This year, Brian Kalish, a financial planning and analysis (FP&A) advisor, began working with a spirits company. The company's products are so popular that it often underestimates demand, missing sales opportunities due to insufficient inventory.

"They don't have a backlog," Kalish told CFO Dive last week. "They sell everything they produce."

Kalish noted that the company follows a typical calendar year-end close cycle on December 31. "They've been forecasting to the limit," he said. "They enter the budgeting process in late September, early October to build budgets, plans, and forecasts, but they don't really get much value from it. Over time, all they see is more variance."

Without accurate forecasting, he said, the company could never ensure it had enough product to meet demand.

"They're basically looking at the last 12 months, making a best-guess growth estimate, and then assuming the future will be the same," Kalish said. "That approach isn't bad, but the problem is stockouts. Suddenly, orders come in, and they can't fulfill them efficiently."

His solution: replace the static 12-month forecast with a rolling 12-month forecast, updated quarterly.

A longer shelf life

A rolling forecast covers a specified period of time—four months, a year, 18 months, depending on the needs of the organization and industry—and is updated regularly. As you update the forecast with the latest monthly or quarterly data, the earliest month or quarter drops off, creating a continuously evolving picture of the company's financial outlook.

"By adopting a rolling forecast, they gained a clearer view, not only because they could see internal information, but also because we designed the structure so they could bring in third-party information," Kalish said. "Suddenly, you can see the trend of rising demand."

He noted that the transition went more smoothly than expected because the company was ready to make significant changes. "To make this work, you need four pillars: culture, process, talent, and technology," he said. "They wanted to leap from fairly immature analytical capabilities to world-class, which is an ideal starting point because you don't have to convince anyone."

The company, founded 25 years ago with global operations, had previously used Excel and an enterprise resource planning (ERP) platform in its finance department. After auditing the tools and processes used by finance operations, Kalish changed the company's approach to data analytics and introduced a cloud-based forecasting, planning, and budgeting tool.

"We should avoid what's called a 'lift-and-shift,' where you take your Excel processes and put them in the cloud as-is, because then you miss out on 95% of the benefits of the new technology," he said.

Pursuing quick wins

Kalish believes a company doesn't need to convert its entire forecasting process to a rolling system at once, especially for larger enterprises with multiple business lines. In such cases, it may be more sensible to select a single business line and implement rolling forecasts for just that segment.

"If you try to roll it out across the entire enterprise, you'll always face challenges, so I've always advocated for moving quickly and accumulating small wins, so that parallel efforts aren't hindered," he said.

Once the pilot is underway, you can compare the rolling forecast to the old static forecast to see if you're getting more accurate data. "You can look back and model," Kalish said. "For example, three years ago, what were our trailing 12-month numbers? How would the model we built have predicted the future?"

The spirits company is smaller, so a full transformation made sense. "They embraced it wholeheartedly without hesitation," he said.

Additionally, you don't have to include every metric you care about in the forecast—only the key drivers that truly move the business. "Metrics that don't impact the company or drive decisions don't need to be included," he said. "They don't need to be forecast as frequently as high-impact metrics."

Focusing on talent

Beyond transforming processes and tools, you also need to transform your people. In some cases, that means reconsidering whether those who are best at Excel are the right ones to manage forecasting under the new system.

Kalish mentioned working with a long-established insurance company that viewed the transition as an opportunity to reduce finance staff. The new system required fewer people due to greater automation, but the company mistakenly kept its most senior Excel employees.

"They quickly found those employees weren't a good fit because they lacked the necessary skills," he said.

In the end, the company let go of the Excel experts and rehired some of the people it had initially laid off. "Of course, some had already moved on, and they basically had to go out and find new talent again," he said.

At the spirits company, the CFO will hire a director to oversee forecasting under the new system. This could be an existing finance manager or an external hire, depending on internal staffing, but the key is having someone responsible for running the system, especially during the transition. The first year is often labor-intensive because you're asking the finance team to update the forecast quarterly when they used to do it annually.

"If someone tells you there won't be any pain, they're lying," he said. "It is painful. At first, people will say: 'If we do it quarterly, you're asking us to do four times the work.' But the key is to look at the full year, because when you get to September, you've already done most of the work—you just push the forecast out another 12 months."

"The beauty is," he added, "you only build it once, and then you get better and better at it, getting better information. When you look at the forecast, the accuracy for the next 90 days should be higher than for the second, third, and fourth quarters, and that accuracy keeps rolling forward. If you have not only the right process but also the right culture, you can get forecasts in a more timely, more efficient, and even smarter way."