What are the most important steps to transition from traditional budgeting to rolling forecasts?

Rolling forecasts allow you to review your original budget and make adjustments to future periods. They are particularly useful for fast-growing and dynamic businesses that may have difficulty nailing down future financial predictions. A traditional budget may be sufficient for small businesses. understand your current budgeting process and its limitations. Define your objectives and scope for rolling forecasts. Design your forecast model and process. By training and engaging your team, you can foster a culture of ownership and accountability for rolling forecasts.

We've helped a number of organisations transition from traditional budgeting to rolling forecasts. This is the perfect opportunity to reassess your corporate planning holistically. It is important to know what your current budget delivers, but also don't be rigidly held to the way it has been done in the past. This is the opportunity to change. A rolling forecast can be transformative in any organisation if done the right way. It can release managers from the burden of the multi month annual budget, it can focus on where you are really going, not the outcome of the budgeting game. It should be easily updated and highly informative.

1. Know your why: Define your goals (agility, accuracy etc.) and timeframe for the forecast. 2. Get buy-in: Convince leadership of the benefits of rolling forecasts. 3. Build the foundation: Gather data, identify KPIs, and make future assumptions. 4. Tech it out: Consider using forecasting software for efficiency. 5. Communicate clearly: Establish a plan to share forecasts across the organization. 6. Adapt and improve: Regularly assess and update forecasts as needed.

1. Assess current processes: Evaluate existing budgeting processes, including timelines, methodologies, and stakeholder involvement. 2. Set clear objectives: Define objectives for transitioning to rolling forecasting, such as improving agility, enhancing accuracy, and aligning with business strategy. 3. Establish rolling forecasting framework: Develop a framework for rolling forecasting, including frequency, key performance indicators (KPIs), and reporting structure. 4. Align with business units: Collaborate with business unit leaders and finance teams to align rolling forecast processes with operational plans and strategic goals.

Here are some steps to help at the current situation: How Often You Make Budgets: Knowing this will help you see how flexible and quick your current budgeting process is. How Accurate Your Predictions Are: Look at how accurate and reliable your predictions and assumptions are in your budgeting process. How Much Time and Resources You Use: Think about how much time and resources you use for budgeting. How Well Your Budget Matches Your Goals: Check how well your budget matches your long-term goals and plans. How Flexible and Adaptable Your Budget Is: Look at how flexible and adaptable your current budgeting process is. How Involved Your Stakeholders Are: Think about how much your stakeholders are involved in the budgeting process.

One of the most important steps to transition from traditional budgeting to rolling forecasts is to Define your objectives and scope. This will help you ascertain and identify what you aim to achieve.

Transitioning to rolling forecasts from traditional budgeting involves assessing current processes, setting clear objectives, choosing appropriate tools, integrating data sources, establishing forecast cycles, promoting collaboration, providing training, continuously monitoring and adjusting forecasts, managing change, and iterating for improvement. It requires stakeholder commitment, agility, and a culture open to change for better financial planning.

When transitioning to rolling forecasts, clearly defining objectives and scope is pivotal. Determine the expected benefits, forecast frequency, and horizon. Identify key performance indicators, scenarios, and risks to monitor. Also, plan how to integrate these forecasts with existing financial systems and reporting tools. This clarity ensures your rolling forecasts are tailored to enhance decision-making and agility in your financial planning process

Using rolling forecasts can help improve your financial planning. 1. Make your financial predictions more accurate by updating them regularly and more flexible and quick to react to changes in the market. 2. Decide how often you will update your forecasts (like every month or every three months). 3. Find the main things that affect your forecasts and pick the key measures (KPIs) will use to check how well you are doing and to help update your forecasts. 4. Think about different possible futures and Identify the main risks to your financial 5. Make sure and set up ways to update your forecasts.

Establish clear objectives for transitioning to rolling forecasts, such as enhancing strategic decision-making and operational flexibility. Define the scope by deciding on the time horizon (typically 12-24 months) and which parts of the business will be covered. This helps in aligning the forecast process with your strategic goals and ensures it is manageable and focused.

As a starting point, I make sure forecasting time frames are consistent with our business cycle and business needs. If sales 15 months from now are dependent on capital expenditures today, it is important to create rolling forecasts out past 15 months. It is also important to have a minimum of quarterly bias to the rolling forecast. That is, don’t tack on an additional month to a rolling forecast at the end of every month, wait until quarter end and then add a new quarter.

Create a forecasting model that reflects your business's operational realities and financial rhythms. This involves selecting the right frequency for updates, determining the level of detail needed, and integrating various business drivers and metrics. The design phase should focus on creating a process that is both scalable and adaptable to changes in the business environment.

Designing your forecast model involves structuring the forecast across various levels and dimensions, ensuring data collection and validation processes are in place. Choose suitable forecasting methods and establish a review mechanism to update forecasts with new information. Documentation and communication with stakeholders are also key. This meticulous design ensures your rolling forecast process is both robust and adaptable, facilitating better strategic alignment and responsiveness.

Design forecast model and process: Establish data collection and validation procedures to ensure accuracy and reliability. Structure forecasts by levels (e.g., corporate, departmental) and dimensions (e.g., revenue, expenses). Utilize appropriate forecasting methods (e.g., quantitative, qualitative) for accurate predictions. Implement regular reviews and revisions based on new information. Document forecasts clearly and communicate them effectively to stakeholders for transparency and alignment.

When designing a rolling forecast model, we like to use what we call the Pillars of Planning. These are: 1. Plan to the horizon that matters (3 months, 18 months, 5 years - each business differs). 2. Plan to level that matters (not GL accounts!). 3. Plan with the frequency that matters (weekly, monthly, quarterly, half yearly etc). 4. Use driver based planning, so you can easily do sensitivity analysis. 5. Triangulate plans (eg a customer sales plan from Sales, a product group plan from marketing and a SKU plan from operations must all be aligned). 6. Plan, rather than budget (don't play the game; identify what you think is going to happen and plan around it). 7. Link plans to analysis. Derr! 8. Use the right tools (not a spreadsheet!).

To me however in the end the most important would be for the top management to pay attention to the rolling forecast as an early warning vs strategic or budget goals. If you look at it and take decisions based in the effort of your teams it will have both quality and impact. It will thrive.. Otherwise it is just another set of data prepared by ?data table people” for themselves..

It's important to effectively communicate the benefits and rationale of rolling forecasts to my team. 1. Begin with a clear explanation the rolling forecasts. Highlight the relevance of rolling forecasts. 2. Conduct training sessions covering the technical aspects of rolling forecasts, including the tools and software used, data collection methods, and analysis techniques. Provide my team with access to resources. Offer mentorship and support. 3. Encourage team members to take ownership of their roles. Promote a collaborative environment. Acknowledge and reward contributions and achievements. 4. Establish channels for feedback. Emphasize the importance of continuous improvement. Ensure that all team members feel heard and valued.

The transformation begins with improving the team members' understanding, as they are the ones responsible for preparing the rolling forecasts. It's crucial to implement a comprehensive training program, considering that team members may have become accustomed to traditional budgeting methods over many years. Training them on the technical aspects of rolling budgets and helping them grasp the rationale behind the change is essential.

I would like to emphasize that training is always not only to cover the gap between actual and planned performance, but it is a continuous improvement process that does not stop, followed directly by measuring the impact of training when engaging in business.

Ensure your team is well-equipped to handle the new forecasting approach through comprehensive training. This involves not just understanding the technical aspects but also embracing the mindset shift towards a more dynamic and continuous planning process. Engaging the team early and deeply in the transition fosters a culture that values forward-looking analysis and continuous improvement.

Implementing and monitoring your rolling forecasts involve several key steps. Begin with testing and validating your forecast model to ensure its reliability before full implementation. Manage the transition carefully to mitigate any disruptions. Establish metrics to measure the performance and impact of your rolling forecasts, and stay vigilant to identify and resolve issues promptly. Regularly review and refine your forecasting model and process to adapt to changes and improve accuracy. This ongoing vigilance ensures the continued effectiveness and relevance of your rolling forecasts.

Implement and monitor rolling forecasts: Conduct thorough testing and validation of forecast model and process. Manage transition from traditional budgeting through clear communication and phased approach. Track and measure performance and impact using key metrics and indicators. Proactively identify and resolve issues through regular monitoring and feedback loops. Review and refine forecast model and process over time based on lessons learned and changing business needs, ensuring continuous improvement and effectiveness.

Carefully roll out the new forecasting process, starting with pilot projects or specific business units before a full-scale implementation. This allows you to refine the system and processes based on real-world feedback. Monitoring the performance and accuracy of your rolling forecasts is essential to continually improve and adjust your approach as business conditions change.

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A wise CFO once said to me that you need five iterations of a new process to iron out the kinks. He was on the money. Engage with those same users and have them do the UAT, make changes required and get them to agree when it is good to deploy. Only when they have agreed, do you take it to production and at that stage the five iterations start. So if you have a monthly forecast cycle, expect to make changes or corrections for the first five months, and so on. Most importantly, you need the executives, the CEO and CFO to use the model and to ask questions of their subordinates based on what is in the model. That will drive adoption with junior staff knowing they have to use it because their C level is asking questions about their data.

Once we have the completed rolling forecast for the period/month, use it as your baseline plan. From this plan Finance can massage drivers, adjust values, and analyze alternate scenarios, and potential significant events, to create a picture of alternate futures and be prepared to make decisions if situations arise. This does require the flexibility in the tool you are using to mash up scenarios and compare scenarios from different sources.

Rolling forecasts are a dynamic approach to forecasting that constantly evolves with your business. To fully embrace this technology, it is essential to ensure its accuracy through rigorous testing and validation. A smooth transition requires clear communication and a phased approach, starting with specific departments to gather feedback. Establishing key performance indicators (KPIs) to track the effectiveness of your forecasts is crucial. It is essential to regularly review and refine your model, incorporating lessons learned and evolving business needs. With this feedback loop, your forecasts stay accurate and relevant. Adopting rolling forecasts can transform your forecasting process and empower your business for continuous growth.

Leverage technology: Utilize advanced forecasting tools and software to support data collection, analysis, and reporting, ensuring efficiency and accuracy. Foster a culture of agility: Encourage a shift in organizational mindset from fixed annual budgets to a more flexible, continuous planning approach, emphasizing agility and adaptability. Maintain open communication: Regular communication with all stakeholders about the goals, progress, and outcomes of rolling forecasts is vital to ensure ongoing support and alignment. Pursue continuous improvement: View the transition as an evolving process, continually seeking feedback and making adjustments to enhance the effectiveness and strategic value of your rolling forecasts.

If you would like to learn more about rolling forecasts and if they are right for your organisation, please get in touch with me directly. JV