November 15, 2022

How to continuously plan using rolling forecasts

Why rolling forecasts are gold for businesses managing change

Business planning is challenging when faced with rising inflation, labour shortages and sharp falls in consumer and business confidence. The economic environment and market can change so quickly that annual plans are out of date, often within months of being signed off.

One way to overcome these challenges is to adopt rolling forecasts as either a supplement to annual financial plans or a replacement for them. Rolling forecasts use historical and year-to-date data to predict an organisation’s future financial position to reflect industry, economic and business changes and are regularly (and easily with the right tools) updated to reflect market changes and business conditions.  

After all, the pace of change is accelerating. Business plans need to reflect those changes, especially during periods of uncertainty, such as the early signs of a recession.

The low-down on rolling forecasts

In essence, rolling forecasting is forward-looking, company-wide, and a responsive approach to planning. It improves decision-making as it is quicker than traditional annual planning; it allows you to change planning assumptions in an agile way and manage change with confidence, reduce risk and allocate resources to maximise business performance.

Rolling forecasting is different to annual planning in the following ways:

1. Continuous insight. As it is based on a combination of actual YTD financial results and the updated revenue and expense forecasts for future periods, it gives a better sense of how financial results will land at any point during the forecast period. Often the rolling forecast period extends four to six quarters into the future, and it relies on the add/drop approach to forecasting, which gives the foundation that the financial planning reflects the latest trends.  

2. Regularly updated based on current events, market changes and trends. Rolling forecasts focus on the core drivers that fundamentally impact business. For example, a transport business will focus on the impact of rising fuel costs in its forecast. Whereas a consultancy or rest home will heavily focus on people costs if salaries are increasing. Effectively rolling forecasting continuously recalibrates your most crucial business drivers in near real-time.

3. Pared back data. Annual business plans tend to be highly detailed and can list thousands of line items. In contrast, rolling forecasts zero in on your core value drivers, such as risk, profit, and working capital. Driver-based planning focuses heavily on what matters most to accelerate decision-making.

In short, rolling forecasts enable finance leaders to create closer alignment between day-to-day business performance and strategic decisions for faster, better decision-making.  

Six Degrees Planning is a continuous planning platform that allows you to build rolling forecasts and what-if scenarios in minutes. It frees up finance teams to focus on uncovering the strategic value of data through analytics.

Curious to learn how Six Degrees Planning can help your team manage change better? Contact us for a demo.