Rolling Forecast: Explained

What is it, how to calculate it, formula, why it's important

As the Chief Financial Officer (CFO) of my company, I am constantly in search of new ways to improve our financial planning process. One of the most useful tools that I have found is the rolling forecast.

What is a Rolling Forecast?

In simple words, a rolling forecast is a forecasting approach in which a company creates financial projections that are continually updated over a specific period. Instead of creating a budget plan once a year, the company keeps updating its forecast regularly. A rolling forecast provides a better ability to adapt to changes in the market, improving a company's financial decision-making ability.

Benefits of a Rolling Forecast

Unlike traditional budgeting, where a forecast is created annually, a rolling forecast offers several benefits:

  • Flexible timing: A rolling forecast allows a company to create financial projections at any time, usually every month or quarter.
  • Improved accuracy: With regular forecast updates, a rolling forecast is more accurate than traditional budgeting. It also helps in identifying trends in the market and the business before they become significant issues.
  • Effective decision making: Rolling forecasts provide regular and current data for decision-making. This consistency allows companies to develop reliable forecasts of future sales and operations.
  • Easy implementation: Implementing a rolling forecast is relatively easy and requires minimal changes to the company's existing systems and processes.

How to Create Rolling Forecasts

Creating a rolling forecast requires a company to follow these simple steps:

  1. Define the forecast period: The company needs to determine the length of the rolling period, such as monthly or quarterly.
  2. Develop the initial forecast: The company uses its historical data and apply it to future projections for a specific period.
  3. Update forecast: After the business achieves its initial forecast, they update it by re-forecasting from the current point forward.
  4. Review the forecast: Review the forecast and analyze the differences between the initial projection and the actual results to identify the causes of variances.
  5. Revise plans: Companies can identify significant risks, opportunities, and invest in targets for the future. The rolling forecasts can provide early warning signs to avoid any potential financial problems.

Final Thoughts

A rolling forecast provides an opportunity for the CFOs to help their company be more agile and make better business decisions by consistently updating their financial projections. It's a powerful tool that helps in improving the accuracy of business forecasting and planning by keeping the executive management informed of financial performance.

I would highly recommend the rolling forecast to any company looking for an effective budgeting and forecasting tool. Not only will it provide valuable information, but it will also help your company stay ahead of the competition.

So why not give it a try and create a new method of forecasting?

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