What is a Rolling Forecast vs Traditional Budgeting?

29 Jun What is a Rolling Forecast vs Traditional Budgeting?

And conversely, if your value drivers change – if you no longer get real value from a particular campaign or sales approach – you know about it right away and act accordingly. The increased precision you get from ZBB can have a significant payoff for enterprises and larger organizations with budgets that regularly exceed a 5% margin of error. It’s not enough to know what your numbers are, you also need to understand the “why” behind them. For instance, if your lead conversion rate jumped 50% one month, your head of marketing will be able to tell you why and whether or not it’s repeatable. It could be that they allocated more money towards a higher converting channel or a one-time webinar landed very high quality leads.

Also, in a situation where the consequences of a bad decision are potentially very substantial, the creators of the rolling forecast should spend more time and effort to increase the accuracy of the forecasts. Traditional budgeting adheres to a fixed time frame, typically covering a fiscal year or another predetermined period. Business budgets are usually created using historical data and spreadsheets.

The use of rolling forecasts empowers businesses to navigate change effectively. But it’s essential to use the right financial reporting software to maintain up-to-date financial projections and smoothly transition between periods with real-time data. At Abacum, we created an FP&A solution to assist Finance professionals to excel in their organizations through greater insights and faster execution.

When used appropriately, a rolling forecast is an important management tool that allows companies to see trends or potential headwinds and adjust accordingly. Rolling forecasts can be adjusted based on recent changes and trends compared to traditional forecasting. They allow businesses to make informed, https://business-accounting.net/ time-sensitive decisions while updating their long-term outlook. Mosaic is purpose-built to help you create financial plans and real-time reports to keep pace with the business. Get a personalized demo to find out how it can help you build a foundation for effective rolling forecasts.

For example, if your forecast period lasts for 12 months, as each month ends another month will be added. Making resource decisions as close to real time as possible can funnel resources more efficiently to where they’re needed most. It provides managers with a timely vision into the next twelve months at any given point in the year. Lastly, a more frequent, reality-tested approach to target setting keeps everyone more honest. The new way of doing things is a rolling forecast –checking in on your budget on a short-term basis. Rolling forecasts can be done quarterly, monthly, weekly, or even daily.

At the webinar, Ahmed Ezzat, CFO at MFQ Companies, walked us through how his organisation moved from traditional budgeting to Rolling Forecast, and the key reasons for making that change. All in all, switching to a better connected and periodically updated process will allow you to be more proactive with information and transform data into realistic, practical insights. All while focusing on growth initiatives and deploying resources efficiently to achieve long-term goals.

1. Another aspect of rolling predictions is that you should regularly import actuals into your model for variance analysis and track your progress.
2. “Our group is now delivering 50 times the information and analytics, 50 times faster,” said a Strategic Planning Engineer.
3. In practice, very few annual budgets survive the full year without adjustments.
4. During an energy market downturn, an E&P company implemented a Hyperion Planning application that allowed them to make real-time updates during board meetings and realign spending priorities.
5. But annual plans limit agility because they take a month to nail down and don’t adjust to changing market conditions.

Below you see an example of a actual results (the shaded actuals column) compared against both the forecast, the prior month, and the prior year’s month. This process is called a variance analysis and is a key best practice in financial planning and analysis. A variance analysis is also a key followup on the traditional budget, and is called a budget-to-actual variance analysis. Together, they help you paint a better picture of the “why” behind your financial data instead of just reporting on the numbers.

Everything from market conditions, to investor confidence, to government policy can change business performance. Unless you’re a truly gifted forecaster (and very lucky), you’ll almost never see what’s coming 12 months in advance. Some finance leaders are seeing great results with zero-based budgeting (ZBB). But there are also plenty of finance leaders who find success with rolling forecasts. We’re not saying that traditional annual budgets are dead (ok, maybe we are), but the benefits of rolling forecasts are too good to ignore. This is probably one of the biggest misconceptions about rolling forecasts.

How to Choose between Rolling Forecasts and a Static Budget

For a resource that could soon become obsolete, several months, endless iterations, and a significant amount of management time are too much for the little actionable value it offers. This effort would be far better used to carry out frequent, accurate forecasting and market analysis. As Asif Masani noted in our webinar on the new gen of FP&A leaders, an increasing number of Finance professionals are questioning whether the traditional budgeting approach is obsolete. The benefits of a rolling budget revolve primarily around its flexibility and use of real-time data to inform budgeting decisions. Business budgets project revenue, expenses, and profits for an upcoming period — usually one year. Revenue projections are a way of defining your business’s income goals, while cost projections help you plan for expenses.

Rolling forecast with Excel

Now, your budget still covers a whole year, but it goes from February 2023 through January 2024. Coming up with a budget is an essential step to running your own business. For over 20 years, US-Analytics has served as an Oracle EPM consulting firm and managed services provider to the best and brightest companies in the nation.

Strategic Alignment

For investor updates, you’ll be able to explain the “why” behind all your metrics since you’re reviewing and updating them on a more regular basis. If you created a budget in December of last year, by April of the next year that budget probably doesn’t hold a lot of weight. Despite the current challenges, organisations are moving forward, taking the right steps, and thinking about the business value that Rolling Forecasts can add.

The Entrepreneur’s Guide to Business Expenses Lists

A rolling forecast gives finance teams the kind of real-time insight necessary to provide actionable, strategic insights that guide the business forward. Ultimately, the best way to ensure your rolling forecast process is accurate and efficient is by leveraging the right technology – whether it’s Excel or a specialized forecasting solution. Doing so can save time and resources while giving yourself the tools to make better decisions. In the world of finance, rolling forecasts are the fresh episodes that continuously extend your financial planning horizon, enabling you to adapt to changing circumstances and make informed decisions.

Business units provide requests for budgets based on expectations of far-into-the-future performance. Managers who don’t use all of their allocated budget will be tempted to use up the excess to ensure that their business unit gets the same allocation the next year. For example, if the economic rolling forecast vs traditional budget environment changes materially three months into the budget, or if a major customer is lost, resources allocations and targets will need to shift. Since the annual budget is static, it is a less-than-useful tool for resource allocation and a poor tool for strategic decision making.

Annual budgets tend to be set-and-forget documents

Thus, your true value as a Finance analysis leader lies in your ability to gather the appropriate data now, so that you can influence your company’s development tomorrow. Rolling forecasts usually contain a minimum of 12 forecast periods, but can also include 18, 24, 36, or more. Along with a variety of financial modeling best practices, drivers should be leveraged in a planning model.

But for many, budgeting is something that often gets ignored as soon as it is done. A rolling forecast typically includes features such as trend analysis, scenario modeling, and forecasting algorithms. Rolling forecasts are not actually magic, and you don’t need a wand or a dusty old spellbook to use them.