Most budgets are out of date within a few months. A rolling forecast fixes that by always looking twelve months ahead and updating every month with actual results.
Why static budgets fall short
An annual budget is a useful target, but it is built on assumptions made months before the year starts. When sales, costs or hiring plans change, the budget stops being a guide and becomes a historical document.
How a rolling forecast works
- Close the month. Accurate actuals are the foundation of every forecast.
- Update the drivers. Revenue, headcount and key costs are revised based on what you now know.
- Add a month. The forecast always extends twelve months forward.
- Review with leadership. Agree what changed and what you will do about it.
A forecast is only useful if the people running the business trust it and open it every month.
Keep it simple
Focus on the ten to fifteen drivers that move your results. A model with hundreds of inputs is hard to maintain and harder to explain.
AJB's FP&A team builds and maintains rolling forecasts as an embedded part of clients' finance functions. Learn about FP&A & Analytics.
