SWTCH by Pigment
Three days of predictions, insights, and advice from leaders in finance, sales, HR, supply chain and more
Register now here
SWTCH by Pigment
Three days of predictions, insights, and advice from leaders in finance, sales, HR, supply chain and more
Register now here
By Thorsteinn Siglaugsson, Consultant / Corporate Trainer / Manager
Increasingly, managers are now looking to change the corporate planning process and replace the traditional annual budget with rolling forecasts, 12, 13 or 15 months ahead. What is the reason for this development?
Every year, most companies spend a lot of time preparing a plan for the next financial year. Such plans become obsolete quickly, due to the fast changing business environment. Still, in order to retain control, management generally continues to use the budget as a benchmark for performance measurement and rewards are often linked to performance against plan. This still reduces the value of the budget since often it rather contains the result of negotiations between managers and subordinates than reflecting the actual opportunities and threats faced by the business.
Rolling forecasts have become more prominent in recent years, often in conjunction with new methods such as Better Budgeting and Beyond Budgeting. A budget may still be prepared, but instead of leaving it unchanged it is regularly revised, typically quarterly, or monthly. The aim of the review is not to change the main objectives for turnover or profit, but to re-evaluate priorities in light of operational developments: Declining margins in the department or product category demands actions to make up the losses elsewhere.
When working with rolling forecasts the planning period moves with time instead of ending at the fiscal year-end. Systematic use of rolling forecasts improves the planning process and quality and usefulness of the budget. The annual planning process is replaced by continuous reviews providing an opportunity to adjust the budget to the changing environment. This way the budget becomes a real management instrument that enhances the performance of the business.
It is often middle managers who drive the implementation of rolling forecasts, simply because they normally end up with the bulk of the budgeting work and thus understand what is wrong with the traditional approach. But in order to gain the support of senior management, board and general staff several things must be kept in mind:
The rolling forecast is a powerful management instrument. The growing popularity of rolling forecasts testifies to that. Based on a carefully crafted action, clearly defined roles and not least providing enough time to ensure the quality of the process it can lead to a great improvement.
The concept of a Rolling Forecast is a hot topic in FP&A at the moment. Many...
I’d like to claim that I am not easily annoyed….but that would be untrue. And one...
Many businesses have yet to discover the full benefits of evolving their planning process to include...
We will regularly update you on the latest trends and developments in FP&A. Take the opportunity to have articles written by finance thought leaders delivered directly to your inbox; watch compelling webinars; connect with like-minded professionals; and become a part of our global community.