The concept of a rolling forecast as opposed to a static budget has been a favourite of consultants (this one included) for years. I first wrote about them in the early-2000's. Adoption was patchy as executives struggled to let go of the annual budget despite mounting evidence of their failings.
Now it seems that rolling forecasts are having a moment. Two recent articles in the Wall Street Journal highlighted their rise in popularity. On September 13, the Journal reported that Agilent Technologies uses a rolling 12-month planning process, which allows the life-sciences company to update its spending plans on a monthly or quarterly basis, compared with a fixed annual budget. Then on September 20, the CFO of Delta Airlines, Dan Janki was quoted saying this about the airlines rolling forecast process, 'We're looking within a month, within a quarter, daily, weekly.'
So why the current interest and use of rolling forecasts? I see four main reasons:
Extreme volatility during the Covid pandemic has made traditional budgeting obsolete. Organisations need dynamic processes for allocating resources, adjusting supply chains and optimising capacity.
Advances in the availability of market and operational data and analytic tools and technology are equipping CFOs with insights that allows them to adjust budgets and forecasts dynmaically rather than being constrained with slow calendar-driven cycles.
An effective rolling forecast allows future plans to be updated with the latest and greatest available information rather than relying on frequently obsolete budget assumptions.
Rolling forecasts decouple planning from fixed targets. All too often management decisions are driven by a desire to hit targets built into incentive companesation plans rather than by the realities of the marketplace.
Hopefully this represents a structural change in how organisations plan and forecast and we can finally say goodbye to borken and biased budgets!