If you don't already use a rolling forecast, implement one gradually and allow your finance team time to adapt, budgeting consultants said last week in a CFO.com webinar.
A rolling forecast covers a designated period of time — four months, a year, 18 months, whatever makes sense for your organization and industry — and is updated monthly. It's used in place of a static, annual forecast; some companies have even eliminated their formal annual budgeting process after putting one in place.
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.
"It ensures you're always looking at the most current information," said Brian Martell, senior product marketing manager at Host Analytics. "So, it gets you as close to real time as possible, and it's going to give you more accurate and informed decisions than if you were just simply to look at a static, months-old annual budget."
Rolling forecasts are considered a best practice, and today, about 60% of world-class companies use them, said Miles Buntin, director of enterprise performance management (EPM) transformation at consulting firm The Hackett Group.
Despite its popularity, the process is not yet commonplace. A Host Analytics survey found 75% of companies still use an offline annual budget process, typically based on Excel spreadsheets, but a survey conducted among the webinar attendees found that most of them wanted to make the transition in the next year or two.
Once the transition is made, rolling forecasts should save a company's financial planning and analysis (FP&A) team considerable time; the traditional annual process is notoriously time-consuming, involves most staff in an "all hands on deck" exercise, and leaves executives with data that quickly becomes outdated, Martell said.
"It takes six months to build an annual budget," he said. "It's just an incredibly laborious exercise."
The rolling forecast can also help companies grab savings mid-cycle if expenses or revenues change, said Maria Cherry, a Host Analytics senior financial analyst.
"If something comes in a little higher, you can adjust for that in real time," Cherry said. “If something comes in lower, you can reprogram [your savings] to something you need."
To maximize efficiency, focus on big value-added areas of the budget cycle, Martell said. "Get comfortable, and as it becomes a habit, expand the scope over time."
Unlike traditional annual forecasting, which typically uses Excel, rolling forecasts are principally based on third-party online platforms that provide analytical tools already built in.
Transitioning to rolling forecasts is part of a broader move by companies to use cloud-based EPM platforms to improve their operational efficiency, Buntin said.
"Improved predictability is one of the strongest use cases for the deployment," Buntin said. "A lot of these new tools use algorithms to identify patterns, pull in data from outside sources, as well as internal financial and operational systems and — here's the key point — take out potential bias. These can vastly improve the accuracy and objectivity of your forecast."
Host Analytics was a sponsor of the webinar, "Budging from static budgets: What finance leaders need to know to make the move to rolling forecasts."