The power of rolling forecasts
Businesses don’t stand still so why should your forecasts? According to the results of research conducted by IBM, rolling forecasts provide companies with 12% more accuracy, spend 50% less time on budget preparation and increase their profitability by 10%.
Continuous planning and rolling forecasts is a management tool which can provide multiple benefits, it is a well-established best practice used by organisations all over the world in a wide-range of industries. The value of rolling budgets has been recognised by innovative companies for more than a decade. In fact, 73% of respondents in a survey by UK-based research firm FSN “agreed or strongly agreed” that they are developing a culture of continuous planning.
Rolling forecasts, if well prepared, form the backbone of a new and much more useful information system that connects all the pieces of a business together and gives senior management a continuous forecast of both the current position and the short-term outlook.
Business has changed and management techniques should evolve
While many organisations are developing continuous planning practises others still formulate their strategy based on their budgets, a management technique developed over a century ago. In the past annual budgets met the needs of organisations but these days businesses move faster. Timely and accurate business data is the key to staying competitive and plans, budgets and forecasts all need to reflect the current reality, not the business situation from two or three quarters ago.
Competition can materialise swiftly and having data and knowing how to use it has become imperative to stay competitive. Incorporating data into a rolling forecast makes good business sense and thus analytics are now “must haves” for businesses. Continuous planning enables managers to see trends, patterns and ‘breaks in the curve’ long before their competitors, and thus allows for better-informed decisions regarding products and markets.
Increasingly organisations are learning to use their data for planning and forecasting. Data improves the quality of the forecast because the opinions of salespeople and managers are less important and the inherent bias in forecasts can be eliminated.
Why Rolling Budgets?
Managers can spend months preparing annual budgets.Timeliness of information is vital to the success of rolling forecasts. The time taken to produce the information means it is often obsolete even before it is completed. Not only do forecasts take too long, but also their quality leaves a lot to be desired. Forecasts must be seen as a tool for strategic management and learning, not for control so the preparation process must be quick.
As well as improved accuracy, time savings and increased profits rolling forecasts can provide more timely decision making and improve corporate vision.
Aberdeen research analysts observe that rolling forecasts:
Give decision makers insight into the dynamics affecting revenue and expense
Enable decision makers to “better judge the impact any decision has on the bottom line”
Improve the accuracy of forecasted and budgeted revenue by roughly 14%
Improve operational speed and performance
Enable companies to continually optimize the flow of discretionary investments
While the trend for implementing rolling forecasts is increasing, there are some disadvantages to changing systems and implementation is not without its problems. There is often resistance to change from key personnel. Initial set up can be labour and capital intensive and full implementation costs for software and support must be properly costed. Finally, training, testing, and running parallel systems are a drain on resources.
Software for planning
Businesses need to stay ahead of the competition and by having world-class modelling solutions they can do just that. Software solutions for planning can bring even more speed, flexibility and accuracy to forecasts. Instead of wrestling with spreadsheets finance managers should consider the options available for automating their budgeting and forecasting process.
Mercur Business Control supports all types of planning processes and handles traditional budgeting as well as forecasting for any time period, including rolling forecasts. The solution supports any planning horizon and ensures that the finance, sales, and operations planning processes scale with the business.
Coromatic AB chose Mercur Business Control for budgeting, forecasting, reporting and analysis. The system is integrated with Visma Business and the HR system Sympa. Coromatic previously had a less sophisticated solution linked to its ERP-system but felt that it wanted to get to the next level. With the help of Mercur, employees now have advanced support for budgeting, forecasting and reporting gathered in one single application..
In the next phase, Coromatic plans to include its project module as well as KPIs for its service activities in the system.