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Once on a rolling forecast, do you still maintain a comparison to the original 12 month budget? (Webinar Attendee Question)

This question was asked by an attendee during the Proformative webinar "New Ways of Looking into the Future - Rolling Forecasts" held on December 4, 2012. A video of the webinar can be viewed here: https://www.proformative.com/resources/webinar-video-new-ways-looking-future-rolling-forecasts

Answers

Rick Odom
Title: Manager, FP&A
Company: Welch Allyn, Inc
(Manager, FP&A, Welch Allyn, Inc) |

Yes We still compare to our budget but in a year like 2012 where we experienced significant shifts in the economy and our markets, we focused more on our latest forecast. The budget must remain for the moment until Human Resources figures out a way to compensate based on a rolling forecast.

Topic Expert
Patrick Dunne
Title: Chief Financial Officer
Company: Milk Source
(Chief Financial Officer, Milk Source) |

Yes. If we are off of budget, we start pulling other "levers" to get back to budget.

Topic Expert
Linda Wright
Title: Consultant
Company: Wright Consulting
(Consultant, Wright Consulting) |

Yes, we always compared to our budget so that we could make in course corrections.

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

For Patrick and Linda,
Budgets are prepared based on a lot of assumptions about the future operating environment (economic conditions, governmental and regulatory actions, commodity prices, competitor actions, customer actions, etc.). What do you do if the budget is wrong?

When you have a year like 2008 or 2009, do you always try "to get back to it" ?

The reason people move to a rolling forecasts is so they can quit wasting time explaining why we are not on a budget that is based on assumptions that never came true. When will it be time for finance to stop the charades and start looking forward?

Topic Expert
Wayne Spivak
Title: President & CFO
Company: SBAConsulting.com
LinkedIn Profile
(President & CFO, SBAConsulting.com) |

Steve -

You left out for a large swath of the Northeast, 2012 and the lingering effects (both negative and positive) Sandy has had on the region.

Most people, unless they are truly on the shores, have no concept of the destruction that has been impacted on the areas.

Damon Butler
Title: CFO
Company: The Protective Group, Inc.
(CFO, The Protective Group, Inc.) |

Gee Steve, perhaps "finance" will stop the "charade" when compensation isn't tied into performance. You're taking as narrow-minded a view as your post accuses others of taking. There's nothing inherently wrong with putting out a budget and giving managers incentives to reach the budget. Good organizations have long realized that, as von Klaustwitz said, "no plan survives contact with the enemy (reality)". Well run companies put out an annual Plan that they expect to drive to. How strongly they harp on the Plan depends on the dynamics of their industry, in a predictable industry you place a high level of confidence and emphasis on reaching your Plan. In a less predictable industry you place less emphasis on it. You also track an ongoing forecast so that you understand where you are changing from Plan and use that as a tool to identify where you can improve upon your Plan. If your budget is that wrong, you probably don't understand your business. Pulling out 2008 and using that as an excuse to change successful practice based on the largest economic dislocation since the Great Depression indicates a certain lack of perspective.

Topic Expert
Ric Ratkowski
Title: Domain Expert Finance & Analytics
Company: SAP
(Domain Expert Finance & Analytics, SAP) |

With rolling forecasts companies typically keep rolling the forecast forward and they carve out the 12 months of their Fiscal/Calendar year from the rolling forecast to become their budget and this become what is used to measure performance and what is used for discussing futures with Wall Street.

I heard one author describe the process as "a significant non-event". Significant because you are signing up for the results, non-event because it is a by-product of a rolling forecast process rather than a year end fire drill.

I also see a little more due diligence performed by companies on the rolling forecast that will be used for the budget.

STEPHANE CURCIO
Title: Senior Treasury Consultant
Company: Kyriba Corp
(Senior Treasury Consultant, Kyriba Corp) |

The practical experience with our clients using rolling-forecast is to keep as much information as possible to allow further in-depth analysis at quarter- and year-end.
Especially on a mid- or long-term rolling forecast horizon (e.g.13W, 16W), keeping the different versions of your forecast (when you have a system to do so, a nightmare in spreadsheet otherwise) allows you to run some forecast vs. forecast analysis, which is often considered the little brother of forecast analytics.

Usual variance analysis (forecast vs. actuals, what you do on a regular basis as part of your AR/AP recon or Treasury reporting) is a key requirement for many companies. Forecast vs. budget comes up as the second key set of analytics that many finance departments and Treasuries are asking us for.
That requires you to keep (at least) the latest version of your rolling forecast (unless you store them all, allowing you some techi-er "average forecast vs budget") in order to compare it to the original or the latest version of your budget figures.
The analysis should be achieved on the deepest level of your budget details: anything done on any other granularity is usually not satisfactory for our customers.

Keeping all of those in spreadsheets seems hell (and I am sure you've experienced it yourself if you're tried) but a good forecast system should allow you to run this kind of comparison without too many headaches.

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