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BEST PRACTICES - Rolling Forecasts

The objective of Rolling Forecasts/Continuous Planning is to make planning more than a "once a year, one time" event; which can turn a plan into quickly forgotten and irrelevant credenza-ware. There is wide variability around exactly how this approach has been implemented. Some companies employ a rolling four quarter or six quarter forecast, which simply means that each quarter the company projects four or six quarters ahead. Others companies finalize an annual plan, then review it on a monthly basis and re-project the balance of the year expected results (while sticking to a more traditional calendar for planning the upcoming year).

If Implemented Well If Not Implemented Well
Encourages managers to think about planning as an ongoing process, rather than a static event.

Opportunity to provide more "real time" response to rapidly changing environment.

In theory, the annual planning process is eliminated. The projection for next year is simply the first rolling forecast that looks at all four quarters of the following year.

Planning is not necessarily dictated by the calendar, but can be triggered by important changes.
Garbage in garbage out. Asking for information more frequently does not necessarily mean that information will be well developed or useful.

Changing templates doesn't necessarily change attitudes. If planning isn't taken seriously today, new quarterly templates won't - on their own - change that.

Many dot com companies embraced "continuous planning"; but found that perpetually changing direction and hyper responsiveness created confusion, a lack of focus and priorities, and an inability to achieve goals.

Marketing driven companies often need to build their marketing plans (i.e., advertising and promotion campaigns) on an annual basis, and a partial view - as you will get with a rolling four or six quarter forecast - into the following year lacks meaning and context.

Potential to undermine commitment to key plan targets. Constantly changing assumptions and the financial implications of those assumptions tends to invalidate targets, along with the commitment to achieve them.


Can this work for my company?
If a company completes an annual plan, then locks it away until the end of the year to see how they did, clearly that's a waste of time. If that describes your company, we suggest that you institute a process in which the organization reviews actual results against the plan, say on a quarterly or even monthly basis, and then adjusts the balance of year forecast to take into account any significant changes. This alone will save your plan from becoming credenza-ware, will greatly improve results, and falls into the lose definition of rolling forecast/continuous planning.

If your company is already doing this (producing an annual plan, reviewing it on a quarterly or monthly basis and updating the balance of year forecast accordingly) and are considering implementing the more text book version of Rolling Forecasts/Continuous Planning, you've got a few things to consider. The first is how often you want to produce a forecast and for what period of time.

For instance, a Rolling Four Quarter Forecast means that at the end of each quarter, a company projects four quarters out (regardless of whether any of those quarters fit into the current calendar year or the following year). From that definition, you can guess at what a six quarter or eight quarter rolling forecast consists of. A Continuous Planning process implies that a company is "continuously" planning - assessing and updating its plans based on any important changes. In the textbook definition of continuous planning, the planning calendar is thrown away, and their are no defined planning periods.

We recommend considering implementing rolling four or six quarter forecasts under certain circumstances (see below) but generally avoid the textbook version of continuous planning. While we believe that managers need to constantly be assessing their business and the implications of important changes; good managers will do this anyway, they don't have to be told. Official, scheduled plan updates or forecasts just formalizes this process; takes a snapshot if you will, and ensures coordination and communication. From a practical, real world perspective, if you throw away the planning calendar and announce that the company will "continually plan" you'll be left with whatever managers are doing today between official plan updates (be that good or bad).

You may want to consider implementing rolling four or six quarter forecasts if your company meets this criteria:

There is little need for coordination between functions. Each area is somewhat "self contained".
Marketing is NOT a driver.
You're in a stable business; economic models can be back tested and prove highly reliable.
Planning is taken seriously today, not just a fill in the numbers exercise.
There is little to be gained from taking a more broad based, strategic view of the business.

 
  ROLLING FORECASTS
  BUTTONWOOD VP
  BALANCED SCORECARD
  VBM / EVA
  ACTIVITY BASED BUDGETING
  ZERO BASED BUDGETING
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