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How Frequently Should You Roll Your Rolling Forecasts & Budgeting?

Old fashion budgeting is going the way of the dinosaur.  Real time 24/7 forecasts are becoming the norm and are requirements in many organizations.  They offer better performance expectations management, better controls and constant insight into an organizations performance.  

The real challenge is how frequently do you complete these?  Twice a year, quarterly, monthly, weekly, daily?  I've found that by completing them too frequently you are essentially just reporting actuals.  

If you are forecasting dynamically, how are you doing this now?  

What advice do you have for those of us trying to decide how frequently to complete an updated forecast.

What pitfalls or benefits have you found?

Thanks!  

Answers

Topic Expert
Simon Westbrook
Title: CFO
Company: Aargo Inc.
( CFO, Aargo Inc.) |

The typical accounting cycle is a twelve month year and any increase in frequency of forecasts changes that cycle. Mid cycle revisions to a forecast should, with the benefit of part year hindsight, be able to offer the prospect that the revised forecast for the rest of the year (or beyond) may be more accurate than the old one for the same period. Clearly , the ability to have an updated and best available forecast is helpful for planning cash flow, investor targets, working capital etc, however the downside is that it makes accountability that much harder.

It is difficult to track actual results against more than one forecast and when we update the corporate forecast for planning purposes we do, in fact, move the goal posts and make it harder to see and measure management performance, which confuses accountability, bonus calculations etc. If you decide to make repeated changes in your forecasts, you should pay attention to how they are communicated to management, and how their targets and accountability will be measured.

Topic Expert
Brenda Morris
Title: Board of Directors, Audit Committee Chai..
Company: Boot Barn
(Board of Directors, Audit Committee Chair, Boot Barn) |

Great points! I find the most critical need for forecasting is if you are public talking to analysts, have bank financing or similar and need to make changes or updates to keep them informed and of course mainly to run the business and keep good eyes on cash flow and expense and revenue management. I tend to lock down a budget to use for managers that is the one they are measured by, while keeping the rolling forecast a finance team focused exercise to work with the board, the street, etc. If you are using a great reporting and budgeting system, like Host, Adaptive or other, it keeps score for you and you don't end up with multiple iterations that are difficult to manage and have version control issues.

Andrew Landis
Title: Business Strategist/Consultant
Company: Andrew Landis
(Business Strategist/Consultant, Andrew Landis) |

In privately held companies especially those who have investors such as commercial banks or equity/vc groups each month a forecast should be updatesd for the next two quarters. Depending upon your covenant requirements, which should dictate the forecasting cycle it could be monthly, quarterly or semi annually . The last thing a CFO wants to do is surprise them and potentially show that he/she had no clue on the company or put into other words on the pulse of the company by not talking with all department heads frequently. The same is true with large companies,, though the process could be harder depending upon the software they used. Working for Capital Cities/ABC it was a requirement in their publishing divisions for monthly updates to the forecast or re-affirming what you handed in last month. Surprises are only good on birthdays and retirement parties.

Thomas Stamatis
Title: CFO- advisor
Company: Venture Resoureces, LLC
(CFO- advisor, Venture Resoureces, LLC) |

In my role as financial advisor/CFO for the industries I deal with it is far more useful to hold responsibiltiy budgeting/accounting for management, with an annual budget target, or at least one that truly reflects the business cycles of the company and NOT some financial-period- driven budget process. This confine smeasurerments of business performance and and revisions therefrom to accounting-month end reproting period,which are not usually reflective of a businesses operating or even cash cycle.
Cycle revisions on a rolling forward basis should be done as business condiitons warrant. Responsibility for re-forecasting operating goals must begin and end with the operations people responsibiltu. Not the finance department.

Martin Sadleder
Title: Owner
Company: Treamo Business Consulting
(Owner, Treamo Business Consulting) |

I am not a budgeting expert, but have many, many years of experience in cash flow forecasting. You are absolutely right, also we notice an increasing demand for e.g. reducing update cycles etc. (and in most of the cases this does not increase the quality of the forecast itself but only the workload related to the preparation of the forecasts).

In my opinion it all depends on the general nature of the individual business of a company. Project-oriented business demands a different treatment than a serial business where it sometimes might be easier to get actual figures if you have the proper systems in place. It's a bit difficult to give a general advice apart from 'be pragmatic' - in the majority of the cases that I know, much to much time has been invested in number crunching without adding substantial value to the quality of the respective forecasts ('quality of a forecast' most probably deserves a separate discussion). As mentioned before by Thomas, a rolling forecast definitely is a prerequisite - and it will help to adjust the general focus on the numbers before and not after the comma.

Use the time you gain by being pragmatic and invest it in simulations and scenarios - a far better investment of time and energy, unfortunately very often overlooked. A forecast is not the end, but just the beginning and the basis for the definition of scenarios that offer sufficient and reliable room for strategic decisions by the top management.

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

This topic is covered extensively in Future Ready: How to Master Business Forecasting (Wiley 2010) which has an entire chapter on Mastering Time. It is also included in the Forecasting Improvement Road Map training from the Beyond Budgeting ROund Table.
A link to their course is as follows: http://bbrtna.org/letitroll/

John Conlee
Title: President & CEO
Company: Vertical Edge Consulting Group
(President & CEO, Vertical Edge Consulting Group) |

I do alot of implmenetations with Oracle EPM solutions that are designed to address Budgeting and Forecasting. Alot of what I hear is we want this, and it needs to do that, and can it be push button on demand, and how real time is it. The reality is that it is all possible, but to what lenghts is an organization going to go to get this magical figure everyone is chasing. I truly believe there has to be a balance. Larger companies struggle with forecating at granular level such as doing Workforce at Employee/Job Title, Capital Expense at a Asset/Project leve, Revenue at a Line of Business, Customer, Product level and then integrating that all to your core financials such as P&L, Balance Sheet, and Cashflow. With things that are changing, I say set your self up with a robust reporting platform, become an experted at your own reporting, then segway into an enterprise planning solution that is the best balance for your organization SMB or Up Market. I can shed more light on our feild experiences if you want to reach me at jconleeatverticaledgecg [dot] com

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