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Por Nicolás Rielo

Gestión de Servicios en TI y Divulgador de IT & Finance

The rolling forecast is a financial planning practice widely used in companies and organizations from all branches and industries. The use of the rolling forecast gives the possibility for the executive of a company to anticipate what may happen to the business constantly.

But you also have other great advantages, as we will see later in this post. We invite you to join us to discover them!

What is the rolling forecast?

The rolling forecast basically consists of a process of creating a new budget for shorter and more constant periods, using the review, adjustment and forecast technique.

The rolling forecast, unlike the annual budget, is generally carried out every three months, and allows the company to have a vision of the financial future and of the business activity in a time horizon of about twelve months on a continuous and regular basis.

A good execution of the rolling forecast will give the organization the tools to maintain financial performance efficiently, correcting deviations and making decisions based on empirical evidence. It also allows you to visualize trends, for example, and identify aspects to improve.

But let’s not get ahead of ourselves! Below we propose to review some of the most important advantages and disadvantages of the rolling forecast for a company. Let’s see it!

Pros of doing a rolling forecast

Running a rolling forecast is a practice attributable to the finance team that has an impact on the entire business. If you can implement it in your company, you will see that you will have many positive results. Among those that we highlight the most based on our experience as consultants, we see that:

By making a rolling forecast, we are given a complete vision of how the business is now.

We talk about how we can see what trends exist, what pains we are suffering and what prospects there are in the short term. A traditional budget does not have all the necessary tools or information to do so. In this sense, the rolling forecast is far superior, since it allows us to adjust and reallocate resources in shorter periods or modify estimates made some time ago and that the context modified (this, in times of high inflation such as the one we are currently experiencing, becomes increasingly valuable).

The rolling forecast provides an effective short-term view by giving us a view of what will happen 12 months from now.

As it is a practice that is usually carried out monthly or quarterly (this is determined by the company based on the commercial cycle of its activity), it allows us to have a more effective forecast with a time horizon than the one we did at the beginning of the year or at the end of the year. in advance, when preparing the annual budget.

Carrying out this type of review and analysis allows us to save time and, therefore, improve the profitability of the business.

The time saved, for example, is that of correcting income and expenses, which we had estimated in the previous review and which we now have more finesse when projecting. We also save time investigating recurring or semi-recurring expenses through quotes, since we will have previous experience. In this way we will have a better approximation to real data.

It puts us in context of how we are with respect to the objectives, but with time to correct deviations.

If we keep only the annual budget, the period of time between the preparation of this and the budget for the next period is very long. This carries risks and dangers. How do we know, for example, how the company is regarding the items of expenses? By making a rolling forecast every 30 or 90 days, which are the two most common options, we can have a more accurate picture of how the areas are in relation to the items assigned at the beginning of the period. With this we win, for example we avoid risks such as running out of stock or being very far from the sales target.

Here we share a summary of how in Plika you can make a Forecast in 4 minutes.

Cons of doing a rolling forecast

Now, as we have said, they are not all roses. Making a rolling forecast also has its points that we can consider cons and that must be considered when planning its implementation. Which are? Let’s review some aspects:

First, of course, the cost of carrying it out.

Let’s keep in mind that it is nothing more and nothing less than the systematic review of the company’s numbers and the updated projection based on the information obtained. It is similar to making a budget, only in shorter intervals and not from scratch, but taking the latest rolling forecast document as a reference. This implies financial and operational costs, personnel allocation, man-hours and opportunity cost. The company that decides to carry out a rolling forecast must understand it as an investment with a certain return, which must evaluate whether or not it is acceptable for the business.

We must be careful about when the practice is implemented.

To carry out a rolling forecast successfully, the team must be committed to the task, have a collaborative culture and achieve a certain maturity in terms of processes, communication and work tools. The work modality must be flexible and adaptable to new situations, and the company must have a dedicated manager of management control with experience in leading this type of project. It is not an easy task to introduce a rolling forecast in a company: many frictions can arise with the areas and valuable resources can be wasted if its implementation is not properly managed.

The rolling forecast is a recommended tool for companies with a business model that varies in the short term.

Or put another way, it doesn’t make much sense in companies with long sales cycles, for example, or that provide long-term leasing or concession services. In these scenarios, the numbers do not usually change as much in the 30 or 90 days between one rolling forecast and another, so its implementation would be rather a misuse of resources.

There is a risk of slowing down aspects of the operation and strategic decisions by waiting for the results of the rolling forecast to be updated.

This happens in small and medium-sized companies that often need to immediately contrast the planned financial situation against the real one. To solve this, the rolling forecast process must be faster and more efficient, in order to provide business management with all the information it needs as soon as possible.

Final notes

In the current Latin American context, with double-digit average inflation and economies that drive SMEs to the foreign market – which is more volatile than ever -, it is important to keep the finances of companies on a “short leash”. For this, the rolling forecast is a very useful instrument.

Now, in a small and medium-sized company, implementing this type of regular process, as we have seen, implies costs and resource allocations that “hurt” substantially. It is essential in an SME to seek efficiency in these processes and continuous improvement. To achieve this, the software tool to be used is essential: we must make sure that it provides the ideal technological support for the rolling forecast processes so that it, in each year, is carried out with less time invested.

Plika is a software solution for FP&A, that is, for financial management. It is not a Power BI or an accounting system: it is a modeled tool for data manipulation, financial projection and scenario simulation. For all this, and for its facilities to automate repetitive tasks, Plika represents an excellent opportunity to improve rolling forecast processes, as well as to implement them, if your company has not done so yet.

We invite you to learn more about Plika through this explanatory video: click here to watch it. You can also request a personalized demo of the software at no cost or obligation by clicking here.

Until next time!

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