Supply chain interruptions have demonstrated the flaws in conventional budgeting and forecasting methods. Manufacturers find it challenging to forecast their performance for the next year even under the best of circumstances. When market conditions (not to mention economic conditions) change swiftly and unexpectedly, traditional static forecasts might quickly become obsolete. As a result, many manufacturers are switching to a rolling forecast model.
Static vs. Rolling Forecasts
The issue with static predictions is that management tends to consider them as once-a-year occurrences. After the annual budget is established, managers may not compare actual to forecasted performance until the conclusion of the fiscal year. Even if they notice at midyear that changing conditions have caused the company to fall short of its targets, they may lack the resources to alter the budget.
In contrast, with a rolling forecast, management revisits the budget on a regular basis instead of creating a one-year budget and then forgetting about it. The review periods can be quarterly or monthly, for example, and numbers can be updated to reflect changing circumstances.
Rolling Benefits
A rolling forecast provides the following advantages:
Increased precision. By regularly comparing actual to forecasted performance and updating the figures in real time, your projections become much more reliable and effective as a planning tool.
Increased agility. Regularly updating your forecasts allows you to identify trends early and adjust to unexpected events or changing market conditions before it’s too late.
Contingency planning. Some manufacturing procedures rely largely on a single raw material or component part. Creating “what if” scenarios allows you to see how a sudden price spike or part shortage could affect your performance. You can then put plans in place to reduce the impact.
Automate the Process
You may be concerned that implementing a rolling forecast will make budgeting more expensive and time-consuming. However, once rolling forecast methods are adopted, most manufacturers find that they are less disruptive than the once-a-year budgeting approach. Budgeting and forecasting software is also available to help automate the processes. Contact us to determine if a rolling forecast is ideal for your manufacturing company.
© 2023
Principal
daniel.kaminski@hwco.cpa
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