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Rolling Forecast Best Practices

Rolling Forecast Best Practices

Forecasting can help businesses both prepare for and adapt to changing market conditions. While static forecasts provide a concrete outline for a specific period of time, rolling forecasts are often more flexible, allowing companies to re-evaluate their strategic planning models quickly, if needed.

There are a variety of approaches that can be taken when putting together a rolling forecast, but business leaders may find some of these best practices to be particularly helpful.

Keep models flexible
Once a baseline forecast analysis or plan has been created, businesses will need to be able to quickly modify those plans and compare them to other projection models. Tools like MS Excel, while good for certain types of organization and personal goal-setting, cannot effectively model these types of new scenarios, and are therefore an ineffective tool for creating, maintaining and updating rolling forecasts.

Understand the business's objectives
Strategic planners should strive to understand what they hope to achieve by switching to a rolling forecast. Though it may sound obvious, many businesses overlook their own objectives when planning for the future. If, for example, a business is focused on increasing its acquisitions, a rolling forecast should be able to reflect that direction.

Identify rolling forecast duration
Businesses should spend some time at the beginning of the strategic planning process determining an appropriate period for their rolling forecasts. Whether it's a 12-, 18- or 24-month duration, these periods should be relevant to the business's operations. Planners should also establish a timeframe for updating the forecasts.

Understand related drivers
Drivers are key to determining regularity in forecasting and providing understanding of how plans can move forward. Overburdening a rolling forecast with more drivers than is necessary can be cumbersome. By understanding which drivers are the most relevant to a business's plan, it will become easier to reforecast in a rolling model.

Consider larger initiatives
Larger capital and strategic projects should be sectioned off to better understand the impact these projects have across an organization. Larger initiatives like IT upgrades or moving to a new location will often overlap several periods of a rolling forecast, and layering them into a plan allows businesses to evaluate their impact on an overall strategic plan.

Start small, get larger
Businesses may find it helpful to start planning with a small group that represents their various departments, and gradually expand their rolling forecasts to include more granular components. This will help refine planning methods before expanding the forecast model to the entire organization.

Create a baseline plan...
Rather than rushing to the end of a planning cycle, it's important that strategic planners establish a baseline plan to help understand the impact of future decisions before they're made. Having this sounding board will help guide the decision-making process by providing planners with a model through which they can evaluate new ideas or possible risks and determine an effective course.

...And a strategic plan
The link between a strategic plan and a forecasting plan is essential to the furtherance of a company. Having a strategic plan integrated within the forecasting process, either as targets or objectives to meet, will help business leaders to more effectively evaluate the success of their plan.

Leverage external conditions
The recent economic crisis has reaffirmed the impact that external factors can have on a business. It's essential to keep an eye on the rest of the market, whether it's direct competitors or related industries, when creating and updating a rolling forecast.