What are the most common misconceptions about rolling forecast techniques?

One of the big misconceptions of rolling forecast is that forecast is prepared on the assumptions taken for annual budget. In fact It is prepared by considering the current economic situation.

Traditional budget v/s Rolling Forecast The traditional budget ?does not react to what is actually happening to business during the year??? ??A Rolling Forecast solves that problem helping companies to continuously plan (forecast) over a set time horizon ?

A common misconception about rolling forecasts is that they are inherently more accurate. Accuracy depends on the maturity of the team and the process being followed. Doing something more frequently does not mean it is better.

Rolling forecasts assume that historical trends will continue in the future. However, if there are significant changes or disruptions in the market, the forecast may not accurately capture these shifts. This inflexibility can limit the forecast's ability to adapt to unforeseen circumstances. Also rolling forecasts give more weight to recent data, as it is included in each forecast update. While this can be beneficial for capturing short-term trends, it may overlook longer-term patterns or changes in the market.

Rolling forecasts are not just regular budgets; they're more flexible and adapt to changing circumstances. They don't replace yearly budgets but complement them. They're not as time-consuming as you might think, thanks to modern tools. They're beneficial for businesses of all sizes, not just large corporations. However, they're not crystal balls; they provide a current view and identify trends but aren't precise predictions. They don't replace long-term strategic planning but help with short-term adjustments. Rolling forecasts should evolve and improve over time as the company learns from actual results. In essence, they're a tool for staying flexible and up-to-date with your financial plans.

Rolling forecasts offer organizations the key advantages of agility and real-time visibility. Through continuous updates, these forecasts empower companies to swiftly adapt to evolving market conditions and capitalize on emerging trends, opportunities, or unexpected challenges. Moreover, they provide real-time insights into future performance, allowing proactive decision-making. By monitoring key performance indicators (KPIs) and leveraging the most current information, organizations can make timely adjustments to strategies, budgets, and resource allocation, ensuring they stay aligned with their goals and maximize their chances of success.

In my experience, one of the benefits of rolling forecasts, we can incorporate actual performance data, for previous periods, into our forecsts. In that way, we make them more accurate as time goes on. And, as we all know, accurate forecasts enable better decision making. Second, it is easier to track performance against targets, since forecasts are continually updated. It give us more realistic projections. Finally, this forecasts give us mechanism for identifying potential risks and opportunities earlier.

Here are some industry specific cases: 1. Manufacturing: It can shed light on unforeseen obstacles in the supply chain. We can quickly adapt by finding new suppliers or changing our production schedule to minimize the effect on time and expenses. 2. Retail: Store managers play an active role in predicting sales based on local trends. They use a decentralized yet interconnected approach, taking into account overall goals and specific market details. 3. Financial institution: Analyzing the differences allows us to identify the specific products, customer segments, or economic factors that are influencing the results. 4. Construction: Help identify unexpected delays or cost changes in one project that affect the allocation of resources.

They are beneficial because: 1. the give you a heads up about something that potentially happen, so management could make an action timely 2. It will refine your mathematical model, and it will help you in your next budgeting

Rolling forecast truly gives you a clear picture of what is more likely to happen. Since rolling forecast involves analyzing the recent past, it depicts which course an entity should move on. The more you look back into the past, the further you can predict the uncertain future.

It requires continuous monitoring and updates with many sources of assumptions. Accuracy of actual data integrated with forecast is a challenge.

Another challenge with rolling forecast techniques is the need for accurate and up-to-date data. It can be a struggle to gather and analyze the necessary information in a timely manner. But with proper data management and automation tools, this challenge can be overcome for more accurate forecasts.

Simply "true-ing up" based on current run rates is NOT enough. Understanding how to use judgment, and where to safely make assumptions is paramount. Quantitative data is foundational, but not flawless. There are varying degrees of assumptions, underlying context, and unique circumstances that can make the same data tell different stories.

The challenge of rolling forecast is the data it self, the quality of the data determine the quality of the forecast. Establish a good Internal control of Financial Reporting is the key to maintain the consistency, accuracy and relevancies of financial data.

The impact of any event is different on different business under different scenario. It is difficult the predict the events unfolded by one major event and in turn the same changes the outcome of the forecasts.

Navigating the rolling forecast seas can be challenging, but with the right compass, smoother sailing is near. Invest in modern forecasting tools to combat the notion of it being tedious; automation eases the journey. For those overwhelmed by data, prioritize key drivers. It's less about every wave and more about the currents. Engage cross-functional teams; forecasting isn't solitary. Their insights ensure forecasts align with operations. Adjust the horizon as needed, whether looking three, six, or twelve months ahead, keeping strategic goals in sight. In this journey, adaptability and teamwork guide the way.

Rolling Forecast is not budgeting multiple times a year, but rather having a call to action informing the leadership that they need to engage and change when the forecast is updated. Executive sponsorship is fundamental to making the change happen. Transformation is difficult, as is getting people to change their minds and adopt the new process. Implementing a change management support structure is therefore vital. The key is progress, not perfection. We need to implement, expect to fail quickly, adjust and try again. If we just plan and analyze it to be perfect, it’s never going to happen.

In my experience budgets go through a formal rigorous methodology including approval from senior management and/or BOD. Budgets are used as goalposts to facilitate decision making for the budget period. Whereas forecasting does not require sign-off and may (may not) result in changes to the approved budget. Forecasts are where one believes the company will land based on current conditions. The results may or may not fall within the approved budgets. This should lead to further discussions which may result in a request to make a decision that falls outside of the current approved budget. Budgets and Forecasts are both useful tools and should be adopted as part of “best practices” for high performance organizations.

Use your tools, such as historical data, trends, recent changes in the industry and environment, and your knowledge of upcoming activity within the business to help you overcome challenges in the forecasting process.

Rolling forecasts, while invaluable, are often clouded by misconceptions. Key misconceptions include: Replacement for Annual Budgets: Many believe it can replace traditional budgets. While it enhances them, it doesn't entirely negate their value. Time-Consuming: There's a perception that they require constant attention. In reality, with the right tools, they streamline future planning. Only for Large Enterprises: Some assume it's exclusive to sizable organizations. However, businesses of all sizes can benefit. Purely Quantitative: It's not just about numbers. Qualitative insights and market conditions should inform updates. Understanding these misconceptions can lead to more effective and strategic financial forecasting.

Having the misconception that predictions should always be extremely accurate is not realistic. Rolling forecasts provide a directional guide, acknowledging the inherent uncertainties of the business landscape. Another misconception is that it is the sole responsibility of the Finance and FP&A team. While finance / FP&A play a pivotal role, there's a misconception that rolling forecasts are solely the domain of finance teams. Effective implementation requires cross-functional collaboration and insights from various departments.

I believe Misconceptions about rolling forecasts often stem from misunderstandings about their complexity, frequency, scope, accuracy, and benefits. While some view them as complex, rolling forecasts can be tailored to an organization's needs. They don't require constant daily revisions but follow predetermined schedules. Beyond finances, they include non-financial aspects, improving accuracy by adapting to real-time data. Doubting their benefits is unwarranted; rolling forecasts enhance agility and decision-making by proactively addressing changes and opportunities, particularly valuable in dynamic industries. Understanding these aspects can help organizations embrace rolling forecasts as valuable tools for modern business planning.

The biggest misconception is likely that rolling forecasts take a lot of work to maintain. They don't. In its most minimal form, a rolling forecast is just your current YTD trading plus the budget numbers. If you now adopt your intra year budget changes and changed assumptions you get a strong forecast. Set up the right way, this can be automated and the results adapt in real-time to changes in the assumptions or spendings.

We conducted a quick poll to ascertain how many companies are currently using the rolling forecast process. Almost half of the participants responded that they were still following the traditional budget process. About 38% were doing a hybrid forecast (both traditional and Rolling Forecast). Despite the current challenges, organizations are moving forward, taking the right steps, and thinking about the business value that Rolling Forecasts can add.

Financial decision making isn't always quantitative. Numbers and data are necessary for business forecasting, trend analysis, and goal setting. But understanding how to use judgment, and where to safely make assumptions is paramount. Quantitative data is foundational, but not flawless. There are varying degrees of assumptions, underlying context, and unique circumstances that can make the same data tell different stories. Leaders need to understand effective decision making isn't about making the perfect decision, but about making a decision. To move fast and make big bets effectively... set clear expectations on outcomes and timelines, clear lines of accountability, and predetermined actions based on results.

I personally experience people who generally responsible for rolling forecast does not see the value of this process and take it lightly which is mostly because of lack of perspective of bigger picture.

Rolling techniques are valuable but often misunderstood. One common misconception is that rolling forecasts are solely about predicting the future, leading to inaccurate long-term planning. To counter this, we've adopted a rolling forecast system that balances short-term predictions with long-term strategic goals. Another misconception is that rolling forecasts require constant revisions, which can be disruptive. We've streamlined the process, focusing on revising high-impact areas while maintaining consistency elsewhere. For instance, in our retail business, we adjust forecasts for seasonal products while keeping core product forecasts stable. This tailored approach maximizes the benefits of rolling forecasts without overcomplicating them.