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Rolling Forecasts Optimize Business Decisions

May 26, 2020
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Adaptation is a key attribute of survival. That’s true in the jungle, but it’s also true in business, especially with what is going on in today’s modern world. It isn’t just that the speed of business has increased. It’s also that businesses need to be ready to change rapidly for their own survival. Which is why organizations need to adopt rolling forecasts.Business decisions need to be made quickly. They can’t just be quick decisions. Companies need to make the right decisions, quickly. An organization doesn’t have time to wait around for consolidation of data and reporting.Rolling forecasts are one tool companies can use to ensure they have accurate information available when it’s needed. With rolling financial forecasts, companies have the 3 elements to make solid decisions – where they have been, where they are at and where they are going.

Find Out Where a Company is with a Rolling Forecast

With a rolling forecast, your budget numbers are based on your current business situation and updated regularly. Unlike an annual budget, which is based largely on assumptions of where the company is going to be in a 12-month span, rolling financial forecasts create numbers that reflect on what the business needs in the future–18 months, 24 months, 36 months–will be.This accuracy and in-the-moment awareness of a company’s financial situation influences any number of decisions across an organization. HR is able to understand the actual need for headcount and available budget for adding new team members. Sales has a clearer and more timely view of what’s needed to close a sale, and what manufacturing will be looking at in the near future. Production changes can be quickly made to accommodate increased or decreased demand and even changes in material costs. And should the company change direction because of market trends, budget can be quickly allocated to training to ensure teams are up to speed on new processes and technologies.

Where a Company Has Been

Rolling forecasts should not be treated as a one-and-done system. Instead, previous forecasts can be a wealth of information when compared to actuals. With these two pieces of data, an organization has the ability to identify budgetary trends. How close were the financial forecasts, and how do trends relate to what you see today? For instance, was there an upswing in sales in the past during a particular quarter that didn’t happen this year? An annual budget might assume that same surge in sales, leaving an organization scrambling to adjust, while a rolling forecast can use that previous data to understand where the budget needs to flex in the short term to adapt.

Where a Company is Going

Typically, annual budgets are completed in isolation, in Excel spreadsheets, and only those members of the finance department that are tasked with the manual processes of consolidation see everyone’s input.Not so with the way most companies implement rolling financial forecasts. Many organizations adopt a software package that allows managers and line-of-business owners to input their own forecast numbers. The result is something that might initially seem frightening, but in the long run is beneficial to the enterprise.For companies using an open forecasting system, it is possible for budget owners to see the whole picture. This can result in organizational silos disappearing and encourages open collaboration. Communication between divisions opens, and can even lead to crowd-sourced ideas for new products, new solutions and even new potential customer segments.Adaptation requires knowing where you are, where you were, and where you are going.

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