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Rolling 12-Month Forecasts

August 17, 2016

An increasing number of companies large and small are moving away from the traditional annual budgeting model and are embracing a 12 month rolling forecast model. Although an annual budget provides a great level of detail and rigor, many CFOs are questioning the efficacy of the annual budget. In this new era, businesses need to be more agile and flexible to take advantage of opportunities and fend off threats and act quickly to take on new opportunities.

 

Benefits

 

Agility

 

A rolling 12-month forecast allows you to identify opportunities and threats in a dynamic business environment in real time and allows you to make appropriate adjustments. This agility can provide you with a competitive advantage.

 

Focus

 

Another advantage is that the 12-month forecast method allows your budget to focus on the key business drivers. When developing your rolling forecast, you identify your key business drivers such as materials or labor cost and then create what if scenarios to perform sensitivity analysis. 

 

Realignment 

 

Unlike an annual budget, the rolling 12-month forecast allows your company to redirect resources and priorities to better align with your strategy. In an annual budget your resource allocations are set with a “use it or lose it mentality”; however, with the rolling method you can readjust resources as required.

 

Inclusion & Empowerment

 

An important benefit of the 12-month rolling forecast is that it brings together everyone on a regular basis and helps align everyone to the firm strategy. This inclusion and empowerment will empower your employees.

 

Important Factors

 

Beyond Fiscal/Calendar Year

 

Where the annual budget is focused on the fiscal year, the rolling method goes beyond that. In the rolling forecast, you will be looking forward to the next 12 months. As each month’s data is available and updated, it is dropped off from the forecast and a new month is added.

 

Consistency

 

The rolling forecast is updated on regular and pre-determined basis. The same process and tools are used at every interval, making the process faster and smoother. Over time this process will become quicker and efficient with each iteration. Certain routine tasks can be automated to save even more time. 

 

Blending

 

The ability to blend actual and forecast is yet another benefit of the rolling method. Rolling forecasts allows you to compare your actual performance for a given period with the forecast and make adjustments as needed. The optimal frequency will depend on your markets business drivers and firm’s ability to incorporate actuals and forecasts.
 

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