Rolling Forecasts with BOARD

This article is an extract from a post on the excellent FP&A Trends website … www.fp&a-trends.com

Whilst in Australia we think of retirement planning etc. when people say Financial Planning, in Europe FP&A (Financial Planning and Analysis) refers to modern Financial Accounting and reporting practices.

 Rolling Forecasts

A rolling forecast simply means that each quarter or month, a company projects four to six quarters or twelve to eighteen months ahead.

This allows executives and key decision makers to see both a financial and operational vision of the future. It also helps them assess next steps in their execution of their plan, understand critical pivot points in the plan and better judge the impact the economy may have on their plan.

Rolling forecasts can replace annual planning cycles with a continual planning process that results in more regular business reviews that look to the future. These reviews enable managers to understand problems, challenges and trends sooner and improve their proactive approach to those problems, challenges and trends.

You need a system and Excel is not a system (it’s great but it’s a personal productivity tool). The best practices in this article will be an outline of functionality and practices that will outstrip the capability of Excel spreadsheets. The challenge I have seen arises when companies start rolling forecasts in Excel and then can’t keep them up to date because it isn’t just a single forecast. Once a baseline forecast is created, additional analysis/versions will be required to:

• Understand the impact of major and minor alterations to the plan
• Run the plan against different drivers
• Copy the plan as a baseline for other plans
• Perform variance and sensitivity analysis

To get the most out of rolling forecasts you need a system that can provide the necessary functionality to accommodate your budget, forecasting, planning, strategic management and measurement needs. Excel will be too labour intensive, prone to error, and too difficult to provide the reporting.

Understand your objectives of creating a rolling forecast. This will drive all of the other best practices related to rolling forecasts. While the overall objective of planning is to a) create a financial view of the vision for the future and to know the decisions you need to make and b) understand the financial impact of those decisions before you need to make them, your objectives and focus for the rolling forecast will dictate the areas of the plan that need more detail.

Be prepared.

As you consider implementing rolling forecasts, remember the purpose is to provide a vision for the future and support better decisions. If you try to motivate behavior based on this forecast, the results and plans get skewed and the usefulness of the solution is compromised. Forecasts should not be used by executive management as a tool for questioning or reassessing performance targets. This means forecasts and targets must be independent if you want to obtain both relevant action plans and reliable forecasts that allow risks and opportunities to be identified and corrective action taken in the best interest of the company (which may be in conflict with the target). If you do merge the two, the term “sandbagging” comes to mind.

Conclusion

Many businesses have yet to discover the full benefits of evolving their planning process to include complete and accurate rolling forecasts. With so many external factors that affect the bottom line for these businesses, including the volatility of the economy, creating rolling forecasts is a sound way to ensure strategic decisions are made.

Businesses need an accurate picture of a future in order to chart a course towards it.

If you want to discuss how Bi5 can help you implement rolling forecasts contacts us at [email protected] or fill in the form opposite for a free demo and Proof of Concept using your own data.