To thrive as a business, you need to be able to predict your future earnings and expenses, so you can make smarter business decisions.
Yet, while financial forecasting is imperative to the success of businesses, accurate financial forecasts are difficult to create. So, how does a high-growth, dynamic business create accurate forecasts for their company, without exhausting their time and resources in the process? A whitepaper entitled, “Best Practices in Rolling Forecasts,” sets out to answer these very questions.Rolling forecasts
Why are Rolling Forecasts so Important?
Rolling forecasts provide the agility needed to adapt to consumer trends.
Rolling forecasts can more effectively meet the needs for high-growth businesses because they provide a flexible framework that is routinely updated, so all variables and industry changes can continually be accounted for.
10 Best Practices for Rolling Forecasts
The whitepaper outlines these best practices for rolling forecasts that will enable large enterprises to reduce the time and effort of forecasting, while increasing accuracy.
1. Don’t rely exclusively on Excel. Excel isn’t colloborative enough to sufficiently generate accurate forecasts, and it doesn’t provide the flexibility needed for dynamic industries. Instead, your company needs a system that will factor in variables, enable fast iterations to the forecast, and serve as a baseline for future forecasts. Collecting data via Excel requires too much time and effort while being prone to errors, resulting in tedious budget cycles and inaccurate forecasts.
2. Outline your goals. The core objectives of forecasting are to establish a clear view of your company’s financial future to help inform business decisions, as well as to understand the potential impact of those decisions prior to implementing them. Your company should consider your primary goals with the forecast, so you can understand the drivers behind each objective and create better-focused plans.
3. Settle on a duration. Determining the appropriate duration will largely depend on the needs and goals of your company. Consider whether quarterly forecasting is sufficient or if monthly forecasts are needed. How far out should your forecasts project - 12 months, 15 months, 18 months? The growth rate and industry fluctuations of your business can help to determine the best durations for your company.
4. Choose your comparison periods. Comparisons for rolling forecasts can be trickier than with static budgets. You need to provide annual comparisons, comparing year to date (YTD) this year to last year, as well as comparing each month of the rolling forecast to the actual results from that month. While it sounds labor-intensive, EPM software can greatly simplify the process, making it much more efficient to accomplish.
5. Determine what is driving the revenue and expenses of your business. To ensure accuracy, rolling forecasts need to be driver-based, so you can gain the flexibility and agility needed to respond to internal or external fluctuations, update the budget quickly, or generate alternate forecasts.
6. Separate capital and strategic projects from your forecast. Capital and strategic projects don’t typically fit into the timeframe of rolling forecasts because they can often last over multiple years. Additionally, they contain a number of variables, which could result in increasing or decreasing the budget for those projects as needed. As such, they should be planned separately from the forecast, while being integrated into the overall plan.
7. Start small and incrementally phase-in new departments. Rolling forecasting can be challenging to implement initially, so it’s best to start small. Begin with just a couple of departments, and as those departments establish a solid routine, you can phase-in more departments.
Slowly implement rolling forecasts to ease the transition process.
8. Use the rolling forecast as a baseline. The rolling forecast should be a baseline for future budgets. It can provide the framework needed to model what-if scenarios, adjust values, and plan for future circumstances.
9. Integrate your forecasts into your strategic plans. By integrating your rolling forecasts and strategic plans together, you can connect company finances with the overall goals of the organization, providing a much clearer picture of the business.
10. Consider external factors and variables that will impact forecasting. There are countless external factors that can negatively or positively impact forecasts, all of which should be considered in advance. Rely on external market trends and indicators to determine the primary external factors that are driving your business.
For high-growth businesses, static budgets cannot provide the agility and flexibility needed to ensure optimal allocation of resources. Rolling forecasts can provide the agility needed to update planning assumptions regularly, better insights into the financial impact of decisions, and create a clearer vision of the financial future of your company. Excel fails to provide the tools and versatility that enable efficient and accurate rolling forecasts.
By John O’Rourke, from: http://blog.hostanalytics.com/10-tips-to-improve-rolling-forecasts?utm_campaign=Blog%20Campaign&utm_content=27966959&utm_medium=social&utm_source=linkedin
John O’Rourke is Vice President of Product Marketing at Host Analytics. With a background in accounting and finance, John has over 30 years of experience in the software industry, and over 16 years of experience in EPM Product Marketing at Hyperion Solutions and Oracle. He has worked with many customers and partners on financial reporting and planning initiatives and has spoken and written on many topics in enterprise performance management. John has also held positions in strategic marketing and product marketing at Dun & Bradstreet Software, Kenan Systems and Decisyon. John has a BS degree in accounting from Bentley University and an MBA from Boston College. See John’s articles on EPM Channel here.