Budget advisory consultants said last week at aCFO.com webinarthat if companies have not yet adopted rolling forecasts, they should introduce them gradually, giving finance teams time to adapt.

A rolling forecast covers a specified time period—four months, a year, 18 months, or as determined by organizational and industry needs—and is updated monthly. It is used to replace static annual forecasts; some companies even eliminate their formal annual budgeting process after implementation.

As the forecast is updated with the latest monthly data, the earliest months in the period drop off, creating a continuously evolving projection of the company's financial position.

"This ensures you are always looking at the most current information," said Brian Martell, senior product marketing manager at Host Analytics. "So it gets you as close to real-time as possible, providing more accurate and informed decisions than just looking at a static annual budget that is months old."

Best practices

Rolling forecasts are considered a best practice and are currently used by about 60% of world-class companies, said Miles Buntin, director of enterprise performance management (EPM) transformation at consulting firm The Hackett Group.

Despite their popularity, they are not yet universal. A Host Analytics survey found that 75% of companies still use offline annual budgeting processes based on Excel spreadsheets, but a poll of webinar attendees showed that most expect to make the transition within the next year or two.

Once the transition is made, rolling forecasts should save a company's financial planning and analysis (FP&A) team significant time, Martell said; traditional annual processes are time-consuming, often requiring most employees to participate in an "all-hands-on-deck" effort, and the data presented to executives quickly becomes outdated.

"Building the annual budget takes six months; it is really an extremely labor-intensive effort," he said.

Rolling forecasts can also help companies capture savings opportunities within the cycle if expenses or revenues change, said Maria Cherry, senior financial analyst at Host Analytics.

"If something is slightly higher, you can adjust in real time; if something is lower, you can reallocate the savings to other needs," Cherry said.

Start small

To maximize efficiency, focus on high-value areas of the budget cycle, Martell said. "Get comfortable first, and once it becomes a habit, expand the scope over time."

Unlike traditional annual forecasts, which often use Excel, rolling forecasts are primarily based on third-party online platforms with built-in analytics tools.

The shift to rolling forecasts is part of a broader move by companies to adopt cloud EPM platforms to improve operational efficiency, Buntin said.

"Improving predictability is one of the strongest use cases for deployment," Buntin said. "Many new tools use algorithms to identify patterns, pulling data from external sources as well as internal financial and operational systems—and, key point—eliminating potential bias. These can greatly improve forecast accuracy and objectivity."

Host Analytics sponsored the webinar, titled "From Static Budgets to Rolling Forecasts: What Financial Leaders Need to Know”。