Should You Use Rolling Forecasts? Weighing the Pros & Cons

At the end of each month/quarter, which future months/quarters in your horizon do you reflect on and consider changing? (Respondent asked to select the relevant periods, contingent on their response relating to the rolling budget periods their firm plans ahead in question 20). All in all, switching to a better connected and periodically updated process will allow you to be more proactive with information and transform data into realistic, practical insights. All while focusing on growth initiatives and deploying resources efficiently to achieve long-term goals. Through the new budgeting process, it was very clear that these ratios were set by the group with the local operating management having responsibility for delivering these ratios on a day to day basis. Driver Based Budgeting is a process that links real resources and activities to the financials in the budgeting process.

Rolling forecast vs static budgeting

But it’s asking a lot, and you may lose out on some of the automation available today. Organizations should determine the appropriate time frame and update frequency, ensuring alignment with operational and strategic goals. This involves selecting relevant financial and operational metrics, guided by their connection to key performance indicators (KPIs) and ability to provide actionable insights. Effective forecasts require input from multiple departments, including finance, sales, operations, and marketing.

• We’re firm believers that financial planning shouldn’t be done in isolation.
• It takes into account YTD performance, your original budget, current market conditions, and other factors to project future performance.
• Relying on last year’s performance to forecast what you’ll do this year is like assuming your favorite sports team is going to have the same results this season as they did in the previous one.
• It’s obviously hard for companies to make the cost side more effiecient and save money if people think like this.
• This gives you a plan for the coming 12 months no matter when you look at the budget – not just until the end of the calendar or fiscal year.
• It is not about completely eliminating your one-year budgeting plan, but rather about paying greater attention to other complementary and more agile techniques for really solving business problems.

A Step-By-Step Guide To Rolling Forecasts

If you created a budget in December of last year, by rolling forecast vs traditional budget April of the next year that budget probably doesn’t hold a lot of weight. Finance and accounting experts with real-world experience write our articles. Prior to publication, articles are checked thoroughly for quality and accuracy. If you work in finance or accounting and want to save time, avoid mistakes, and impress your boss, then you have come to the right place.

Sales Capacity Planning and Modeling Guide (with Template)

• As you experience fluctuations in revenue, expenses, or market conditions, your forecast needs to adjust as well.
• It allows you to observe the company’s pulse and make more timely decisions to ensure that everything is running well.
• SaaS companies on the other hand can fluctuate significantly based on a variety of factors.
• A rolling forecast is a management tool that organizations use to continuously plan their operations over a set period of time.
• Rolling forecasts enhance strategic planning by aligning financial planning with evolving business strategies.
• Driver-based modeling is a key feature, focusing on critical business drivers—such as sales volume, pricing, and cost structures—that affect financial outcomes.

A traditional budget is more static and rigid, which can be counterproductive to today’s ever-changing business world. The increased precision you get from ZBB can have a significant payoff for enterprises and larger organizations with budgets that regularly exceed a 5% margin of error. For a successful budget, the information used to prepare it must be accurate; else, the business and its employees will suffer.

Company

Even if your team is able to complete the complex task, you’ve likely opened the Pandora’s box of version control issues. A rolling forecast is a business tool used to predict future performance over a set period continuously. Unlike a static budget, which forecasts for a fixed timeframe (like a year), a rolling forecast is regularly updated throughout that period to account for new information.

For example, a retail company might use customer foot traffic and average transaction value to predict future sales. This method improves accuracy and allows management to simulate scenarios and evaluate potential impacts. The final step in creating a rolling budget is to monitor the actual performance of the budget.

Innovations such as the rolling budget have challenged and/or supplemented traditional annual budgets, while organisations increasingly demand more flexible budgeting approaches. Our research examines the current state of budgeting practice relating to both rolling and annual budgets across a surveyed sample of 380 UK and Australian firms. We find that despite concerns about its applicability, the annual budget overwhelmingly remains a critical planning and control tool, but functions as a performance evaluation tool to a lesser extent. Nearly a third of firms use rolling budgets, for various reasons including planning and control, aligning with annual budgets. These findings hold across business-as-usual operations, not only during economic crises. We find that of the firms using annual and rolling budgets, 75 percent indicated they are equally important, with both budgeting forms used jointly rather than as substitutes.

Encouraging collaboration among team members enhances the process and fosters shared insights. Note that even though rolling budgets are updated on a monthly basis (or quarterly basis, as shown here), they’re still applied over an entire year. With the high-paced work environment many employees navigate today, a rolling forecast will help departments improve communication. It will primarily help your finance department obtain accurate and timely data on cash flows, consolidation and close and budget forecasting.