What is a rolling forecast?
- The purpose of a forecast can be an operational finance plan, capital investment analysis, or financing analysis. Rolling forecasts are applicable to operational financial plans.
- The rolling part refers to the fact that when updating, the closest forecast period becomes actual, it drops off, and a new period farthest in the future is added on.
- The forecast period can be monthly, quarterly, semi-annual or annual.
- Shorter forecast periods are important when there is a lot of uncertainty or change in the business environment.
- The forecast length should match the purpose of the forecast. For example, a facility replacement analysis is a long term capital investment, so a period of ten years would be appropriate. For operating financial plans, eighteen months to two years is a reasonable time frame during which the monthly or quarterly assumptions would be relevant. Operating assumptions beyond two years have a degree of uncertainty that call their usefulness into question.
- The assumptions are key demand indicators and key expense drivers for the income statement. Balance sheet assumptions relate to capital investment, financing plans, and changes in current assets and liabilities.
The Dynamic Financial Planning rolling Six Quarter Forecast ( 6QF)
- The purpose of the forecast is creating an operational financial plan.
- A six quarter time period was selected because at the mid-point of the current fiscal year, the forecast shows the next fiscal year in total.
- The 6QF model is built in Excel with a lead schedule showing the financial statements and assumptions. There are several supporting tabs with capital expenditures, financing plans, statistics, prior period actual financial statements and forecast reports.
- Information on the supporting tabs flows forward to the lead schedule.