“Whether it is a temporary phenomenon or a permanent structural shift, the market’s increased volatility and uncertainty makes planning and budgeting hard for finance staff. How can Finance plan effectively without an idea of what the future looks like?”This quote was taken from the recent post, Does Rolling Forecasting Work?, which examines business sustainability planning in the continued volatile market. Agreeing that the dynamic nature of the recovery has thus far been responsible for slow growth, prominent economist debate how to most effectively budget and invest capital in the coming year.
Most major companies we work with in our business sustainability consulting utilize some sort of forecast to predict and mitigate future risks. Presented in the article is the concept of a ‘rolling forecast’ and its applicability in a seemingly unpredictable business environment. Taking a more sustainable long-term perspective, the post presents the following comments on trend-based forecasting:
- More drag, same accuracy: Companies using rolling forecasts report less efficient performance management processes and no improvement in forecast accuracy. They update forecasts more frequently, creating additional work for the business and finance, but their forecast accuracy does not improve.
- Better (adjusted) target-setting: Despite weak efficiency and average forecast accuracy, companies using rolling forecasting are more satisfied than others with their overall forecast output. Why? Well, these companies do report one very important improvement. They have more insight into the drivers of performance, and this allows them to better adjust targets mid-year.
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