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Rolling Forecasts - The Bad, The Ugly & The Good

If so many CFOs are saying rolling forecasts are so important, why do most of us still update our forecasts only to year-end? In part, it’s a culture thing—it’s hard to focus on next year when everyone is hell-bent on making this year’s numbers. Plus, incentives and bonuses are often tied to the fiscal year, so why should anyone really care about next year?

The few of us who really do rolling forecasts, know that it’s not just a culture thing… It’s in large part about the software. Spreadsheets, as flexible as we think they are, just aren’t suited for the purpose, nor are most planning software packages that focus on budgeting with lots of users adding in lots of detailed budget information.

Many software vendors agree that rolling forecasts are important; most claim that their solution enables rolling forecasts. However, when we interview the users of these software solutions, we find that less than 10% of companies deploying budgeting software have actually made the move to a rolling forecast.

Most the budgeting software vendors have financial models aimed at selling as many seats as possible which is great in a collaborative budgeting environment. However, more seats does not mean more value when it comes to rolling forecasts. There’s a myth that if you throw more people at the rolling forecast, it will get done faster; in fact, the opposite is true! Given rolling forecasts often need to be at a higher level of detail than the annual budget, we need to ask ourselves: “should the rolling forecast even be in the same file as the annual budget model?”

If you are looking to make the move to a rolling forecast, what functionality should you look for in a software package? How will you roll time periods as actuals flow in? How will you spread formulas and run rates into new time periods? Will you be able to compare forecasts at any level of detail side by side?

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Steve Player
Title: Program Director
Company: Beyond Budgeting Round Table
(Program Director, Beyond Budgeting Round Table) |

Would Proformative be so kind as to reveal the author of this article? It contains factual errors that should be corrected before it further diminishes the reputation of Performative as well as any software vendors who use this site.

It is unfortunately true that Jeremy Hope, a co-founder of the Beyond Budgeting movement passed away in Sept. 2011. One month later, our academic advisor, Dr. Charles Horngren of Stanford University also passed. But to make the statement that "the Beyond Budgeting movement failed" ignores the growing list of companies that have eliminated budgets. It also ignores the life work of these remarkable men who will continue to shape management ideas through the legacy of writing they have left behind. The record for the last 12 months shows the Beyond Budgeting movement gaining momentum as more companies improve performance management by eliminating budgets.

As reported in the May 2011 CFO Magazine cover story article "Let It Roll: Why More Companies Are Abandoning Budgets in Favor of Rolling Forecasts", these include Statoil, Unilever, and American Century Investments. We know from past BBRT publications that they also include American Express, Guardian Industries, Park Nicollet Health System, Group Health Cooperative, Mutual First Federal Credit Union, and Volvo.

Had the mysterious unnamed author of this article attended the recent 11th Annual Beyond Budgeting in Houston (hosted by Beyond Budgeting member MD Anderson Cancer Center), he could have joined the 150 other delegates to learn how budgets have been successfully eliminated by Holt CAT (one of the top 5 Caterpillar distributors in North America), Dimensional Fund Advisors (the 9th largest US fund manager), and gotten first hand updates from the finance leaders from Statoil, American Century Investments, and Unilever.

He could also have sat in on the presentation and workshop by Howard Dresner (Dresner Advisory Services) and Mark Lack (FP&A Director at Mueller, Inc) where he would have heard that a performance driven culture is more important that the underlying software. He may still be frustrated in his attempts to sell software, but he would know that accurate facts drive performance. He might also learn that misstating facts that can be easily checks can leave you in a precarious position.

I invite this author (or any of your readers) to join me in London on Tuesday, May 15th for BBRT49 where Volvo's elimination of budgets will be examined and discussed along with reports from Maersk and DNV Group. We will also have the Implementers' Discussion Group on Monday afternoon. The Beyond Budgeting Round Table is now in its 15th year and very alive and growing.

I look forward for this author's clarification.

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