How to use rolling forecasts to continuously adapt your business

To adapt to any economy, businesses can adopt rolling forecasts to better monitor performance and improve decision-making, writes Scott Wiltshire, GM, Oracle NetSuite ANZ.

Rolling forecasts is a framework that allows for the continuous updating of financials based on actual results and current market conditions.

For example, if the forecast period lasts for 12 months, as each month ends, another month will be added. This way, business leaders are always forecasting 12 months into the future. Therefore, when January 2022 is ‘dropped’, January 2023 is ‘added on’.

The forecast horizon continues to roll forward, based on the most current revenue data available. This approach allows businesses to adjust the projections based on information as it becomes available, which can help them manage potential challenges and take advantage of emerging opportunities.

Four best practices to perfect the rolling forecast

1. Identify key drivers to make the business more efficient

Business leaders should identify the operational metrics that directly influence business performance and add those factors to the forecast, so that any changes can be highlighted and accounted for throughout the year.

These five questions can help business leaders determine the most critical drivers for the business:

What is driving revenue and expenses? Do these line items have enough materiality to be considered?
What are our business needs and goals, and which drivers line up with them?
Should we consider including external drivers, such as GDP (gross domestic product), to understand whether the market is strong or weak?
Who in the business is closest to each respective driver?
What data will feed into the driver?

data predictions

2. Determine the forecasting time period for accuracy and insight

One of the key factors for successful rolling projections is selecting the right time period to forecast. It could be 12, 18 or 24 months (or four, six or eight quarters) depending on the industry, business cycle, product life cycle, and economic climate.

Keep in mind that trying to predict too far ahead reduces the ability to reliably project outcomes. As a general rule, the more volatile the market, the more frequently the forecast should be updated, and the shorter the time horizon should be.

3. Use technology to simplify the process

Rolling forecasts are only as good as the data used, so having supporting systems in place is essential. Ideally, data will flow into the forecast automatically. The approach of continuous updates is the goal, and manually entering data into spreadsheets can be time-consuming and error-prone.

Conversely, using an integrated software system that seamlessly pulls data from multiple sources seeks to reduce human error and minimises the time it takes to prepare forecasts.

4. Analyse forecasts to prepare for the unexpected

Teams sometimes fall into the problem of spending all the time creating the forecast and none analysing it. Surveying top executives’ priorities at the beginning of each month can help inform what reports will be useful.

Rolling forecasts help identify opportunities through ‘what if’ analyses and scenario planning. This approach will quickly highlight changing conditions, and provide business leaders with a basis for sound decision-making.

Business leaders that use rolling forecasts to guide decision-making are positioning their companies for success. By identifying key drivers, choosing an optimal forecasting period, and using technology to simplify the process, businesses can ensure that the rolling forecasts are effective, accurate, and painless to prepare.

Then all that’s left to do is analyse the forecasts and adapt business plans in response.

Want more? Get our newsletter delivered straight to your inbox! Follow Kochie’s Business Builders on Facebook, Twitter, Instagram, and LinkedIn.