P&L, balance sheet and cash flow.

For those first starting out with rolling forecasts, don’t try to implement this across the entire enterprise. A better approach is to start in one area or department, prove the success, then expand into other departments. In order to be able to utilize the full potential of rolling forecasts, the data basis must be as accurate as possible. The first and most important point is to involve all stakeholders in the communication process. Be sure to provide explanations on why you think rolling forecasting would be valuable for your organization. Rolling forecasts are supposed to dynamically inform business decisions.

Rolling Forecast Best Practices: A Guide for FP&A Professionals

Another budget-created distortion has to do with the budget request timeline. Business units provide requests for budgets based on expectations of far-into-the-future performance. Managers who don’t use all of their allocated budget will be tempted to use up the excess to ensure that their business unit gets the same allocation the next year. For example, if the economic environment changes materially three months into the budget, or if a major customer is lost, resources allocations and targets will need to shift. Since the annual budget is static, it is a less-than-useful tool for resource allocation and a poor tool for strategic decision making. Software-as-a-service industry has experienced exponential growth in the last decade.

Senior Management Education

It should be done in a sequential order to avoid missteps and rework. By utilizing the eight steps below, companies can build rolling forecasts more effectively. Budgets still play a key role in transposing a strategic outlook into a financial one. They are critical for demonstrating what resources must be deployed and when to make the strategic vision a reality.

To build collective capability, the FP&A function should attract and retain team members with differentiated skill sets and provide them with continuous development opportunities. No, Kepion is able to handle an unlimited number of plans, forecasts and what-if scenarios in your solution. QuickBooks, a popular accounting solution, can handle basic budgeting and forecasting. Startups and small businesses looking to move away from Excel spreadsheets can use this to set up budgets then monitor current and historical data for the business’s revenue and expenses.

The Challenges Of A Rolling Forecast Model

This method is commonly used when the company’s growth rate is constant, to get a straightforward view of continued growth at the same rate. Ultimately, it renders growth predictions that can guide financial and budget goals. The CFO Program brings together a multidisciplinary team of Deloitte leaders and subject matter specialists to help CFOs stay ahead in the face of growing challenges and demands. Often, you would find it challenging to have a clear vision of future sales, expenses, and so on due to the scattered data and inconsistent or unclear business rules. This solution is popular with enterprise, mid-market, and small businesses alike in for-profit and non-profit sectors. There are separate pricing plans depending on if you are for- or non-profit. The rolling forecast is an important management tool that allows organisations identify trends and opportunities, prepare for challenges and mitigate risk but most importantly, adjust and prepare for opportunity.

Steps For Creating A Rolling Forecast

Without a lot of initial labor and setup, the rolling forecast process can be fraught with inefficiencies, miscommunication and manual touch points. A generally recognized requirement in the transition to a rolling forecast is the adoption of aCorporate Performance Management system. A sales manager is incentivized to provide overly conservative sales forecasts if he or she knows the forecasts will be used as a target . These kinds of biases reduce the accuracy of the forecast, which management needs in order to get an accurate picture of how the business is expected to fare.

This advanced stage of the Rolling Forecast maturity is what organisations aim for. To reach it, they must be ready to completely re-think their traditional planning philosophies; be open to change in processes, and willing to invest in their people and systems. The forecasting process is a collaborative process; made possible due to the capabilities of the modern flexible system, education and simplicity of the driver-based concept. So are we ready to abandon the budgeting process – or at least to transform it to the more value-adding format? We should be as RFs are the way of the future and can help us on this journey of transformation. A forecast helps to shape a different future, so it should be based on analytics and be independent of the target evaluation process. The latest meeting was again jointly sponsored byMetapraxis, the consultancy, analytics for financial professionals and software provider and Michael Page, the global specialist recruitment firm.

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