Financial forecasting is a critical element of a successful business strategy. However, the traditional approach to forecasting, the static forecast, is no longer cutting it in a changing, dynamic business world. Today, companies need to be agile and adapt to changing market conditions and strategies. The solution? The rolling forecast.
Static Forecasting vs. Rolling Forecasting
Static forecasting provides a snapshot of a company's financial future based on historical data, business assumptions, and market conditions. Once created, static forecasts typically remain unchanged for a given period, which is typically a year. On the other hand, rolling forecasting updates a company's financial plan regularly, typically monthly or quarterly, to reflect the impact of new data, market conditions, and business strategies.
Five Reasons Companies Should Consider Moving to a Rolling Forecast
- Greater Accuracy
A rolling forecast allows companies to adapt to changes in market conditions or business strategy in real time. This means that forecasts are more accurate and reliable than static forecasts, which are often outdated by the time they are created. - Improved Flexibility
Rolling forecasts provide business leaders with more flexibility to make informed financial decisions on the fly. Companies can spot potential problems and seize new opportunities, which can help them stay ahead of the competition. - Better Strategic Planning
Rolling forecasts allow companies to plan from the ground up with a focus on the most critical areas of their success. This means that plans are more strategic and better aligned with business goals. - Increased Agility
By updating forecasts regularly, businesses can identify more quickly which strategies work and which don't, enabling them to respond and adjust more quickly to change. - Enhanced Data Visibility
Rolling forecasts allow companies to gain a more comprehensive view of their operations, which enables them to make more informed financial decisions.
Industries That Benefit the Most from Rolling Forecasts
While all industries can benefit from a rolling forecast, certain industries can benefit particularly. These industries include:
- Healthcare - where financial planning needs to be especially agile and adaptable due to rapidly changing regulations and market dynamics.
- Retail - where the forecast needs to be updated regularly to reflect changes in consumer demand and seasonal trends.
- Technology - where markets are particularly dynamic, and new players come on the scene quickly.
- Manufacturing - where the supply chain is complex and the forecast needs to consider variables like shipping costs, inventory levels, and raw material prices.
- Real Estate - where the forecast must factor in complex variables such as interest rates.
