Rolling Forecasts –

Managing in Volatile Conditions Briefing note

Traditionally, businesses have engaged in annual static budgets and forecasts. In response to constantly changing economic conditions, an increasing number of businesses have adopted monthly or quarterly rolling forecasts to provide more flexibility and responsiveness to change.

Regular re-forecasting gives companies the ability to incorporate changing influences, such as an increase in costs or a decrease in revenues, into the process and quickly adjust to market changes.

A rolling forecast has a defined time span, perhaps 12, 18 or 24 months and as each reporting period is closed the forecast is updated with the latest actual results and rolled forward by one period. Information obtained from each closed period is incorporated into the next forecast, giving decision-makers timely insight into cash flow, revenues and expenditures, and the ability to make mid-course adjustments to maintain profitability.

Many companies still prepare an annual budget, but do so with the knowledge that the annual budget forms the baseline and that it will be revised regularly to reflect changing conditions.

However, there is a growing school of thought that annual budgeting is resource intensive and unproductive, producing information that is quickly out of date, and sometimes skewed because of incentives tied to easy-to-achieve targets. However, accurate forecasting and careful cost control have never been more important, resulting in the increased adoption of rolling forecasts.

Adopting a rolling forecast process requires speed, reliability and accuracy. An automated solution eliminates the need for updating, checking and validating spreadsheets and reduces the potential for human error. Automation also ensures that data is compiled consistently and information is available to decision-makers when they need it.

TCM Infosys Ltd.

info@tcminfosys.com | +44 (0) 845 50 50 350 | www.tcminfosys.com

An effective automated solution should give management teams the ability to conduct “what if” scenarios to test a range of theories, based on varying factors. It should also enable decision-makers to track actual performance against the forecasts, and multi-dimensional reporting provides the ability to drill down to query underlying factors.

Financial planning, budgeting and forecasting have always been the foundation for any effective business plan. However, to cope with a volatile marketplace, businesses today need fast and easy access to accurate information and be prepared to react quickly to capitalise on opportunities and mitigate risk.

TCM’s forecasting software allows you to forecast and reforecast, based on integrated and validated data, giving you instant access to information to make modifications easily as conditions change.

TCM streamlines the planning, budgeting and forecasting process, reducing the time spent by your management and finance teams, and removing your reliance on error-prone spreadsheets. Everyone involved in the forecasting process can see comprehensive, updated information and make informed decisions, based on reliable information, reflecting changes in your business environment.

Barriers to effective forecasting

• Managers often lack confidence in the insight and quality of data used to develop the forecasts and many businesses do not exploit all the data available to them in the forecasting process.

• Too often the forecasting process is dominated by sales forecasts which have been developed on historical and often inconsistent monthly data. And in a culture which rewards managers and staff for exceeding targets, costs are often overstated and revenues understated. This pressure to make forecasts match targets is a direct impediment to accuracy and results in real risks and opportunities being overlooked.

• External factors are also often overlooked in the forecasting process. Consumer demand and economic driver information, along with competitive analysis are critical to achieving an accurate picture of overall company performance and developing a reliable forecast.

• Organisations often dislike the inherent uncertainty of forecasting and fail to understand that by considering several scenarios, they can improve accuracy and their ability to react to changing conditions.