Performance Management Shared Interest Group

When organizations establish rolling forecast processes, effective ones have one tactical benefit.  They can reduce financial and operational planning costs by as much as 50%.   However, many organizations experience the exact opposite.  Rolling forecasts increase planning costs, while delivering minimal impact on enterprise costs, profits and value.   A classic symptom being that rolling forecasts don't support direct cash flow, working capital and FX exposure forecasting.  

What's your experience with rolling forecasts?  What benefits do you get?  Do these benefits translate into material improvements to profitability?  Do they reduce planning costs?  Do they support direct cash flow forecasting?  Do they eliminate / materially change budgeting processes? 

Dean … Thank you for your post. I have a different opinion about the value of rolling financial forecasts. I believe there are benefits if they are properly calculated. What I next write is my explanation for this/

I am an advocate of initially using activity-based costing (ABC) as the source to calculate calibrated unit-level cost consumption rates for "capacity-sensitive driver-based budgeting". Those consumption rates are needed for zero-based budgeting (ZBB), rolling financial forecasts, and any what if scenario planning. It is the classic equation of forecasted product and service-line volume and mix times unit-level cost consumption rates equals the required capacity (e.g., number and types of needed employees with their salaries and wages) and purchasing spend with supplier. (It also involves classifying resource capacity with changes in demand as sunk, fixed, step-fixed, and variable with incremental / marginal expense analysis.) 

I describe this topic, especially capacity-sensitive driver-based rolling financial forecasts in this 8-minute recorded video:

https://www.youtube.com/watch?v=tEcY5OiniX8

Comments? Questions?

When organizations establish rolling forecast processes, effective ones have one tactical benefit.  They can reduce financial and operational planning costs by as much as 50%.   However, many organizations experience the exact opposite.  Rolling forecasts increase planning costs, while delivering minimal impact on enterprise costs, profits and value.   A classic symptom being that rolling forecasts don't support direct cash flow, working capital and FX exposure forecasting.  

What's your experience with rolling forecasts?  What benefits do you get?  Do these benefits translate into material improvements to profitability?  Do they reduce planning costs?  Do they support direct cash flow forecasting?  Do they eliminate / materially change budgeting processes? 

Gary, thanks for your thoughts.  I have actually seen that video before.  I agree with many of the things that you mentioned.  However, the process that I am presenting in the webinar goes well beyond the one that you described in your video.

I believe that, if Finance professionals are going to become effective business partners, they need to stop developing tools and methods that have already been developed operational planning professionals.  Especially when they are not nearly as good.  For example, mature supply chain planning models are really advanced forms of driver-based planning, zero-based planning, capacity-sensitive driver-based budgeting, head count planning, activity-based planning / costing, direct cash flow forecasting.

Where these operational planning tools really shine is scenario planning – especially when it comes to cross functional tradeoff decisions.  For example, one can simultaneously evaluate the  impact of new products and customers on headcount, capacity, business process costs, inventories, direct supply costs, overhead costs, direct cash flows and product, customer and segment (ABC) profits.  In so doing they enable manufacturers to translate demand (and other targets) into executable plans, in less than one day.

The point that I was making with this post is that traditional rolling forecast processes are creating little to no value in global manufacturers.  Mature and fully integrated processes create vastly greater value, while taking far less time and effort to maintain. 

Dean

Dean … Thank you for your post. I have a different opinion about the value of rolling financial forecasts. I believe there are benefits if they are properly calculated. What I next write is my explanation for this/

I am an advocate of initially using activity-based costing (ABC) as the source to calculate calibrated unit-level cost consumption rates for "capacity-sensitive driver-based budgeting". Those consumption rates are needed for zero-based budgeting (ZBB), rolling financial forecasts, and any what if scenario planning. It is the classic equation of forecasted product and service-line volume and mix times unit-level cost consumption rates equals the required capacity (e.g., number and types of needed employees with their salaries and wages) and purchasing spend with supplier. (It also involves classifying resource capacity with changes in demand as sunk, fixed, step-fixed, and variable with incremental / marginal expense analysis.) 

I describe this topic, especially capacity-sensitive driver-based rolling financial forecasts in this 8-minute recorded video:

https://www.youtube.com/watch?v=tEcY5OiniX8

Comments? Questions?

When organizations establish rolling forecast processes, effective ones have one tactical benefit.  They can reduce financial and operational planning costs by as much as 50%.   However, many organizations experience the exact opposite.  Rolling forecasts increase planning costs, while delivering minimal impact on enterprise costs, profits and value.   A classic symptom being that rolling forecasts don't support direct cash flow, working capital and FX exposure forecasting.  

What's your experience with rolling forecasts?  What benefits do you get?  Do these benefits translate into material improvements to profitability?  Do they reduce planning costs?  Do they support direct cash flow forecasting?  Do they eliminate / materially change budgeting processes? 

When organizations establish rolling forecast processes, effective ones have one tactical benefit.  They can reduce financial and operational planning costs by as much as 50%.   However, many organizations experience the exact opposite.  Rolling forecasts increase planning costs, while delivering minimal impact on enterprise costs, profits and value.   A classic symptom being that rolling forecasts don't support direct cash flow, working capital and FX exposure forecasting.  

What's your experience with rolling forecasts?  What benefits do you get?  Do these benefits translate into material improvements to profitability?  Do they reduce planning costs?  Do they support direct cash flow forecasting?  Do they eliminate / materially change budgeting processes?