Financial Planning & Analysis

Creating a Rolling Forecast Planning Environment: Changing Mindsets

Change is hard. When it comes to a business’s financial planning initiatives, that is never more evident. Annually, many companies, regardless of industry or size, still usurp three to six months of their internal resources’ time through the traditional compilation of an annual operating and capital expenditure budget. Often, by the time the final iteration of the budget is approved and published, the plan itself is obsolete. An alternative to the traditional, static budgeting process is a more dynamic, continuous planning approach. Enter the rolling forecast, which is prepared on a specific cadence (monthly or quarterly) and for a set period (12 or 18 months are usual suspects) that continues to roll forward in the future as the months/quarters are actualized.

Depending on your type of business and external business environment, implementing a rolling forecast may or may not make the juice worth the squeeze. However, companies experiencing high growth and facing business model volatility should find a great deal of value in adopting this forecasting strategy while laying to rest their annual budgeting program.

The first step forward on the road to a successful process roll-out will be to ensure buy-in and solidarity from these primary stakeholders:

  • Senior Management/Board of Directors
  • Functional Management/Business Segment
  • Finance Team   

Each stakeholder group will have different concerns to address, and it will be imperative to secure their confidence in effective implementation.

“It is not the strongest or the most intelligent who will survive but those who can best manage change.”

– Charles Darwin

Securing Senior Management Buy-In for a Rolling Forecast Planning Environment

Convincing senior management to give up their annual budget can be a daunting task. Framing the discussion to highlight the key benefits behind the transition to continuous planning instead will be key. These benefits include:

  • The ability to align shorter-term planning to the longer-term strategic plan more frequently than with the traditional budgeting process
  • More meaningful variance analysis and explanations that can assist in guiding business segments with future decision-making and assumptions
  • The ability to recognize the need to pivot the business model faster when internal or external trend models indicate trouble on the horizon

Updating and projecting forward a 12- or 18-month rolling forecast with revised assumptions derivative of historical data (actuals) and emerging internal and external business environment trends should prove a more highly elevated strategic tool to review company performance, versus a traditional static 12-month calendar forecast that is truncated as the year progresses. In addition, using the rolling forecasting approach can engender a more conscious effort toward business alignment with the long-term strategic plan. If the projected data begins to indicate a continued trend deviating away from the strategic plan, this should serve as a critical signpost that a pivot of the business model may prove prudent.

Recently, I was a part of implementing a rolling forecast planning environment at a small, high-growth media company. The strategic benefits of the continuous planning method over a traditional budgeting scenario made the rolling forecast easy to sell to senior management. The company had a project slate mix of films, TV series, live theatrical experiences and podcasts (all in various stages of development through distribution). Podcasts aside, projects generally took 18 months or longer from gestation through monetization.

Senior management was quick to acknowledge that scheduling such a slate within a 12-month static budget provided a very limited picture of individual project performance as the months would be actualized. By updating an extended reforecast each quarter, they could more effectively capture the significance of changes in assumptions (e.g., changes in the number of and/or release dates of greenlit projects, new or dormant development projects to be incorporated into the release schedule or removed) as they related to the longer-term strategic plan. They could also contemplate a faster pivot of the business model away from the production of traditional theatrical films and towards streaming media products.

“A journey of a thousand miles begins with a single step.”

– Lao Tzu

Earning Functional Manager Trust and Gaining Support for Training in Rolling Forecasts

Functional or business segment managers focus on ensuring their product lines are meeting targets, which are generally derived during the budgeting process. Eliminating the budget and transitioning to a rolling forecast planning environment may cause confusion in terms of how the segment manager relates to his business – and lead to hesitancy and mistrust in the new planning system. It will be important to document and communicate the process, how it works, how it is different from the traditional method, what the forecasting cadence will be and what information will be needed from the functional/segment team to ensure the implementation is successful. Most critical of all, the benefits and business-related value add of the rolling forecasting initiative need to be clear and concise to gain segment management buy-in.

After the media company’s senior management committed to the concept of continuous planning, I sat down with each of the divisional managers to walk them through the rolling forecast model for their division and explain the updating/reporting process on a quarterly basis. Physically walking them through the forecasting mechanics gave them the opportunity to help refine the flow of the information and how assumptions were embedded into the model. This walkthrough served important opportunities for:

  • The FP&A team to ensure the buildout of the model and embedded assumptions were correct and
  • The divisional managers to develop a comfort level with the rolling forecast process. 

After a few periods of reporting, the team soon saw the great value in less time spent each quarter preparing the extended reforecast, versus expending months slogging away on an annual budget where the input assumptions were essentially irrelevant by the time the plan was approved.

“The secret to change is to focus all your energy not on fighting the old, but on building the new.”

– Socrates

In addition, reporting to senior management on actual performance to forecast variances provided more valuable insight into how the division should continue to address changes to project assumptions within their divisional slate. This ultimately resulted in more control and insight into how their divisions responded to external environmental stimuli. For example, they could refocus the slate to greenlight additional TV series and reduce the number of theatrical film projects in development due to more content demand by the major streaming platforms, or they could be more inclusive of ethnically diverse projects. It also cut out the time normally spent explaining to senior management variances to obsolete budgeted assumptions that offered little insight into future performance of the division.

Learn more about forecasting in these related posts:

Encouraging Finance Teams to See the Rolling Forecast as an Advantage

Finance teams can be the worst offenders of proving resistant to change. Most finance departments of small, high-growth startups are leanly staffed, so introducing additional workload onto the team may prove a morale buster. It will be important to sit down with the team members who will participate in the rolling forecast process and, similarly to senior management and business segment owners, lay out the benefits of introducing and training related to such an initiative.

If the rolling forecast will take the place of a traditional budgeting process, finance staff will reap the benefit of regaining three to six months of bandwidth that would normally be focused on the compilation of the budget. In addition, the team will also derive the advantage and insight of being a part of regular strategy-centered discussions, which could reduce the amount of time spent analyzing variances and increase the ability to spot performance trends from data more easily.

Getting the continuous planning approach up and running with the FP&A staff at the media company was a challenge. This was primarily due to the amount of time demanded over the first few quarters to iron out issues within the new consolidated forecasting model and meetings with each division to gain an understanding of changes to their individual slate assumptions. There were many long days suffered and iterations of each reforecast that needed to be closely analyzed and refined to ensure that revised assumptions continued to produce a forecast that remained in alignment with long-term planning expectations.

Ultimately, the finance group became a more integrated business partner with the strategic decision-making process and found a greater voice at the table, proving a motivating factor in getting team buy-in despite the initial additional time burden. Like with most change, there were growing pains, but the team forged ahead and in due course extricated ourselves from what had become a lengthy and no longer relevant traditional budgeting process.

“Change is the only constant in life. One’s ability to adapt to those changes will determine your success in life.”

– Benjamin Franklin

Ditching Tradition and Gaining Agility With a Rolling Forecast Planning Environment

For many high-growth companies, the traditional static budgeting/forecasting process is not dynamic enough to allow the business to be nimble and react timely in response to external threats. Transitioning to a rolling forecast planning environment can provide that strategic edge. However, solidifying buy-in of all applicable stakeholders will be of prime importance to ensure successful implementation. Taking the time to document and communicate the benefits and provide the necessary training of the process to each stakeholder group will be time well spent.

If you need expert support in building buy-in across your organization, you can learn more and/or contact us through our financial planning & analysis page. You can also learn more about building traction toward organizational goals in our operational review program ebook:

operational review program ebook

About the Author

Over the span of 20 years, Jo Ann has curated a strong finance and accounting background within the media industry through experiences working within large public corporations and small, high-growth startups. Through management and leadership roles with such companies as CBS Films, Propagate Content, GK Films, Tennis Channel and Sony Music, Jo Ann’s areas of expertise spans the controllership function, FP&A, financial reporting, modeling and analysis, building successful finance/accounting infrastructure for high-growth startups, post-acquisition restructuring, managing systems and decision analysis, data conversion and ERP implementation management, process improvement, cash flow planning and treasury management including credit facility oversight and banking relationships, working with third-party valuation firms on film library and purchase price asset valuations, film/TV international distribution finance and oversight of multi-entity partnership taxation. Jo Ann studied Engineering for two years at Iowa State University, subsequently completing a Bachelor Business Management at Toronto’s Ryerson University with an emphasis in Accounting. She graduated the two-year Society of Management Accountants of Ontario CMA program in 2001 and holds a CPA with the California Board of Accountancy. In her spare time, Jo Ann is an accomplished pianist, enjoys studying real estate investment and is an avid animal rescue advocate.

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