Navigate dangerous curves nimbly with rolling forecasts

By Sara Baxter-Orr

March 1, 2021

Most people who labor through months-long annual financial planning cycles would admit the process is broken. It’s time-consuming, labor-intensive, and inflexible.

Moreover, we now realize these rigid annual budgeting cycles don’t adapt well to today’s fast-moving environment. We simply can’t foresee a crisis or seize new opportunities 12 months in advance. This reality has forced many companies to consider moving to rolling forecasts, which are specifically designed to address the only true business constant: change.

For example, consider the 2020 holiday shopping season. Who would’ve predicted that leading logistics providers would place shipping limits on major global retailers? Or the need to absorb massive swings in supply and demand? Or the rapid shifts in inventory, operations, and staffing from brick-and-mortar channels to e-commerce? A rolling forecast allows you to account for a variety of scenarios. And it provides you the resilience and agility to confidently refocus in the midst of massive disruption.

Rolling forecasts help plan around blind curves

A traditional annual plan serves many needs: identifying strategy, articulating cohesive goals that investors and executives can use as benchmarks, specifying how they’ll be measured, and providing accountability.

However, an annual plan is like planning a road trip. You have an idea of how long the journey should take based on the mileage and the route, but there are a lot of unknowns. What if you encounter something unexpected like a detour or delay due to an accident, or spot a don’t-miss attraction? A rigid schedule inevitably breaks down or has an opportunity cost.

By contrast, a rolling forecast provides not just more flexibility but more accuracy. Instead of making projections just once a year for the next 12 months (which means that by the end of the year you’re only looking ahead a month or two), the rolling forecast always extends at least 12 months out from the current date, getting an update every month or quarter. It often extends 18-24 months out, or even longer if needed.

So the secret of a rolling forecast is that it’s made up of annual plans — plural. It still delivers strategy, goals, performance measurement, and accountability, and it’s ready to serve as a conventional annual plan for investor and regulatory needs. But instead of planning around a calendar or fiscal year, it combines the detail view of the traditional annual plan with the multi-year outlook and wide-reaching goals of the strategic plan – while being updated throughout the year.

Turning the battleship isn’t as hard as you think (with the right tools)

Despite all the prospective benefits of rolling forecasts, some believe there’s a built-in flaw – extra work to make sure their frequent updates are reflected in all the versions of the annual plan used by different departments, geographies, and functions. I ask them to consider two things:

First, many companies already struggle to get a big picture view across their strategic areas, whether that’s regions, business units, or markets, because independent factors in each of those areas can significantly change those forecasts. Traditional annual planning locks them into assumptions that are often outdated within a month or two because it’s hard to “turn the battleship around.” Planning on a rolling basis lets leadership teams examine multiple scenarios based on a range of data sets and assumptions across financials, workforce, supply chain, and more and make flexible, timely decisions.

Second, rolling forecasts take full advantage of digital transformation efforts companies have made over the past decade. Modern digital platforms let everyone on the planning team, even scattered across a hundred home offices in a dozen time zones, work off the same set of assumptions. A change to budget figures made by one person will be reflected on everyone else’s desktop within moments.

Your teams will love that rolling forecasts digitize what has been a very manual process. And they’ll find less of their work ends up scrapped. Moreover, instead of concentrating the planning efforts into 2-5 months of intensive effort at the end of the fiscal year, often involving long hours and late nights, the new approach spreads the planning work more evenly throughout all four quarters.

Navigate nimbly with rolling forecasts

We’ve entered the age of accelerated decision-making and your planning efforts need to reflect that. Businesses now have to reduce the delay between asking questions and getting answers, while increasing accuracy and insights. And you need the flexibility to assess multiple scenarios and implement them rapidly.

With a rolling forecast, you can better align your business outlook with a realistic view into those targeted strategic areas, especially as things change. And functional groups can make confident decisions more quickly around hiring, operational needs, and demand and supply planning, which can directly impact revenue and profitability goals

The move can start immediately

The pivot to rolling forecasts can start the moment you make the commitment. Here are some key steps to help your organization embrace this shift:

● Determine a time horizon that makes sense for your business. Retailers might consider an 18-month rolling forecast, as their industry is highly seasonal. A business that depends more on major capital investments (let’s say a telecom planning a 5G rollout involving lots of installations) may prefer a 24-month or greater rolling forecast to accommodate long-term plans.
● Determine how much detail you need – but also recognize when you reach the point of diminishing returns. For many organizations, it makes sense to look at the current quarter in detail. But they’d get less granular as they look further into the future, when performance becomes both harder to predict and more time-consuming to model. (This is a good opportunity to review all the data sources your organization drew on over the last few years. Which ones were the most useful indicators? And would any new sources enrich your planning even more?)
● Determine what data can be forecasted using history and drivers – which means they can auto-populate. That way, you only need to manually populate those categories by exception.
● Prepare the organization. It’s no small thing to change “the way we’ve always done it,” even when it promises better accuracy, more agility, and a more streamlined approach, so cultivate a rolling forecast mindset. I know of organizations whose successful transitions included big announcements from leadership, a newsletter leading up to the launch that answered questions and celebrated small wins, and office hours for open discussion. Everybody felt like an owner of the process.
● Use your rolling forecast to spot anomalies and outliers in the plan sooner. This flexibility is a key benefit of the rolling forecast model – you can analyze, run scenarios, and determine any adjustments needed to make the most of changing circumstances.

Lastly, you need the right technology that aligns your data, processes, and people. Spreadsheets are simply not equipped to handle rolling forecasts. Anaplan offers the single source of truth that spreadsheets don’t (not to mention state-of-the-art calculating and modeling power), plus greater agility than heavy, inflexible financial and ERP suites.

Interested in learning more about rolling forecasts? Download this free ebook featuring guidance from Anaplan’s top executives about why and how to switch from a hardwired, calendar-driven process to the agility of rolling forecasts.

Sara Baxter-Orr

Sara Baxter-Orr is the CFO Practice Global Lead at Anaplan, responsible for driving initiatives and programs that guide the expanding role of the transformational finance leader. Previously, she was Senior Vice President and Chief Financial Officer at Verizon. Sara has built and led world-class finance teams that drive transformative thinking and measurable business impact. She has deep expertise in partnering with and enabling organizations’ use of Anaplan’s Connected Planning platform to forecast, plan, prepare for, and make decisions on some of the most complex business scenarios that companies face.

Sara Baxter-Orr's posts >