What is a 12 months rolling forecast?

For investor updates, you’ll be able to explain the “why” behind all your metrics since you’re reviewing and updating them on a more regular basis. The idea is to always keep a forward-looking view, so you’re not just stuck in the current year’s box. And let’s not forget the impact of the ongoing US-China trade wars, uncertainty surrounding Brexit, as well as turmoil in the middle east and the impact on oil prices. Then on the other hand we have positive corporate earnings announcements and labor reports suggesting consumer health is stable. Be prepared to explain – over and over – how the new process works and why it makes more sense for your business.

In practice, very few annual budgets survive the full year without adjustments. There are always external forces to consider or unforeseen circumstances. This will depend on your business and the type of data you are forecasting. Generally, it’s a good idea to update your projections at least once a month or whenever significant new information is available. Additionally, it may be helpful to periodically run scenarios to test how different inputs or assumptions might affect the outcome.

It may benefit companies to survey top executives’ priorities at the beginning of each month to decide what reports to run. No matter how solid your plan felt going into the year, it almost certainly went out the window when the pandemic hit. We can hope that this kind of unexpected event is a once-in-a-lifetime occurrence, but the problem of inflexibility in annual planning remains. It doesn’t help that, once planning is done, most C-suite executives put the budget in a virtual drawer until the end of the quarter, or worse, the next budgeting cycle. A notable exception is the finance department, and that puts the CFO at odds with peers.

• They provide decision-makers with a real-time view of expected financial performance, helping them make informed choices, adjust strategies, and allocate resources effectively.
• Recognize the elements that historically and currently drive value in your business and industry.
• The traditional forecasting process only extends to the end of the current fiscal year.
• Learn more about how rolling forecasts can benefit your organization.

Navigating the future with predictive planning and forecasting

The traditional forecasting process only extends to the end of the current fiscal year. Rolling forecasts provide greater visibility into an extended time horizon. If it’s accurate, it can help an organization prepare properly for “what’s around the corner” and mobilize more effectively. To illustrate the power of rolling forecasts, let’s consider a retail company operating in a highly competitive market. Traditionally, this company would create an annual budget based on assumptions made months before the start of the fiscal year.

With rolling forecasts, growing startups can keep pace, ensuring they’re always ahead of the curve. So, if you’re using a 12-month rolling forecast, at the end of January, February becomes your starting point, and the following January is added, maintaining a consistent 12-month outlook. Instead of a fixed period, like an annual forecast, a rolling forecast ‘rolls’ with the times. To decrease the inaccuracy of predictions, it is important to regularly review and refine the methodologies used to align the projections closely with the actual outcomes.

How to Create Rolling Forecasts: A Step-by-Step Guide

You don’t wait until the end-of-year financial statements to choose what is a 12 month rolling forecast your next move – you strike while the iron is hot. Once you have your model up and running, it’s vital to monitor its progress regularly and make necessary adjustments when needed. By paying close attention to how well your forecasts align with actual performance, you can identify any potential issues and take the right steps to correct them.

• For others, projections may be inflated to receive more resources.
• Likewise, the system should accommodate the use of drivers so that a change in a key driver automatically updates the impact on the P&L.
• With Excel, you can leverage historical trends, driver-based modeling, and sensitivity analysis to create robust 12-month or longer rolling forecast models.
• Looking further ahead, a Rolling 3-Year Forecast can provide a strategic vista over a multi-year span, identifying long-term trends and potential risk areas.
• It provides managers with a timely vision into the next twelve months at any given point in the year.

Key Financial Forecasting Methods Explained

Year to date is based on the number of days from the beginning of the calendar year . It is commonly used in accounting and finance for financial reporting purposes. To achieve the goals in a business’s strategic plan, we need some type of budget that finances the business plan and sets measures and indicators of performance. What are the greatest flaws of your current forecasting system and how can that behavior be changed? A rolling forecast is a financial projection method where forecasts are continuously updated by extending the forecast period by a set interval, usually monthly or quarterly.

Gather and verify data

But the steps are often similar, following a sequential order to help create the best possible rolling forecast model. You can think of it as a pulse check on customer demand and market trends. You lay out expected revenues, costs, and profits at the start of the year, and even if things change in the market, the forecast stays the same.

For others, projections may be inflated to receive more resources. And others still may just be an overly optimistic (or pessimistic) guess of what’s to come nine months from now. Regularly communicate the rolling forecast to stakeholders and be open to feedback. This transparency builds trust and ensures everyone is on the same page.

You lock in your actuals for Q1, and then you update your forecast to cover the next five quarters. Now you have two quarters of actuals, and you extend your forecast so you’re always looking at the next five quarters. For example, by the end of Q1, you have 3 months of actuals and 9 months of forecast left. By the end of Q2, you’ve got 6 months of actuals and 6 months of forecast — and this cycle just continues. Let me show you a quick example of how a 5-quarter rolling forecast works in practice.

This massive influx of capital requires accurate and flexible prediction models to navigate the changing economic and geopolitical risks. For instance, the growth of emerging market green bonds, which surged by 45% in 2023, is projected to continue expanding, with a forecasted annual growth rate of 7.1% through 2025. Consider Roper Technologies, a company recognized for its strategic focus on generating and reinvesting cash flow, a principle that likely informs their forecasting approach. Their approach demonstrates a comprehension that the adaptability of ongoing projections can support effective long-term investment plans.

Why your budget (or plan) and forecast process may be fundamentally wrong

Too much emphasis cannot be placed on communicating these changes. Many organizations have gone generations relying upon an annual budget performed once a year and have dedicating significant time and energy to its completion. Without a lot of initial labor and setup, the rolling forecast process can be fraught with inefficiencies, miscommunication and manual touch points.

An example would be a retailer that needs to frequently update sales forecasts. For companies that face swift currents of change, rolling forecasts help ensure they steer clear of risks and are ready to seize opportunities as they come. This activity demonstrates the practical implementation of dynamic predictions in shaping investment strategies that are adaptable to global trends and opportunities. Integrating rolling averages into a company’s analysis simplifies trend spotting. By focusing on a specific subset of data points, organizations can discern patterns over a 12-month period, for example, to better anticipate sales trends. Using this method, the business always has a 12 month rolling forecast as a map of where the business is going, but the route changes (hopefully only slightly) each month from the original.