Understanding the Rolling Forecasting process

The Rolling Forecasting process generates forecasts for the next six to twelve months/quarters (two to three years or up to 36 months) using common budget and forecast techniques. Forecasts are calculated using historical relationships to project the financial results of operations given current operating relationships.

Rolling forecasting works as follows:

• The forecast is compared to the long-term financial plan Annual planning process to forecast the financial trajectory of the organization for the next five to ten years. as well as other targets.
• The resulting gap is analyzed to identify what changes in operations are necessary to move the forecast so that it more closely matches the financial plan.
• Understand how your organization operates.
• Identify what needs to change today to close the gap.

The following is an example of a gap analysis graph:

The individuals who will interact with the Axiom Rolling Forecasting most often include:

• Rolling Forecasting Group Managers – Develop and update rolling forecasts to meet targets based on the long-term financial plan as well as provide explanations for any significant variances.
• Vice Presidents/Executives – Review reports and analyses of rolling forecast data to help inform strategic decision-making.

If your organization is new to the rolling forecast process, you may encounter some resistance when implementing the process because it represents a radical change in approach and philosophy. A few questions and considerations:

• Is there executive support for rolling forecasting?
• Are there debt covenant or other requirements for a detailed budget?
  • If you need a budget, it could be the annual plan from your long-range financial plan.
  • Will industry benchmarks need to replace budget targets for biweekly/daily productivity?
• Do you have an extremely detailed budget process?
• Have you embarked upon a process improvement journey using such techniques as Lean Accounting Total Quality Management, Kaizen, or Deming approaches?
• Have you introduced the concept of rate per unit to the management staff?
• Does the management staff have an understanding of fixed and variable cost?
  • Flexible budget is a great tool to increase a manager's financial IQ.
• Are you interested in a monthly forecast to the end of the current fiscal year or a monthly/quarterly forecast over a 12-quarter or 36-month time horizon?
  • The CY Forecast utility is a good first step to organizational readiness for rolling forecasting.