Modern Climates Need Modern Trends: Rolling Forecasts in PBCS
One of the most common financial forecasting trends we see being implemented across clients is the rolling forecast. As we’ll describe throughout this post, rolling forecasts are very useful and can provide insight that traditional “static” forecasts can’t. To some organizations however, they may seem like a difficult change to introduce. In reality, the change is much easier to make, and welcomed by those who truly understand the need for meaningful forecasting!
“Over half of executives surveyed said their company could forecast no further than six months into the future. To alleviate this short-sightedness, companies are turning to continuous planning.
73% of respondents agreed or strongly agreed that they now have more of a culture of continuous planning.”
- FSN’s Modern Finance Forum
The Future of Planning, Budgeting, and Forecasting
How Can A Forecast Roll?
A rolling forecast takes a traditional forecast and turns it into a living, moving, projection that provides much more use beyond the end of the fiscal year. Essentially, this type of forecast hinges on using a set number of months (12, 18, 24, etc.) that continually roll over each month, incorporating actuals along the way.
For example, a 12-month rolling forecast will always stay at 12 months. As each month closes, actuals are brought in for the closed month and the forecast is pushed out one month further. The forecast is then updated to take the most recent actuals into account. This provides the ability to understand and adapt to long-term changes much earlier than a static forecast that gets shorter with each passing month.
Seeing Past the Forecast
Many companies operate on a fixed forecast period based around the fiscal year, and build off of a budget that does not take the most recent data into account. This results in forecasts that get shorter with each passing month and provide less visibility into long-term planning. Too often, planners and analysts in this situation make comments like these:
“We’re in good shape to finish out FY19, but I have no idea about next year.”
“How will manufacturing changes now affect my P&L in 18 months?”
“Starting a new forecast takes me days, if not a full week or more!”
“I guess I’ll use the current year’s budget as a starting point for our Q4 forecast.“
Rolling forecasts can help alleviate some of these pain points (as well as reduce these types of comments). In an effective EPM system, forecast periods move with each closing month, enabling a continuous planning process. A few of the benefits of this are:
No Fixed “End” Period – Always able to forecast for ‘N’ number of months
Driver Based – Build a quicker, more accurate, forecast by applying key drivers, metrics, and assumptions
Incorporate Actuals – Build an agile forecast by utilizing the latest actual data, instead of backing into a target number
Rolling Forecasts in Oracle PBCS
Implementing a rolling forecast can vary across EPM systems – here is one way it can look in Oracle’s Planning and Budgeting Cloud Service (PBCS).
Choose the Forecast Period
Modern forecasts have a set of rotating “open” months, which can be decided on based on business needs. Typically, the open months roll across 12, 18, or 24 month periods, but can be shorter or longer if the business model calls for it.
Optimize the Forecast Process
Make use of PBCS’s out-of-the-box functionality to simplify and increase the efficiency of the forecasting process. Achieve this by running PBCS processes to roll the forecast forward and calculate with stored drivers, assumptions, and variables.
Incorporate Closed Months
Load actual data from the system of record by automating it through Oracle’s Cloud integration tool. Then apply the previous month’s actual data and drivers into the forecast setup process to plan off of the latest data available.
Analyze Trends and What-If Scenarios
Tweak the forecast, or run projections based off of potential outcomes by updating data in PBCS. Plan within different versions and choose the one that fits the best.
Next Month, Roll Over!
When the month becomes closed, it is then loaded as the latest actuals for the next forecast, and the forecast periods are shifted. Then, simply run the forecast setup calculations to automatically update projections.
Sit Back, Relax, and Forecast
Clearly, rolling forecasts can offer much more perspective for your outlook than a traditional static forecast. By automating them in PBCS, they are straightforward and do not take much effort or time to manage. Once they are put into place, more time can be spent analyzing and strategizing, as opposed to building. When the true benefits of a change like this are realized, it becomes a simple decision that will have planners rejoicing!
For more information on rolling forecasts or to schedule a more in-depth demonstration, contact us!