Seven Best Practices when Rolling Forecasts
A business can only thrive if it predicts its future earnings and expenses. This will help them make better business decisions. But, although forecasting is vital to the success of an organisation, accurate financial forecasts can be hard to make.
Smart Rolling Forecast allows businesses to have the agility to adapt to consumer trends. It helps organisations meet their needs as the approach offers a versatile framework which is updated routinely to ensure all industry changes and variables are accounted for. Below are the best practices for rolling forecasts which let big organisations minimise the time and effort necessary for forecasting:
Do Not Depend Only on Excel
Excel is not enough to generate accurate forecasts. Also, it does not provide the versatility that dynamic industries need. Rather, companies need a system which factors in variables, allow fast changes to the forecast, and serve as a baseline for future forecasts.
Ensure Goals are Outlined
Forecasting is meant to establish a clear view of the financial future of the company to help make informed business decisions and understand the possible effect of such decisions before implementing them.
Determine a Duration
Companies can determine the appropriate duration based on their goals and needs. They must take into account whether quarterly forecasting is enough or if forecasting monthly is a better option. It is important to consider the growth rate and industry fluctuations to help the business determine the best durations for them.
Pick Comparison Periods
With comparison for rolling forecasts, organisations must offer annual comparisons. They must compare year to date (current to previous year) and com paring every month of the rolling forecast to the actual results from the month.
Determine Revenue and Expenses Drivers
To guarantee accuracy, rolling forecasts must be driver-based. This provides the organisation the flexibility and agility to respond to both internal and external fluctuations as well as update the budget and generate alternate forecasts.
Because it can be challenging to implement rolling forecasting initially, it is best to start small. Start with two departments and as a solid routine is developed in those departments, you should be able to phase-in more departments.
Plan Capital and Strategic Projects Separately
Typically, capital and strategic projects do not fit into the timeframe of rolling forecasts since they can last over many years. In addition, they have many variables that could lead to decreasing or increasing the project budgets.
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