In this blog post we will dive into rolling forecasts. What are they? When do you need them and what are the pros and cons? Get your answers in our beginner’s guide to continuous performance management.  

Since this guide is long and detailed, you can use the links below to jump directly to the sections that are relevant to you.

Table of contents

1. What are rolling forecasts?
1.1 Overview of forecasting
1.2 Rolling forecasts as a tool for finance and sales
2. Pros and cons of rolling forecasts
2.1 When do rolling forecasts make sense?
3. Why it’s recommended to use a specialized solution

1. What are rolling forecasts?

Rolling forecasts are a specific type of forecasting that use existing data to help predict aspects of business performance throughout the year. In this process, new forecasts are regularly prepared for a specific period on an ongoing basis. They are most often used in finance but can be equally helpful in sales and other functions.

Need a general overview or refresher? In the first section, we’ll explain some of the more general aspects of forecasting. Ready to dig deeper into the details? Jump to the second section, where we dive straight into specifics of rolling forecasts

1.1 Overview of forecasting

Forecasts are a key tool used in finance and sales, and common in medium-sized and large organizations. When many departments and/or branches are networked, maintaining a certain level of complexity becomes a challenge. The purpose of forecasting is to identify expected deviations from the plan at an early stage so that the organization can react accordingly. For example by quickly adjusting the budget.

When and how often forecasting is carried out, and what data is used for it, varies from organization to organization. Similarities can be found within specific industries or markets. Forecasts can be made both regularly and irregularly – i.e. “ad-hoc.” It is important to note that forecasts are not to be used as a prediction tool, but rather as an indication of necessary changes to achieve operational and strategic goals.

For this purpose, forecasts can be created in different departments of the business, for example as sales or financial forecasts, as well as based on different underlying values. Plan values can be compared with forecast values or actual values with forecast values as a basis for comparison.

For the forecast itself, you can include different types of data. Certain value drivers, such as prices or quantities, can be considered as well as non-financial data (e.g. effects of new competitors on the market, weather etc). In general, however, it is recommended to keep the various datasets for the forecast precise but manageable. This reduces the effort and expense involved, and at the same time optimizes your use of the tool.

The key element to all forecasts is that they are created for a specified period of time. The period used depends on the industry and the current or standard market volatility in that industry.

1.2 Rolling forecasts as a tool for finance

Rolling forecasts are used periodically throughout the fiscal year. They either serve as a supplement to the fiscal year forecast, budget and other plans or completely replace the annual forecast. For rolling forecasts, an interval is defined at which you create and review forecasts. Since there isn’t a universally standard interval, it must be evaluated individually for each organization

Rolling Forecast Example En

The graphic above shows an example of a quarterly interval with a forecasting horizon of 12 months. However, a weekly or monthly interval is equally possible – the same applies to the forecast horizon. Figuratively speaking, this is the size of the “roll” moving ahead, which always remains the same. This is because with each interval a new forecast is added to the end of the existing 12-month forecast. To put it differently: the existing 12-month forecast is extended.

It is important to note that forecasting this way is more accurate. It becomes increasingly time-consuming the more often it takes place (the interval) and becomes less precise, the broader the forecast horizon. However, since we understand forecasts as a tool for finance, a higher degree of inaccuracy can be counterproductive.

Rolling forecasts are useful as a management tool because, unlike annual plans, you always look at the same time horizon (e.g. 12 months) – regardless of the current fiscal year. Thus the problem of traditional plans, where only a few months or even just one month of planning data is available towards the end of the year, is zeroed out. In addition, forecast values are more up-to-date and more useful for making informed decisions. This helps to keep your organization on track through better insight and better decisions.

2. Pros and cons of rolling forecasts

Regularly considering new data and factors helps to quickly identify probable deviations from plan and to counteract these by taking appropriate measures. With the introduction of rolling forecasts, you also ensure a look beyond the current fiscal year by continually supplementing and adjusting plans. The approach thus also takes into account the fact that business planning for maximum value creation should be a continuous process.

There are two key reasons for this:

  1. Markets are increasingly volatile due to globalization and the increased internationalization of financial capital. Planning that is not seen as a process but as a static task that has to be brushed off once a year is no longer sufficient.
  2. Concrete plans are generally all the more valuable the more up to date they are. This also means that new factors are taken into account during the course of the year if necessary. With the approach, you prevent plans from deviating so far from reality that they no longer provide any value.

So, rolling forecasts are a great tool, right?

There are still a few things to consider. It is possible for rolling forecasts to replace annual forecasts, but in reality, they are more likely to be used as a supplement to existing enterprise performance management tools. One reason for this is that in most cases, plans are still prepared on a fiscal year basis, which has been the standard for a long time. This means that organizations have to keep a focus on their annual financial statements.

If you also use rolling forecasts, this means additional work, the scope of which needs to be carefully monitored. Therefore, it is also important to include less detailed information and only the most important KPIs in your rolling forecasts. Ideally less detail than in a larger and more complex year-end forecast. The interval and horizon for the rolling forecasts should be carefully planned to avoid unnecessary work and keep the forecasts as accurate as possible.

2.1 When do rolling forecasts make sense?

Market volatility is constantly increasing. Traditionally volatile sectors have been even more unpredictable, but even comparatively stable sectors are showing more volatility, irregularity, and uncertainty. Solid planning is even more important to manage these uncertainties. Rolling forecasts can be an extremely useful tool to help your organization navigate these issues with increased clarity and focus.

The following rule of thumb is a useful guide: The higher the market volatility in a particular industry, the shorter the interval for creating, reviewing, and adjusting rolling forecasts should be. Conversely, if market volatility is low, a longer interval is sufficient.

If you notice that actual and planned data in your organization or department regularly deviate, it is worth considering the introduction of rolling forecasts to better understand and manage the deviations.

3. Why it’s recommended to use a specialized solution

As we mentioned above, rolling forecasts often do not replace the forecasts already in use in many organizations. Rather, they serve as a supplement to an existing approach. In practice, this means one thing above all: additional work for Finance, who are already very busy. Especially if their tasks are only supported by Excel on the software side.

To implement continuous performance management with rolling forecasting, a specialized solution is therefore highly recommended. Having timely forecasts at hand is great. If you can’t act on their results, however, all the work that goes into them is wasted. Automating processes and unifying them to free up time for analysis and recommendations of action must come with the agile approach.

Read more tips for successful implementation in our blog post “5 Tips for Implementing Rolling Forecasts.”