Step up your FP&A game with rolling forecasts
When it comes to FP&A forecasting, most companies base their long-range forecasts on static planning processes, rather than more relevant, dynamic plans that reflect the complexities of the business.
Relying on a forecast that doesn’t enable continuous monitoring of company performance, instead of implementing a modern, rolling forecast approach, is like using an old-school road map to guide you on a cross-country trip: Why use a paper map when you can get to your destination worry-free with a car GPS system?
Rolling forecasts—forecasts that are updated typically on a quarterly or monthly basis—can be a game changer. They allow organizations to better align with their strategy, perform more-effective business analysis, and derive greater ongoing value from their budgeting and planning processes. Rolling forecasts make organizations nimbler, able to seize potential opportunities, or better prepared for upcoming roadblocks.
Rolling toward a more strategic focus for FP&A
There is an increasing expectation that strategic guidance—which can be generated through rolling forecasts—emanates from the FP&A team. An Adaptive Insights CFO Indicator report affirmed that need. The survey found that CFOs expect that time spent by the FP&A team on strategic tasks will double by 2020—growing from 11-25% today to 25-50%.
Furthermore, CFOs are looking for their teams to develop the technical and strategic capabilities that support executing approaches such as rolling forecasts. According to the CFO Indicator survey, if the FP&A team could improve only one skill, 29% of CFOs want that skill to be dashboard design and report building, 25% want it to be predictive analytics capabilities, and 19% want strategic modeling of what-if scenarios.
Fortunately, with the increasingly user-friendly experience of dashboard technology, the skills gap is narrowing, which allows more FP&A teams to start instituting rolling forecasts.
FP&A … so little time
So rolling forecasts are a no-brainer? In theory, yes. Yet the near-universal challenge lies in freeing up finance teams to move toward this new approach. There is a significant gap between what CFOs want their teams to be doing and how they actually spend their days. Often-cited research by APQC shows that only 40% of 130 finance executives from very large organizations rated their FP&A capabilities as effective.
Further, Adaptive Insights research shows that 75% of CFOs want their teams to have a significant and strong impact on their organization, yet only 46% expect that their team will have that kind of impact this year. The chief reason continues to be a lack of time for strategic planning.
The clear benefits of rolling forecasts
Despite these time-crunch challenges, the benefits of getting to rolling forecasts are clear. The APQC survey showed that organizations that use rolling forecasts are better aligned with unfolding business strategy, are more effective at business analysis, derive greater value from their budgeting and planning processes, and have more reliable forecasts than those that do not use them. The survey revealed that 94% of businesses that use rolling forecasts described their business analysis as effective. Only 50% of those that do not use rolling forecasts described their analysis that way.
By promoting the benefits of rolling forecasts and how they can directly impact business results finance leaders can garner the support and resources required to build this competency for their companies. For example, a cash flow forecast can be produced at the end of a rolling financial forecast process—resulting in a consolidated balance sheet and an accurate view of cash flow for the entire enterprise. Getting C-suite buy-in helps pave the way to get the talent, systems and time needed to develop relevant and robust rolling forecasts.
Moving to rolling forecasts is possible at organizations that have executive support. Well trained FP&A professionals and today’s technology solutions make the rolling forecast available to any business ready to invest in the financial insight the rolling forecast provides. Most solutions offer easy-to-navigate dashboards and scores of time-saving that frees up finance pros from transactional busywork and allows them to focus on more strategic activities that improve business performance.
Like a state-of-the-art GPS, rolling forecasts can go a long way toward helping you get where you want to go—and position FP&A to be a driver of the business, not stuck in the back seat.
This article was first published on the Adaptive Insights Blog where you can find links to the highlighted items above.
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