Traditional budgeting methods involve creating an annual budget based on the previous year’s actuals and forecasting future revenues and expenses. This approach can be rigid and inflexible, making it difficult for companies to adapt to changing market conditions or unexpected events.
Rolling forecasts are a more dynamic approach to budgeting that allow companies to adjust their forecasts and budgets on a regular basis. Rather than creating a static budget for the entire year, rolling forecasts are updated periodically (such as monthly or quarterly) to reflect the most current information available.
The Benefits of Rolling Forecasts
- Increased agility: Rolling forecasts allow companies to quickly adjust their budgets and plans in response to changes in the market or unexpected events. This makes it easier to stay flexible and adapt to changing circumstances.
- Better accuracy: Because rolling forecasts are updated more frequently, they tend to be more accurate than traditional annual budgets. This can help companies make better decisions and avoid costly mistakes.
- Greater transparency: Rolling forecasts allow companies to see how their budgets and plans are evolving over time. This can help identify areas where adjustments may be needed and promote greater transparency and accountability.
How to Implement Rolling Forecasts
Implementing rolling forecasts requires a commitment to regular updates and a willingness to adapt to changing circumstances. Here are some steps to get started:
- Define the forecasting period: Decide how often you will update your rolling forecasts (such as monthly or quarterly).
- Establish a process: Create a clear process for updating your rolling forecasts, including who will be responsible for gathering and inputting data.
- Identify key drivers: Identify the key drivers of your business (such as sales, expenses, and capital expenditures) and track them over time to understand trends and changes.
- Use technology: Invest in technology that can help you gather and analyze data more quickly and accurately.
- Monitor and adjust: Regularly monitor your rolling forecasts and adjust them as needed to reflect changes in the market or your business.
Rolling forecasts are a powerful tool for companies looking to stay agile and adaptable in today’s fast-paced business environment. By regularly updating their budgets and plans, companies can respond more quickly to changes in the market and avoid costly mistakes. While implementing rolling forecasts requires a commitment to regular updates and a willingness to adapt to changing circumstances, the benefits are clear: increased agility, better accuracy, and greater transparency.