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How Rolling Forecasts Can Integrate Business Processes

  • By Nilly Essaides
  • Published: 9/16/2015
forecastlinesWhen implementing a rolling forecast, the financial planning and analysis (FP&A) function would be wise to involve executives from other groups in the process. It’s important to keep the number manageable; too many participants will slow down the process. But choosing the right stewards of key functions better links the forecast to the business operations.
 
“If the rolling forecast is not harmonized, it creates problems,” said Larysa Melnychuk, a London-based FP&A consultant. “If the forecasting is not in sync with strategic planning and uses the same drivers, that creates problems. Operational planning should feed the forecast. It’s important to align through drivers in the system. Many companies around the globe are not there yet. The practice is called harmonized planning or integrated planning.”

According to Melnychuk, this is where FP&A can help to speed up the process and help the business. “Rolling forecasts can be so helpful integrating planning and analytics, because a good rolling forecast is a good basis for a predictive analytics through key business drivers, a platform to quick decision-making,” she said.

This is important for companies that are in the early stages of rolling forecasting adoption. At one U.S. retailer, the forecasting process is being revised to head in that direction. “We’re updating our forward look and using that heading into the budgeting forecasting,” the company’s FP&A chief said. “We have streamlined it and we have a very forward view—the rest of the year, plus next year. We look at 18 months.”

The forecast is driver-based. One key driver, for example, is inventory flow. “The buyers need to make decisions six to nine months in advance anyway,” said the FP&A director. “We’re basically taking what some groups were already doing informally and getting those forecasts aligned with the rest of the organization and pulling a P&L forecast from that. Our buying cycle is such that there are a lot of activities that impact beyond the current year. We had people doing that on an ad hoc basis before. Now the entire organization embraced it. Much greater alignment, which means clarity accuracy and efficiency.”

The process was first implemented it in 2013. It’s taken a little while to get into the rhythm, but it’s been “getting better and better,” according to the FP&A director. The biggest challenges for the company were simply learning to work together and teaching each group to think in financial terms. For example, marketing was comfortable providing revenue numbers but was not accustomed to providing associated costs.

“It was financial rigor that everyone need to get accustomed to,” he said. “How each quarter played out was not a big concern. “While we stumbled initially, now the process is much more collaborative and financially oriented. If it’s not grounded in numbers, don’t even talk to us. That took a little time for people to understand. It takes a little while to get use to the concept.”

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