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A Step by Step Guide to a Great Rolling Forecast

It’s next to impossible to make a solid foundation for financial planning without rolling forecasts these days.

Charlie Liu

April 7, 2022 1 min read

A Step by Step Guide to a Great Rolling Forecast

A rolling forecast provides companies with live financial plans updated in real-time to respond to internal changes and external events. Adopting rolling forecasts take companies from backward-looking variance analysis at the end of the budget period to forward-looking variance analysis that promotes faster adjustments. Rolling forecasts make use of historical financial data, the latest market conditions, and up-to-date understanding of evolving risks and opportunities.

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The objective of budgeting is to create a continuous financial plan, usually for a fiscal or calendar year. These plans guide resource allocation, inform strategy, and allow companies to evaluate performance.

Budgeting is typically a bottom-up process that likely looks familiar to you. It begins with each business unit or department drawing up their budget. To ensure they can hit their targets, managers often low-ball revenue and inflate cost projections. Executives know this, and challenge draft plans. After months of negotiation, plans turn into commitments signed-off by everyone. Consequently, the budget is outdated before the ink is even dry, and has no reasonable chance of being accurate. 

But even if it took a fraction of this time, traditional budgeting can only work in a world of stable markets, static costs, and predictable inflation. 

With constantly changing market conditions and black swan events, producing  reliable static budgets that can be used as a roadmap and performance benchmarks isn’t really possible.

Enter rolling forecasts. This article will provide an overview of the rolling forecast process and how it differs from traditional budgeting, delve into the pros and cons, and look at the steps you need to take to implement a rolling forecast that will add value to your company.

What is a rolling forecast?

Many companies have eschewed the traditional budgeting process described above and replaced it with rolling forecasts. A rolling forecast is a process that forecasts a business’s future performance over a continuous period. 

There is no fixed budgetary period but a continuous ‘roll.’ When each week, month, quarter, or other period relevant to the business ends, you record that period’s numbers and add another term to the end of the forecast. 

A 12-month rolling forecast gives you insights well past the traditional annual budget time frame. This is because the dates on which the budget starts and ends are artificial constructs in the first place and may be completely irrelevant in the context of sales seasonality, project timelines, and other business factors.

Why are rolling forecasts gaining popularity?

Do not use static budgets if you’re looking to set targets or conduct forecasts in a constantly changing business environment. Managers need to be able to react by changing plans and targets to reflect current reality. 

Rolling forecasts offer a more realistic and iterative planning process. They provide companies with a live financial plan updated in real-time to respond to internal changes and external events. Financial managers can use these changes to more efficiently and effectively plan and reallocate resources as necessary. 

Using a rolling forecast approach takes companies from a backward-looking variance analysis at the end of the budget period to a forward-looking variance analysis that promotes faster adjustments. Rolling forecasts make use of historical financial data, the latest market conditions, and up-to-date understanding of evolving risks and opportunities. Rolling forecasts are a powerful FP&A tool — if used correctly.

rolling forecasts


The benefits and challenges of rolling forecasts

What are the benefits of rolling forecasts?

Rolling forecasts provide a more realistic and up-to-date view of a budget and the effect of internal and external factors. They allow companies to be more flexible and rapidly respond to internal changes, competitor moves, and broad economic conditions through evidence-based decision-making.

What are the challenges of rolling forecasts?

If rolling forecasts are so powerful, a natural question is, why haven’t they always been the standard approach to budgeting? There are a number of challenges prevent many companies from adopting a rolling forecast approach.

For the Finance team, these challenges are largely logistical and process-related.

  • Moving from static forecasting to automated rolling forecasts can initially be costly and time-consuming to set up in terms of changing the system and creating buy-in to a new approach. Once a company has chosen to use rolling forecasting, there will be implementation challenges. On an organizational level, as is with any new process, it will necessitate a cultural shift. Everyone involved in your company’s budgeting process will need to do away with their target negotiating mindset and orient towards future outcomes. 
  • Companies usually keep traditional budgets as a point of longer-term guidance for investors, which means they might be running two budgeting processes in parallel, which adds to everyone’s workload.
  • Rolling forecasts require constant updating so that decision-makers have access to real-time data. These updates need multiple information sources, working across various operational units and changing forecast assumptions. While useful, these aspects of rolling forecasting are time-consuming. 

Beyond Finance, adopting a rolling forecast only makes sense for the business at large if it’s able to adjust in response to what it learns. In some cases this might be easy: it’s not hard to change the content of Google ads or adjust pricing on digital goods. In other cases it may be impossible or irrelevant: capital investment in a microchip fab or oil refinery is a multi-decade decision. Most business tactical or strategic changes are somewhere in between these extremes, of course.

The step-by-step guide to creating rolling forecasts in Excel

If you are implementing rolling forecasts for the first time, make sure you apply the best practices below to have confidence in your projections and help you overcome the practical difficulties in converting the promise of rolling forecasts into reality. Where applicable, we’ll highlight these in the template we have created.

Get our free rolling forecast template

Our rolling forecast template available here will show you exactly how to set up a rolling forecast in Excel, and also reveal the constraints for conducting continuous planning in this way.  Before you can roll over your forecast, you need up to date actuals: from your accounting, CRM, and potentially other systems as well. Without integrations, updating data can be tedious, time consuming, and prone to errors, and your forecasts rapidly out of date and inaccurate. With OnPlan, running rolling forecasts with up-to-date data throughout your financial model is fast, and you can continue to use Excel syntax to maintain total flexibility.

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1. Set goals: the first step toward implementing a rolling forecast is to set goals that you want the forecast to achieve. Objectives shouldn’t be pie in the sky, like forecasting to the nth degree of accuracy. Instead, they should be attainable goals, such as improving sales revenue, profit margin, or cash flows.

2. Identify the time horizon: there are two components to establishing the time frame you’ll be using in your financial forecasting.

The first is how many months out you need to forecast. The answer to this lies in how sensitive your company is to changing market conditions and the length of your business cycles. 

A company susceptible to market conditions and operating in a highly cyclical industry will want to forecast across the shorter term, typically 12 months. Companies less sensitive to these factors will forecast out 18 to 24 months. 

The second is to establish how often your forecast will roll over. Put differently, how often do you need to reforecast your budget? This interval is usually a month or quarter. For established businesses, it’s usually the case that only a quarterly rollover is required. For high-growth companies operating in a disruptive space, a shorter cadence is better to remain agile to new trends and market conditions.

In our template, we selected a monthly cadence. If we are in January 2023, we have already entered our historical volume and price data up to December 2022. From this point (Column: U), the rolling forecast is performed. As actuals for each month become available, we enter them in the relevant column, and the forward-looking forecast is continuously updated.

OnPlan Rolling Forecast Template, Calculations Sheet
OnPlan Rolling Forecast Template, Calculations Sheet

3. Determine the level of detail: in any forecasting model, you should minimize the number of assumptions. When designing your forecasts, remember to apply the ‘keep it simple’ (KIS) and Pareto’s 80/20 principles when setting assumptions. 

4. Determine the key drivers: unlike static annual budgets that list each line item, rolling forecasts are driver-based. They work backward from financial and operational metrics, tracking the critical KPIs that impact business performance.  

For example, if you’re conducting a sales forecast, as we have done in our template, the drivers chosen here were volume, price, and sales growth. 

You might find other drivers that help to forecast revenue, like market share or macroeconomic GDP data. The best way to approach this is to ask yourself, “What are our business goals?,” “Which drivers line up with them?” and “From where can we source the relevant data?”

(We’ve also written separately about sales forecasting here). 

OnPlan Rolling Forecast Template, Calculations Sheet


5. Vet data sources: rolling forecasts are only as good as the data they use. And because rolling forecasts plan for scenarios at the enterprise level, data is stored in different systems. For example, yours might require frequent imports of actuals from your ERP systems or bank file downloads. 

For this reason, it’s critical to standardize the data into a specific format before you use it. Further, if you manually do this process, there is a greater chance of using inaccurate data in your forecasts due to human error. 

Why Excel isn’t ideal for doing rolling forecasts

While the workhorse for many Finance teams, Excel cannot perform rolling forecasts effectively. Period. You might have already realized this when you read through the steps in creating a rolling forecast. The functionality that rolling forecasts require far outstrips the capability of Excel spreadsheets.

The most constraining limitation is the manual effort that Excel requires. This has implications for how data gets imported from different systems and how you use it to construct scenarios for what-if comparisons.

Real-time data is the coal face of rolling forecasts. Updating data in spreadsheets is not a simple task. It is time-consuming and prone to human error. Indeed, if you use Excel for forecasting, you’re effectively using spreadsheets as your database. As your databases grow, your spreadsheet grows too, and becomes slow and prone to crashing.

Another spreadsheet-related pain point is that rolling forecasts require additional scenario analysis to understand the impact of major or minor alterations to the plan, run the plan against different drivers, and perform variance and sensitivity analysis. 

While VBA does give Excel a leg up in the automation department, it requires significant programming knowledge, even for a basic forecast. Because VBA code refers to variables in the spreadsheet’s cells or ranges, if you extend periods and change the cell reference of key drivers, you need to update the cell references in the code itself; otherwise, the model breaks. 

Switching to a rolling forecast model can create many opportunities for your company

A rolling forecast model is a powerful tool for FP&A teams. It gives the agility to re-allocate resources promptly and avoid potential adverse effects on your company due to shifts in the economy, industry, and the organization itself. 

As we’ve noted above, moving towards more successful rolling forecasts is heavily dependent on data and data-driven processes. But without dedicated software, there is a high chance of incurring costly errors during rote annual data entry. 

A company compounds this risk when relying on manual procedures when maintaining rolling forecasts. The model owner is required to open a spreadsheet at the end of every month or quarter and manually remove that forecast period before adding a new forecast to the end of the financial model. This happens before updating all the financial projections.

This is a risky way to do business. Don’t let rolling forecasts roll over you! Turn to specialized software to remove the capacity for human error to creep into your forecasts. 

Make rolling forecasts easier with OnPlan

With OnPlan, you can build a rolling forecast that allows you to automate much of the data collection process and quickly update each driver, making your forecasts as accurate as possible. Click here to see OnPlan in action. Or schedule a demo with us by clicking the button below.

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About Author
Charlie Liu

As the Director of Professional Services, Charlie is responsible for high fidelity CPM software implementations and educating clients on industry best practices. Charlie has over 10 Years of experience in the Corporate Performance Management industry across a wide range of responsibilities including professional services, product management, and presales engineering.

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