The first piece in a short series on rolling reforecasts. In a recent article by Mary Driscoll, a senior research fellow at the not-for-profit business research firm APQC, she writes, “Only 50% of organizations currently use rolling reforecasts.” Notice the inclusion of the word “only” in that sentence; betraying the unspoken expectation of most of us that more companies should be using rolling reforecasts to manage their financial performance in such turbulent times as these. Call me a sceptic, but personally, I doubt whether the real figure is as high as 50%. There are the three reasons that lead me to such a view. First, it is inevitable that all surveys have an element of bias, and here I suspect that some respondents may have felt obliged to give a positive answer to the question simply because rolling reforecasting is widely recognized as a best-practice methodology. I am not questioning the rigour of the research here—APQC do quality work far removed from the vox-pop surveys that are designed simply to generate headlines. Then there is the confusion that arises from the fact that there is no universally accepted definition of what constitutes a rolling reforecast. Most research suggests that while the majority of companies aspire to reforecast on a monthly basis, few actually achieve that goal and reforecast less frequently. Therefore, within the 50% that are reporting they use rolling reforecasts, there will be companies reforecasting quarterly and bi-annually. In light of recent fluctuations in exchange rates and oil prices, the idea of a twice-yearly rolling reforecast is perhaps something of a misnomer. Finally, there is the question of who is doing the reforecasting. Although one might assume that every budget contributor is involved in each reforecast, in my experience this is not always the case. Sometimes senior members of the finance team are responsible for reforecasts, making amendments to revenue lines and key line item expenses based on recent trends. Colloquially, these are often referred to as “burn rates.” While this is far from ideal, one could argue that it is preferable to not reforecasting at all. Before I commit myself to what I suspect is a more realistic figure for the proportion of companies using rolling reforecasts, let me share my view of what constitutes a rolling reforecast. The essentials of rolling reforecasting Let us not forget that reforecasting the future is not a goal in itself; it is taking actions to influence it that matters. These fall into three broad areas, based on their immediacy:
- Short-term actions, such as realigning resources and capacity with fluctuating demand, that will help the company achieve the current year’s financial objectives.
- Medium-term actions that senior executives may need to take to manage market expectations and avoid earnings warnings that could damage their stock price.
- Longer-term, strategic actions to address any emerging performance gaps against competitors.