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Your Monday morning insight: 10 best practices for rolling forecasts
Delaney Turner 270002T14M firstname.lastname@example.org | | Tags:  forecasting budgeting cognos_planning cfo
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As a follow-on to the recently released IBM CFO Study and in advance of our IBM Cognos Virtual Finance Forum, we've put together 10 best practices (in no particular order) for rolling forecasts that should help anyone exploring this path. Rolling forecasts form the framework of a well-oiled information system that connects your entire organization and provides your executives and other decision-makers with a continuous, panoramic view of where your company is and where it’s going. In short, they should be on the agenda of any company looking to improve its performance the right way.
If you're new to the concept, never fear. You can get more details from two recent white papers: How Performance Management Can Help You to Navigate through Turbulent Times: Know Where You’re Going in the Short Term by Jeremy Hope, and Next-generation forecasting: How rolling forecasts can rescue your company’s performance. You can also sign up for our May 19 Virtual Finance Forum.
1. Involve senior management early. Little can be done in a company without the support of senior management. Engage them in the rolling forecast process as soon as possible, but make sure you emphasize that their role is to challenge and support rather than command and control. They should also facilitate system training and participate.
2. Focus on critical drivers and avoid excessive details. A driver-based approach to forecasting helps managers focus on what’s really important. In addition, driver-based forecasts are easier to input and facilitate top-down KPI and goal-setting. To make sure you are focusing on the right things, identify which factors actually drive your business and try not to get bogged down in details that aren’t relevant. You also need a disciplined strategic approach to get management to agree on what will be key to their success.
3. Use a performance management solution that automates the forecasting process, links plans and reports and offers modeling capability. To get the most out of rolling forecasting, look at options that incorporate your overall budgeting, forecasting, planning and strategic management needs. Automated performance management solutions can easily import data from a number of core systems—general ledger, enterprise resource planning (ERP), spreadsheets and corporate data
4. Train system users. Not only does training build users’ capabilities in strategy, planning, forecasting and decision-making but it also enhances buy-in. Training also serves as a forum to discuss user requirements and agree upon common definitions.
5. Make sure your forecasting time frames and schedules are appropriate for your business needs. Don’t make the mistake of thinking that rolling forecasts should follow a standard calendar. The frequency of your rolling forecasts and the periods they encompass should depend entirely on your business. In a fast-changing market, preparing forecasts monthly that look forward by 12 months might be appropriate. But in a capital intensive business, developing forecasts quarterly with a view to 18 to 36 months ahead might be the way to go.
6. Continually improve your forecasting processes to ensure that they’re meeting the needs of your users and your company. It’s important that you have standards in rules in place that can help you A) check where you are today and where you are heading in the near-term; B) plan what you should do if conditions change and C) make adjustments where necessary. For example, consider creating clear methods of standardizing inputs to the sales-forecasting process. If all your sales people adhere to the same rules in classifying opportunities, the forecast model will at least be based on similar data standards each time it is run.
7. Keep your rolling forecasts separate from target setting, performance measurement and rewards. The purpose of rolling forecasts is to provide a better framework for decision-making so company leaders can shape better business outcomes. They should not be used to reward or motivate behavior or make commitments and control performance.
8. Make sure that your forecasting models are consistent and aligned. Consider using dedicated models. Sophisticated models are now available that allow organizations to prepare forecasts quickly (in days and not months) and consolidate reports. Teams and business units can create business rules and structures and then modify models as their business evolves, easily accommodating changes such as added locations, new or discontinued product lines or restructured cost centers.
9. Involve as many participants as possible. Involving executives, lines of business managers, operational managers and other business users in the rolling forecast process is one of the best ways to ensure reliable and realistic forecasts. This is because those who can produce the best projections of business activities are those who undertake and are responsible for those activities.
10. Make sure that your rolling forecasts are top-down projections that are separate from your operational budget. A rolling forecast is a “big picture” view and should be treated as an opportunity to convert the concepts your strategic plan into specific financials, metrics and actions. Design your rolling forecasts so that they prompt managers and other decision makers to look beyond their budgets and short-term goals and focus on your company is going.
Ready to start with any of these steps? These links will lead you the right way: