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Don't Throw in the Towel on Financial Forecasting

March 31, 2016
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Whether you’re reading the Wall Street Journal or Sports Illustrated, one theme that keeps getting driven home to us these days is Consistency. The professionals in both business and sports know that to win, they must be on their game continually. They constantly monitor their activities and results, those of their peers, and those of their competitors. Naturally, monitoring alone doesn’t do it. Winners also know that they have to consistently improve their own games, adjust for conditions, and anticipate the next move if they want to stay on top.

Get everyone in your corner. A huge benefit to using rolling financial forecasts is how intrinsically it engages the management team. The focus stays on performance and projections.When things happen, being proactive and updating your business budgets is a necessity. Do you want to be proactive or reactive? You can address the consequences of what happens now or months from now. Injuries are going to affect outcomes in sporting events. Hurricanes and flu outbreaks will impact insurance companies. Presidential elections, a levy break or an endless list of other circumstances will have an impact on your business.Rolling forecasts give us the opportunity… and obligation… to update our planning as soon as conditions change.

It could happen to you. You manufacture heavy equipment that requires a long lead time? It’s October 2016 and an earthquake in rural China cuts off the sole transportation route of your custom transmission supplier. You’ve got enough stock on site to cover you for the next few months but it’ll be impossible not to be impacted by the delay four months down the road.Rather than throwing notes in a file of the things you need to think about when the next round of annual budgeting process begins, if you’ve adopted a rolling forecast process, you’ll dive in and give some deep thought NOW to the consequences of the supply-chain break while its impact and the details are fresh in your mind. You’ll plan to secure temporary financing to cover your cash flow slowdown while your receivables feel the pinch, you’ll compensate for the gap in your contingency plan by seeking out additional suppliers, and you’ll most likely take a look at your own insurance needs and see if you should adjust your business continuity insurance expense upward when you consider the risk that something could happen to your local facilities. You’ll do this all without breaking your stride.

Conscious Choice Steve Player, the North America Program Director for the Beyond Budgeting Round Table (BBRT) and a key speaker in the webinar Centage hosted this week “The CFO Playbook on Budgeting: How to Get More From Your Budget,” is a long-time advocate of continuous planning. The four-month annual budgeting process that eats up many executives’ time and resources isn’t just inefficient, it’s ineffective. With our end goal of leading profitable companies and solvent non-profit organizations, sitting on our hands and waiting for the budgeting process to begin doesn’t benefit anyone.

You Win Lower costs, higher engagement, increased accuracy, and better control are other benefits of implementing a rolling forecast process. Efficiency wins out here too. A key highlight of rolling forecasts is making your forecast driver-based. Revolving your complete budgeting process around the drivers that impact your performance indicators clearly shows cause and effect. This focus is necessary to drive management performance and keep your team’s guard up as you cohesively address any blows that may come your way.

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