Fixing Forecasting Nightmares

(Late nights in the office, Errors, Too much detail)

If your forecasting is a nightmare, of long nights, Excel spreadsheet error messages and praying that the resulting numbers are right you need to read this paper.  This white paper sets out the foundation stones of a rolling forecast process and how to move from annual planning to a quarterly rolling planning process. The secrets of rolling planning are revealed at last.  In addition to the white paper you get a comprehensive tool-kit for a fast start including checklists, selling the change presentation, and workshop materials.  To find out more about the white paper and it’s contents. click here 

Re-forecasting the year-end position every month is flawed on a number of counts, it never looks further than year-end, each month the forecast changes creating number noise, the opportunity to set realistic reporting targets for the on-coming quarter is not taken up, the forecast model frequently is based in error prone Excel, and seldom do budget holders buy-in to the forecast as they were not involved in the numbers.

Does this sound familiar? If so, read this free article for more information on how to change this.

What is a quarterly rolling forecast (QRF) process?

The quarterly forecasting process is where management sets out the likely revenue and expenditure for the next 18 months.  Each quarter, before approving these estimates, management sees the bigger picture six quarters out. All subsequent forecasts while firming up the short-term numbers for the next three months also update the annual forecast. Budget holders are encouraged to spend half the time on getting the detail of the next three months right, the red zone as shown in exhibit 1.1, as these will become targets, on agreement.  The balance of the time then to be spent forecasting the remaining next five quarters.

Each quarter forecast is never a cold start as they have reviewed the forthcoming quarter a number of times. Provided you have appropriate forecasting software, management can do their forecasts very quickly; one airline even does this in three days!!  The overall time spent in the four quarterly forecasts during a given year is five weeks.

Most organisations can use the cycle set out below if their year-end falls on a calendar quarter end. Some organisations may wish to stagger the cycle say May, August, November, and February.  I will now explain how each forecast works using a June year-end organisation.

How the rolling forecast works

Exhibit 1.1 How the rolling forecast works for an organisation (June year-end)

The time is right for QRF and QRP

The time is right for quarterly rolling forecasting and quarterly rolling planning as the standard annual planning process:

  • takes too long,
  • is too costly
  • is not focused on performance drivers,
  • is not linked to strategic outcomes or ‘critical success factors’,
  • leads to dysfunctional behaviour, building silos and barriers to success
  • undermines monthly reporting (monthly budgets are poor targets)
  • is not appropriate for a dynamic company in a rapidly changing environment

The answer is to “throw away the annual budget and its associated processes, smart organisations do not do an annual planning process anymore”. These smart organisations have moved to using quarterly rolling planning.

How do I get started with QRF and QRP

  1. Change the mindset around annual planning . It  will require a major exercise in selling change as set out in my chapter from The Financial Controller and CFO’s Toolkit
  2. Establish the new foundation stones around a fast light touch where the annual plan is established in two weeks because business heads are  not  required to forecast in great detail and they are told the funding is now on a quarterly basis and not based on the annual plan. Read my IBM sponsored paper How to Implement a Planning Tool and Get It Right First Time.
  3. Acquire and implement a planning & Forecasting tool. Read my IBM sponsored paper Why you need a planning tool and how to sell the concept to the senior management team and the Ballance Case Study Implementation of TM1 by Ballance Agri- Nutrients Ltd
  4. Commence quarterly rolling planning using the new foundation stones around a fast light touch

You can acquire detailed whitepapers on the topic


David Parmenter

Forecasting & Planning Papers

How to Implement a Planning Tool and Get It Right First Time
Why you need a planning tool and how to sell the concept to the senior management team

IBM have commissioned me to write two papers which are available on their website for free.