How Rolling Forecasts Can Provide More Clarity

Over the last three years, economic volatility and supply chain disruptions have provided a stark lesson on the weaknesses of traditional budgeting and forecasting methods. Under the best of circumstances, it’s difficult for manufacturers to forecast their performance over the coming year. When economic and market conditions are prone to change suddenly and unexpectedly, a traditional static forecast can quickly become obsolete. That’s why many manufacturers have adopted a rolling forecast model.

Static vs. Rolling

The problem with static forecasts is that management tends to view them as once-a-year events. Once the annual budget is set, managers may not compare actual to forecasted performance until year end. Even if they do recognize midyear that changed conditions have caused the company to fall short of its goals, they may not have the wherewithal to redo the budget.

With a rolling forecast, rather than setting a one-year budget and forgetting about it, management revisits the budget periodically — quarterly or monthly, for example — and adjusts the numbers to reflect changing circumstances. Let’s say you create your budget on January 1, 2023, and your rolling forecast calls for you to budget four quarters ahead. At the end of the first quarter of 2023, you’d revisit your budget, tack on a new fourth quarter (the first quarter of 2024) and adjust the numbers based on current conditions.

Rolling Benefits

Benefits of rolling forecasts include:

Improved accuracy. By comparing actual to forecasted performance more frequently, and updating the numbers in real time, your forecasts become much more reliable and valuable as a planning tool.

Increased agility. Updating your forecasts regularly allows you to spot trends early and make necessary adjustments for unexpected events or evolving market conditions before it’s too late.

Contingency planning. Some manufacturing processes rely heavily on a particular raw material or component part. Creating “what if” scenarios allows you to see how a sudden price increase or shortage would affect your performance and put contingency plans in place to mitigate the impact.

Automate the Process

You may be concerned that switching to rolling forecasts will make the budgeting process more costly and time-consuming. But once rolling forecast processes are put into place, most manufacturers find that they’re less disruptive than a once-a-year budgeting process. Budget and forecasting software is available to automate the process. Contact us or your financial advisor to determine if a rolling forecast is right for your business.