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The Rolling Forecast Philosophy: Time to Abandon the Budget?
Rolling Forecasts are an essential tool for financial planning and analysis (FP&A), with the potential to radically transform the traditional corporate budgeting process. If implemented properly, a rolling forecast expands planning horizons, reduces planning cycles, and helps in executing organizational strategies.
I had the honor of moderating a global webinar focused on how to effectively implement and execute a rolling forecast, and the value of investing in a dynamic forecasting philosophy. The featured speakers delivered nothing short of compelling experiences and insights. Larysa Melnychuk, the founder and managing director of FP&A Trends Group and the founder of International FP&A Board, shared her insights and experiences in moderating International FP&A board meetings across the globe. Matthijs Schot, Head of Group FP&A at Maersk Group and a member of London FP&A Board, shared his company’s experience reactive to implementing a rolling forecast and going beyond budgeting.
I wanted to share just a few of the great insights and take-aways they offered to our webinar attendees. Larysa offered seven key rolling forecast success factors.
Culture - the right culture for a rolling forecast is a must as a rolling forecast is not a just measurement, it is a management tool.
People - companies need to have staff with the right skill sets which include the ability to build models, understand the “big picture”, communicate effectively, and serve as business partners across the enterprise.
Systems & Models - models need to be driver-based, and have a foundation of advanced analytics. The technology leveraged can’t exist in “black-boxes”. People need to know what they are doing and why they are doing it. Technology and modeling need to be managed by Finance.
Processes - need to design out bias (less judgment, more data-driven), projects and changes should be based on clear adjustments, and forecast adjustments should be minimal if not prohibited.
Design - the pillars of design should be the forecast horizon, the details, the frequency and the speed of forecast generation.
Integration - the top-down and bottom-up processes need to be harmonized through common drivers and systems
Collaboration - the forecasting process should be participative, but not over-crowded. Companies need to define key participants, invest in training them, and implement a participative process by leveraging modern systems that support collaboration across departments and international borders.
Matthijs shared the journey taken by Maersk from a static planning environment to a dynamic planning environment that leverages driver-based forecasts. The following graphic illustrates the planning environment at the start of the journey.
Relative to a key rolling forecast success factor discussed by Larysa, Matthijs shared the design criteria leveraged by Maersk:
In terms of how Maersk executes successfully in a continuous planning cycle Matthijs shared the following:
The key benefits realized by Maersk in operating in a dynamic planning environment include the following:
- Increased visibility across the enterprise
- Impactful and well-informed performance discussion
- Better performance targets
- Dynamic capital allocation based on the right opportunities
- Better and faster decision-making
In terms of traditional static versus a rolling forecast Larysa & Matthijs offered the following key conclusions:
- A traditional static forecasting process has many limitations.
- A successful transformation from a static to a dynamic planning environment requires executive and management buy-in. This includes a willingness to invest resources and show patience to realize the benefits, there are no shortcuts.
- A rolling forecast offers a better alternative as it gives better perspective and flexibility, and empowers business agility.
- A dynamic planning environment empowers companies to successfully weather and/or capitalize on market volatility to deliver better business results.
The recording of this webinar could be accessed here.