When it comes to FP&A forecasting, most companies base their long-range forecasts on static planning processes, rather than more relevant, dynamic rolling forecasts that reflect the complexities of the business. Relying on a projection that doesn’t enable continuous monitoring of company performance, instead of implementing a modern, rolling forecast approach, is like using an old-school road map to guide you on a cross-country trip. Why use a paper map when you can get to your destination worry-free with a car GPS system?
Rolling forecasts—forecasts typically updated on a quarterly or monthly basis—can be a game changer. They allow organizations to better align with their strategy, perform more-effective business analysis, and derive greater ongoing value from their budgeting and planning processes. Rolling forecasts make organizations nimbler, able to seize potential opportunities, or better prepared for upcoming roadblocks.
Rolling (forecasts) toward a more strategic focus for FP&A
There is an increasing expectation that strategic guidance—which can be generated through rolling forecasts—emanates from the FP&A team. An Adaptive Insights CFO Indicator report affirmed that need. The survey found that CFOs expect that time spent by the FP&A team on strategic tasks will double by 2020—growing from 11-25% today to 25-50%.
Furthermore, CFOs are looking for their teams to develop the technical and strategic capabilities that support executing approaches such as rolling forecasts. According to the CFO Indicator survey, if the FP&A team could improve only one skill, 29% of CFOs want that skill to be dashboard design and report building, 25% want it to be predictive analytics capabilities, and 19% want strategic modeling of what-if scenarios.
Fortunately, with the increasingly user-friendly experience of dashboard technology, the skills gap is narrowing, which allows more FP&A teams to start instituting rolling forecasts.
FP&A … so little time
So rolling forecasts are a no-brainer? In theory, yes. Yet the near-universal challenge lies in freeing up finance teams to move toward this new approach. There is a significant gap between what CFOs want their teams to be doing and how they actually spend their days. Often-cited research by APQC shows that only 40% of 130 finance executives from very large organizations rated their FP&A capabilities as effective.
Further, Adaptive Insights research shows that 75% of CFOs want their teams to have a significant and strong impact on their organization, yet only 46% expect that their team will have that kind of impact this year. The chief reason continues to be a lack of time for strategic planning.
The clear benefits of rolling forecasts
Despite these time-crunch challenges, the benefits of getting to rolling forecasts are clear. The APQC survey showed that organizations that use rolling forecasts are better aligned with unfolding business strategy, are more effective at business and financial analysis, derive greater value from their budgeting and planning processes, and have more reliable forecasts than those that do not use them. The survey revealed that 94% of businesses that use rolling forecasts described their business analysis as effective. Only 50% of those that do not use rolling forecasts described their analysis that way.
Finance leaders need to clearly promote the many benefits of rolling forecasts and how they can directly impact business results. For example, you can produce a cash flow forecast at the end of a rolling financial forecast process—resulting in a consolidated balance sheet and an accurate view of cash flow for the entire enterprise. Getting C-suite buy-in helps pave the way to get the resources and time needed to develop relevant and robust rolling forecasts.
Moving to rolling forecasts is possible at organizations that have executive support and invest in new, cloud-based finance software. These solutions offer easy-to-navigate dashboards and scores of time-saving hacks that can free finance pros from transactional busywork and allow them to focus on more strategic activities that improve business performance.
Like a state-of-the-art GPS, rolling forecasts can go a long way toward helping you get where you want to go—and position FP&A to be a driver of the business, not stuck in the back seat.
For many companies, the forecasting and estimating process is event or time based and does not accurately represent a consistent set of information across the entire organization. This leads to costly, ineffective planning processes which don’t drive any actionable decisions within the organization. What do you need to get to a more accurate rolling forecast process?
In this webinar, we discuss the process and tools that need to be in place to take your organization from a static and costly process to an agile and informative rolling forecast.