The study “Innovation in the finance function“, published by Eight Advisory in 2023, provides a detailed insight into the performance management practices of 40 major French companies.

Of the companies we surveyed, 91% said they maintain a traditional budgeting approach. Budgeting is a ritual that is embedded in the DNA of many companies, and rightly so. It sets the course and translates corporate strategy into an operational plan. It also serves to set performance targets and clarify what resources are available to achieve those targets.

However, the budgeting process presents a number of difficulties:

The process is lengthy and represents a major effort (several months), that mobilises the operational, financial and management teams over a long period of time,
The budget forecasts relate to the current year and do not allow any forecasts to be made for subsequent years,
Orchestration is complex as all the functions have to be resynchronised within a short period of time,
In a VUCA environment (Volatile, Uncertain, Complex, Ambiguous), forecasts made at a specific point in time are quickly outdated.

Other alternative management methods can overcome these challenges and optimize the process at the same time. Among these, the Rolling Forecast is in first place and is used by 20% of the companies surveyed in the study. We wanted to take a look at the Rolling Forecast and give you some advice on how to use it to its full potential.

2. Rolling Forecast, what does it contain?

The Rolling Forecast is a management tool that complements the traditional budgeting approach, and enables the optimisation of the forecasting process. It should be seen as a genuine corporate project, as its implementation has a structuring effect on the entire decision-making process.

The Rolling Forecast is comparable to a current forecast of recent events and progress. It relates to future periods and should not be confused with related concepts such as the budget reforecast, which always relates to the financial year.

A rolling period of fixed duration, generally between 12 and 18 months, is used to update:

Forecasts of operational indicators (performance),
Financial forecasts.

The introduction of the Rolling Forecast has the following advantages:

A link is established with the company by continuously involving it in the forecasts and triggering corresponding action plans,
Tracking the implementation of the strategy without a “stop & go”,
Reflecting reality as accurately as possible, based on the latest data and events, to improve decision making,
Reducing the amount of work involved in preparing the budget, which is based on the previous Rolling Forecast and updated at a less detailed level,
Reorganising business reviews, to focus on specific details spanning two financial years and concentrating on defining action plans.

3. How can you proceed pragmatically when implementing the Rolling Forecast?

When implementing Rolling Forecast, some best practises need to be followed to be relevant and ensure a real reduction workload for both operational and finance staff.

3.1 Follow the 8 principles of Eight Advisory!

To limit the workload for teams and maintain the value of the Rolling Forecast as an agile process, the next eight principles must be followed when implementing the Rolling Forecast:

3.1.1 Play with frequency

The Rolling Forecast does not necessarily have to be applied to all planned aggregates. It is comparable to a toolbox that can be applied “on-demand” to one or more P&L aggregates; and it is used with a frequency and granularity that varies depending on the needs and maturity of the processes and tools used.

There are three levels of implementation:

Monthly to 18 months: limited to revenue and margin deployment, with Refresh & Extend on a monthly basis (in line with the S&OP process). This first stage is implemented by 60% of the participants in the study who chose a Rolling Forecast approach.

Quarterly to 18 months: this stage complements stage 1 and extends the Rolling Forecast to EBITDA on a quarterly basis. This second level is implemented by 50% of to the participants in the study who chose a Rolling Forecast approach.

Quarterly with a time horizon of one financial year: cash is still based on traditional forecasts/reforecasts for the current year (perhaps AI will enable automated and more reliable forecasts).

3.1.2 Play with the granularity with the Active Planning Window

Adjusting the granularity of the forecasts to the time horizon ensures that the information generated is both relevant and manageable.

With this in mind, it is advisable to provide finer details for the first half of the projection period and to take a more macroscopic view for the second half.

This method, known as the “Active Planning Window”, aims to reduce the workload by:

Focussing on updating the most immediate data
And gradually extending the view to more distant periods.

There is a specific “Active Planning Window” for each business process (e.g. operational view of sales for 9 months, then extrapolated; operational view of marketing for 6 months, then extrapolated).

3.1.3 Driver Based Forecast

A Driver Based Forecast links operational data such as volumes and prices with financial results. Specifically for sales, it is supported by the S&OP process in terms of volume and value in 80% of cases.

This approach makes it possible to:

Gather hypotheses from operational staff,
Modelling the economic equation on the basis of these operational assumptions,
Perform simulations and sensitivity studies.

Before implementing the Rolling Forecast, it is therefore important to identify the key performance drivers that influence the financial results, so that they can be included in the forecast model.

3.1.4 Cross-functional collaborative approach

The process must be integrated into a collaborative approach with the operational functions (S&OP, Marketing, etc.) to become a true management tool.

Indeed, a collaborative Rolling Forecast approach makes it possible to strengthen the exchange of information and harmonise the company’s functions in order to make forecasts more reliable or, conversely, to challenge them.

For an effective collaborative approach, we recommend:

Organise a kick-off meeting with each function to share key business assumptions,
Use platforms that facilitate information sharing and collaboration to involve all stakeholders in the on objectives and forecasts,
Organise regular Business Reviews to review forecasts, discuss necessary adjustments and ensure that all functions are working towards the same goals.

3.1.5 Tanker vs. speedboat approach

We recommend tailoring the Rolling Forecast process to the size and structure of the company’s subsidiaries.

Smaller entities (speedboats) can benefit from a more agile and flexible approach, that allows them to react quickly to changes.
Large departments (tankers) require a more detailed and rigorous structure.

Regular review and adjustment ensure that the Rolling Forecast remains relevant and effective for every part of the organisation.

3.1.6 Risks and opportunities

The systematic inclusion of risk and opportunity assessment in the Rolling Forecast enables the company to prepare for possible changes and respond to them proactively.

This approach ensures:

A robust and flexible planning that is ready to adapt to any fluctuations,
The consideration of the impact of adjustments in the overall strategy.

3.1.7 Coordination of operational and financial schedules

The synchronisation of operational and financial schedules ensure coherence between planning and execution. This synchronisation makes it possible to:

Ensure that decisions are made on time, with a sound and consistent view of the organisation,
Strengthen strategic and operational alignment,
Adapt more quickly and effectively to change.

By synchronising the different cycles and ensuring that the right information is available at the right time, companies can significantly improve the accuracy and effectiveness of their forecasts.

3.1.8 Capitalising on predictive analytics

By using predictive modelling, companies can improve the accuracy of their forecasts, anticipate future trends, and adapt their strategies accordingly.

By using AI to establish this ‘baseline’, companies can benefit from a solid starting point for their forecasts, enriched with recommendations from analysing complex and rich data.

Analysing signals, in particular recognising turning points in current data, adds significant value. This ability to recognise when growth or downward trends manifest themselves in the data enables companies to:

Understand the changes,
Investigate the underlying causes, whether they are temporary, seasonal or related to more fundamental changes in the market or consumer behaviour.

3.2 Improve the Rolling Forecast process with an EPM!

To fully realise the benefits of Rolling Forecast, companies need to rely on robust, integrated Enterprise Performance Management (EPM) platforms. These systems play a critical role in providing the tools required to efficiently collect, process and analyse data, as well as facilitating collaboration between the departments involved.

Data Integration and Consolidation: EPM platforms facilitate the integration of data from different sources within the organisation (internal/external and financial/extra-financial). This integration capability ensures fast and accurate consolidation of financial and operational information, an essential aspect to create up-to-date forecasts. Thanks to this consolidation, companies can obtain a global view of their performance, which is essential for adjusting forecasts in real time.
Advanced analysis and scenario modelling: EPM platforms provide the advanced analysis and modelling capabilities required for Rolling Forecasting. They allow companies to simulate different scenarios (“What-If”) and anticipate the impact of different market conditions on their financial performance.
Collaboration and Communication: EPM platforms also facilitate cross-departmental collaboration by providing a common platform for planning and forecasting. This enhanced collaboration ensures that all stakeholders are aligned with the company’s goals and forecasts, strengthening adherence to the overall strategy and improving the execution of action plans.

4. Conclusion

To summarise, the Rolling Forecast is a first step in the transformation process, that enables an improvement in performance management. It was cited by 1 in 5 respondents of our study as a priority topic for transformation.

Some organisations have even decided to go beyond the Rolling Forecast and combine it with Beyond Budgeting (BB). This philosophy, which emerged in the 1990s, aims to move away from absolute value targets (budget) and replace them with relative strategic targets that are less detailed and have a longer time horizon (e.g. targets for market share gains). This gave the operational teams greater decision-making freedom at local level, with the only restriction being that the macro-targets set by the Group must to be adhered to.

For more information, see our latest study on Innovation in the Finance Function.

If you would like to receive this study and a customised benchmarking from the experts at Eight Advisory, click here!

Editorial team:

Pierre Gauthier

Florian Jouvenot

Clément Defretin

Colin Seconde