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How to get your rolling financial forecast just right

In today’s fast-paced, disruptive business environment, constant change is the new normal. And CFOs need a flexible, forward-looking financial plan to effectively navigate the volatility and uncertainty.

In today’s fast-paced, disruptive business environment, constant change is a given. And CFOs need a flexible, forward-looking financial plan to effectively navigate the volatility and uncertainty.

But many companies are still relying on projections that are only updated annually and often with consolidated spreadsheets. This makes it difficult for business leaders to respond to shifts in the marketplace. Rather than continually looking ahead, these companies become reactive as teams struggle to reach goals that may have become outdated. More than two-thirds of respondents to our popular CFO Indicator report admit that major business decisions have been delayed due to stakeholders not having access to data in a timely manner. How can organizations shift from being reactive to proactive?

Continuous planning to the rescue

Nearly half of leaders cite market volatility and the need to dynamically account for change as the top challenge their businesses face, according to industry experts. Creating a rolling financial forecast with a continually moving time horizon can provide CFOs and FP&A teams the information they need to recommend strategic and operational changes as the economic climate and market shifts.

“Many organizations accept poor and inaccurate forecasting and scenario planning,” noted PwC UK partner Steve Crook in this off-cited report. “Meanwhile, leading businesses are exploiting technology to improve performance by equipping their decision-making with rapid modeling capability.”

To get the most from your rolling financial forecasts, you first need to decide how frequently to update your projections. Reassessing too frequently can be a waste of precious resources—but waiting too long could spell disaster for your income statement and balance sheet. Here are three tips to help you find the right fit for your business.

Tip #1: Dig into key drivers

Knowing how frequently to update your forecasts starts with understanding the primary factors, referred to as “drivers,” that influence your financial forecasts to inform your company whether it will make or miss its financial projections.

For instance, if your business rolls out new product or service releases each year—or even more frequently—you may want to maintain a one-year time horizon but update your rolling financial forecast every month. On the other hand, if your company has a long product development or sales cycle, you may want to set longer time horizons beyond the fiscal year and update your rolling financial forecasts less frequently, perhaps once per quarter.

You can also look at how capital intensive your business is, how quickly your industry is changing, and how far into the future you plan your product and service pipeline to determine how often you should reassess your financial outlook.

Tip #2: One size doesn’t fit all

Finding the forecast frequency that’s just right for your organization might mean setting different planning time horizons for various business activities and goals.

Projections related to highly variable factors, such as sales, general expenses, and employee turnover, may need to be updated weekly or monthly. Forecasts that are less volatile, like profit margin and market share in a large, legacy industry, can be updated less frequently.

The key is to meet with teams across the organization to ensure that they understand the need for rolling financial forecasts and provide input into the frequency of these updates. This will ensure that the source input data is reliably updated and help prevent conflict and delays.

Tip #3: Invest in the right resources

If you’re using a clunky or outdated system—or extracting data from too many systems—teams will dread updating rolling financial forecasts due to the time and effort they entail. This task will become a chore that stays on the bottom of their to-do lists.

Many finance leaders cite data aggregation and verification as the top reason forecasts are delayed.But it doesn’t have to be this way. That’s why nearly half of CFOs plan to invest in new budgeting and forecasting technology that is driver-based to calculate the amount of future spending needed to match the forecast demand load. 

Smart financial planning systems can help FP&A teams quickly pull accurate data from across multiple divisions. They also make it easy for people in different departments to update performance data—facilitating better, more effective forecasts and analysis.

Building buy-in for rolling financial forecasts may take a little “behavioral change management” effort upfront. Resistance to change is human nature. But regularly assessing and analyzing business performance—and keeping a constant eye on the horizon—can deliver big dividends in the long run.

Continuous planning in action

For the Alternative Futures Group (AFG), a health and social nonprofit based in the UK, implementing a rolling eight-quarter forecast put updated financial data into the hands of decision-makers. Before moving planning to the cloud, AFG used a spreadsheet-based process, which made it extremely difficult to run timely forecasts, model multiple scenarios, and assemble and reconcile all of the spreadsheets used throughout the company.

The new solution helped streamline the planning process, freeing resources to provide better health services to more people in the UK. Now AFG can:

  • Finalize complex changes to capital plans quickly and effectively, adjusting forecasts to reflect changes in plan
  • Model multiple, complex what-if scenarios to reflect business opportunities and challenges
  • Increase organizational collaboration to improve alignment with KPIs
  • Provide decision-makers with easy access to accurate forecasts and analysis

How modern planning supports rolling forecasts

The right modern planning solution gives finance teams the tools they need to incorporate rolling forecasts and implement an active planning process that enables:

  • Precision decision-making. Forecasts have to be flexible enough to show the impacts of models and what-if scenarios
  • Rolling forecasts. Frequent forecasts with updated data arm decision-makers with the strategic tools they need to respond quickly to changes in the marketplace
  • Aligned business units. Organizational alignment is easier with cross-functional access to real-time, easy-to-use tools and self-service reports

Rolling forecasts can close the gap between data and decisions by increasing forecast accuracy and streamlining the forecasting process. With cloud planning software, you can accurately forecast using real-time, comprehensive financials from the cloud.

Modern planning allows you to:

  • Access forecast data easily and on demand
  • Avoid wasting time generating manual spreadsheets and resolving formula errors
  • Improve collaboration among finance, operational units, and other stakeholders, so everyone in the organization can view and understand forecasts
  • Run flexible, robust reports using real-time data, not year-old information
  • Continuously forecast to keep your business on track with KPIs and overall company goals

Get the eBook “5 Steps to Getting Your Business on Board with Rolling Forecasts”

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