Budgeting and financial performance are key concerns for every business. However, in a rapidly changing marketplace, it's no longer practical to simply draw up an annual budget and stick to it regardless of changing circumstances. Even if you produce a revised forecast each month, once you get near the end of the year, your forecasts look forward only one month. In this article we will show you how a unified solution will enable you to step away from traditional forecasts and start rolling!
Traditional Forecast Example, the “Q3 forecast”
In this case, the forecast ‘horizon’ is only 3 periods.
With traditional EPM/CPM tools, producing such forecast may already be quite a hassle. One has to export and import the latest set of Actual data in seperate EPM/CPM modules. You have to make sure that your forecasts results difference is not caused by differences in tool, which can for example be caused by fx rates, elimination logic or translations. When using OneStreams unified EPM/CPM solution, these are worries of the past.
Modern businesses need not only the flexibility to revise their budget throughout the year, but also keep a forward looking planning ‘horizon’ so you don’t have a shrinking number of periods to plan. This is where rolling forecasts come in.
A rolling forecast is a process that allows you to plan ahead for a set number of months or years ahead, regardless as to whether you are in the year. When executed in Excel, this is a challenging operation. When using the right EPM/CPM tool, it is very achievable.
Once you trigger the rolling forecast, the tool continually updates to reflect the time period. If you run a 18-month rolling forecast, it automatically adds another month to the cycle when one month ends. This means that you're always planning 18 months into the future, and you will always be able to compare rolling forecasts with an annual budget. In fact, why not just make one of the rolling forecasts the annual budget?
Businesses use rolling forecasts because of the advantages over traditional forecasting. These benefits include:
In all these cases, it is critical that your EPM/CPM systems enable quick forecast revisions to be made and allows proper alignment with the Actual performance. If the consolidation tool is separate from the planning tool, then implementing a rolling forecast every month becomes a large burden on the finance staff, and introduces risks of variances caused by using separate consolidation and planning tools. The reliance on disconnected EPM products is one reason why revisions to forecasts are only done quarterly rather than monthly.
Regular rolling forecasts allows you to make decisions based on long-term data while giving you the freedom to make changes as you go.
Traditionally, rolling forecast were not without its challenges. Common challenges that businesses faced when implementing a rolling forecast would include:
The challenges listed above only are relevant when you aren't using a unified EPM/CPM tool like OneStream. There are many more benefits of using a unified EPM/CPM tool like OneStream for rolling forecasts. To name a few:
To get your rolling forecast up and running, here are some tips: