Rolling Financial Forecasts: Pros & Cons CFOs Need to Consider

A critical financial tool, financial forecasting has been around for a long time. And while traditional forecasting is useful, it’s being replaced by a much more efficient method: rolling financial forecasts.

What is a rolling financial forecast?

A rolling financial forecast is a financial planning tool that allows you to predict your business’s future performance more accurately. Instead of making predictions based on static data (e.g., a set 12-month period from January 2023 – December 2023), a rolling financial forecast is continuously updated and takes recent, actual data into consideration.

With traditional annual forecasts, businesses are only able to see data for the next 12 months (at most)—and this number gets smaller as the fiscal year progresses. This limited foresight makes it much harder to respond to changing needs. Traditional forecasts are also based on assumptions from months ago, which can quickly become outdated and unreliable.

Rolling financial forecasts can help you avoid these limitations, but they have drawbacks of their own. Read the pros and cons of rolling financial forecasts below to see if this method is right for your business.

Noteworthy Advantages of Rolling Financial Forecasts

1. Enhanced Control Over Finances

Rolling forecasts are blueprints for the future that map out income, expenses, and investments. This makes cash flow monitoring continuous, rather than being disrupted by a months-long budgeting process. It allows you to maintain control over business activity, rather than letting it control you.

2. Informed Strategic Decision-Making

It’s easier to make good decisions when they’re based on solid and up-to-date data. Traditional forecasts rely on assumptions made in the previous year, which may be totally irrelevant now. Rolling forecasts allow you to respond to current issues that could affect your business, like global disruptions, supply chain delays, and labor shortages. This lets you pivot and adapt as needed, rather than getting stuck in the past.

3. Agility & Flexibility to Accommodate Changing Trends

Changing trends always present opportunities, as the recent pandemic clearly illustrated. Knowing how these trends affect client behavior and market conditions can give you a competitive advantage. Rolling forecasts provide you with that knowledge so you can quickly pursue new vendors or make additional investments. This kind of agility and flexibility is key to success.

4. Increased Predictability & Adaptability

If you can’t make accurate predictions, you’ll miss the chance to make critical strategic moves. Rolling forecasts increase predictability by giving you clear insights into the next several months. This allows you to adapt proactively and react immediately to capture time-sensitive business opportunities that you’d otherwise miss out on.

5. Streamlined Risk Mitigation

When you’re always looking forward, you can do more than manage risk—you can mitigate it in advance. With the trend analysis of rolling forecasts, you can decide where to focus attention and dedicate resources. Instead of just reacting to problems, you can reduce the risk of them happening in the first place.

6. Simplified Financial & Operational Performance Tracking

Traditional forecasting is inherently tedious and inefficient. It often involves the efforts of entire teams, which is a waste of resources. Rolling forecasts simplify financial and operational performance tracking by eliminating manual processes. This means fewer people are involved in the process, which also decreases the risk of human error.

7. Better Overall Forecast Quality

Implementing rolling forecasts will improve the overall quality of your financial forecasting by incorporating KPIs and key business drivers. Make sure to choose metrics that correspond to your strategic plan. You can then track these metrics continuously and see how performance shifts in real time.

Significant Drawbacks of Rolling Financial Forecasts

1. Complicated Implementation

Implementing rolling forecasts requires a substantial investment of staff time, as well as more oversight from managers. To simplify this process, establish a scope of work and clearly define everyone’s roles and responsibilities. This will help you avoid miscommunication, which can easily cause delays.

2. Time-Consuming Process

If you decide to implement rolling forecasts, be prepared for it to take some time. Even if you have a well-written scope of work, you’ll have to build buy-in and schedule additional training. This adds even more time and effort to an already complex process.

3. Highly Resource-Intensive

You’ll need a dedicated implementation team comprising your most knowledgeable staff. They may need to devote considerable time to the process, and workarounds will have to be put in place to cover their usual duties. You’ll likely need to make some adjustments to accommodate for the human resources required.

4. Extensive Data Preparation

The accuracy of your forecast is entirely dependent on the accuracy of the data put into it. It’s essential to ensure the data is accurate and timely; it must be reviewed at length and in detail, and then verified before being used. All of this takes extra time and energy.

5. Conflicting Priorities

Continual reallocation of resources can hinder progress toward long-term financial goals. Staff can easily become overwhelmed and unable to handle critical business functions. The resulting conflict of priorities can be confusing, and you may need to consider unplanned workarounds.

Bottom Line: The Pros Outweigh the Cons

Despite some considerable drawbacks, rolling financial forecasts are clearly superior to the traditional approach. You’ll need to develop a sound implementation strategy to ensure a successful launch. Although it may require increased time and resources upfront, this initial investment will soon pay off—as long as you approach it intelligently and realistically.