Remember the baseball great Yogi Berra? One of my favorite Yogi quotes is "It's hard making predictions - especially about the future." This is especially true in today's market.
Predicting the future in business is tough, and rolling forecasts are becoming a popular way to address this, particularly in industries that are more dynamic and volatile. Yet, while a rolling forecast will improve the accuracy of your planning, there are specific tactics that can optimize your results and ensure precision. Here are some of the main factors that will influence the success of your rolling forecasts.
1. Clearly outline your objectives. This is the most important step in the process, as it will form the framework for your forecasting process. Objectives can include driving growth, reducing costs, maximizing customer retention, optimizing headcount and others. Your company's specific goals and objectives will help to determine the aspects of your forecast that you need to focus on the most.
2. Consider the frequency and time horizon best suited for your organization. The time horizon is never a one-size-fits-all solution, and it may change as your company changes. To choose the appropriate forecasting cycle and timeframe, you need to consider the availability of resources as well as the pace and volatility of your business. Fast-growing or dynamic businesses may require frequent forecasts, maybe monthly, and a shorter time horizon - maybe 1 - 2 quarters out. Businesses that are less volatile may get by with quarterly forecasts and a longer time horizon - maybe 4 quarters out into the future.
3. Ensure the forecast is driver-based. One proven method of ensuring your rolling forecast is efficient and accurate is to leverage driver-based forecasting. With this approach, updates are focused on the key data or drivers that determine the key financial outcomes of your company, instead of updating each line item in your budget. With a driver-based model, you can account for the most critical variables that impact finances, allowing you to forecast finances strategically and in a way that focuses on material changes.
4. Focus on the process. You need to consider the strategy and process for implementing rolling forecasts within an organization, so you can ensure consistency and buy-in across all departments. The process needs to be efficient, easy to implement, and encourage collaboration and participation throughout your organization.
5. Encourage participation. Forecasting relies on the input of a wide variety of departments and managers. To ensure accuracy, your financial team needs to encourage participation from throughout the company. Utilizing cloud-based planning and forecasting software is conducive to this aim, as it provides convenient access to reports and planning templates for all participants in the process.
6. Align all company goals. Oftentimes, businesses plan their operations and finances separate from each other, which can create disparities in resource allocations. For rolling forecasts to be impactful, you need to integrate operational and financial planning together, so the forecasts are representative of the entire company.
7. Find a system that works. The success of rolling forecasts largely depends on the system you've implemented. If your company is relying on Excel and email, you can anticipate your forecasting process to be tedious and prone to inaccuracy. Cloud-based planning and enterprise performance management (EPM) software packages offer tools to improve data analysis and streamline the forecasting process, so you can conquer forecasting with greater precision and efficiency.
Rolling forecasts can improve both the accuracy and efficiency of financial planning, but it won't be effective on its own. In order to gain the most impact from your rolling forecasts, you need to implement a strategy that is conducive to the goals of your organization. With cloud-based planning and EPM software, you can effectively plan and execute your forecasts with both speed and agility, while encouraging collaboration and participation across departments.
To learn more about how to apply driver-based planning techniques, check out this free white paper.