Many organizations want or have tried to adopt rolling forecasts—but technical and institutional barriers get in the way.
All successful rolling forecasts are alike, but every unsuccessful one fails in its own way. Cost center owners who are skeptical of another FP&A-imposed process may just see additional work with little value. Business stakeholders may not understand what’s in it for them and push back. So IT finance has to transform disbelief to advocacy if they are going to gain the traction needed for rolling forecasts. The common success factor is understanding expected outcomes and communicating them out to all stakeholders.
Even with agreement on goals, there are still multiple points of failure. If you want to stop your rolling forecast from withering on the corporate vine, avoid these mistakes.
The wrong focus
Many fixed costs are not worth tracking on a monthly basis and yet are included in a rolling forecast cadence. There is a pressure for any process to be inclusionary (“Let’s bring all stakeholders together”) but that inclusion can't start with the false belief that all spend is equally important. In a rolling forecast, that’s definitely not the case.
This seems counterintuitive. If the strategic benefit of rolling forecasts is to manage IT spend better, doesn’t it makes sense to look at all IT spend? Not exactly. Rolling forecasts identify spend pivots that will have an impact on the next rolling forecast. Fixed costs don’t generally fall into that category. An IT organization with an extensive fixed asset portfolio will not get value from including that spend in a rolling forecast. A server array on a 48-month depreciation cycle has fixed costs for four years. There is no benefit to tracking that spend every month or quarter during those four years.
Instead, identify the largest spend drivers and call out drivers that can be altered in a specific forecast period. Public cloud or maintenance agreements reaching the end of their contract periods are better focuses for rolling forecasts than on-premise infrastructure that is midway through a depreciation cycle.
Don’t sweat the small stuff. Focus rolling forecasts on large and controllable spend drivers.
Forecasts as “mini-annual planning” events need unsustainable levels of effort. Replicating the annual plan monthly or quarterly is a losing proposition. Without the right focus or a tool to automate this process, IT finance produces something called a rolling forecast that is actually just another annual plan.
The best way to differentiate is to shrink the real estate with which a rolling forecast works. As identified above, fixed costs are less relevant for forecasts and removing them cuts down effort. You can also be more selective about your cost centers. If specific cost centers have a limited scope for forecast course correction, they should be cut from the process entirely (e.g., high fixed/variable cost ratio or a low total fixed cost spend).
The right rolling forecast solution automates the low-value data entry work. For example, when IT finance knows the purchase order or contract number aligned with a particular cost center owner, terms can be automatically extended to keep within the timeline of a multi-year rolling forecast.
Save your sanity (and weekends) by building sustainable rolling forecasts.
Rolling forecasts provide analysis and drive action. But if the forecast is out of sync with the pace of the business (e.g., a vendor contract has a 6-month term and IT finance leads a monthly rolling forecast), the analysis can’t lead to action. A badly scoped vendor contract will show up in your general ledger with additional or reduced contract payments every month. But the terms of the contract cannot be changed for the balance of the contract. You get information that you can’t take action against.
Rolling forecasts have to be focused with a light touch. Most numbers in an annual budget do not change throughout the year. For example, FTE labor with a flat hiring plan will show little uptick month-over-month. Focus instead on drivers that are variable and consumption-based (like support costs and public cloud spend).
The right cadence provides a proof point to give back spend. For example, contracts recorded at the details level surface savings from a renegotiation. A rolling forecast validates that the financial savings are true and verifiable—giving IT finance confidence to reallocate those dollars.
Many managers believe that taking on rolling forecasts means completing an entire budget several times a year. This is an education issue—and an opportunity to align with management rather than measurement metrics.
Take your top KPIs to see the bigger picture, rather than obsessing over the details. A KPI-focus shrinks the real estate for analysis and pulls the audience towards non-technical language (e.g., spend vs. plan and/or application and service total costs).
Business stakeholders need visibility into the lack of agility in annual investment decisions. The business cares about outcomes and tangibles—a locked investment agenda cannot respond to the speed of the business. Finding room in the budget to fund activities is not a one-time activity. It’s ongoing. It crosses financial years. A rolling forecast cadence is a mechanism to continually align IT spend with innovation.
A rolling forecast is often erroneously used as the scorekeeper of the businesses success in staying on budget. When a rolling forecast is repurposed as a measurement rather than a management tool, stakeholders can game it to align with the annual budget. Analysis and action still happen, but the participants focus on achieving existing (MBO-incentivized) goals rather than responding to events.
Ultimately, rolling forecasts fail when they are regarded as “mini-annual” budgeting events. Without buy-in on the goals and a tool to automate the process, rolling forecasts fail to get adopted and will wither on the (corporate) vine.
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