How to Implement a Rolling Forecast for Dynamic Budgeting

In today’s fast-paced business environment, static budgets are often insufficient for managing financial performance and planning effectively. A rolling forecast provides a dynamic approach to budgeting, allowing businesses to adapt to changes and make informed decisions. This guide will explore how to implement a rolling forecast, including what it is, how to create one, and practical examples to help you get started.

What is a Rolling Budget Forecast?

A rolling budget forecast, often referred to as a rolling forecast, is a financial planning tool that updates the budget continuously. Unlike traditional static budgets, which are set annually and remain unchanged, a rolling forecast extends the budget planning period by regularly adding new periods (e.g., months or quarters) while dropping the oldest. This approach ensures that the forecast always covers a specific future timeframe, typically 12 or 24 months.

How to Implement a Rolling Forecast

Implementing a rolling forecast involves several key steps. Here’s a structured approach to help you get started:

1. Define the Forecast Period

Decide on the time horizon for your rolling forecast. Common periods include 12 months, 18 months, or 24 months. This timeframe should align with your business’s planning needs and industry practices.

2. Gather Historical Data

Collect historical financial data, including revenue, expenses, and key performance indicators (KPIs). This data will serve as the foundation for your forecast and help identify trends and patterns.

3. Set Forecasting Assumptions

Determine the assumptions that will drive your forecast. These might include sales growth rates, expense trends, market conditions, and economic factors. Ensure that your assumptions are realistic and based on thorough analysis.

4. Create Forecast Models

Develop financial models that project future performance based on your assumptions. These models should include revenue forecasts, expense projections, and cash flow estimates. Use historical data to validate and refine these models.

5. Update Regularly

Regularly update your rolling forecast to reflect actual performance and adjust for changes in assumptions. This might involve adding a new month or quarter to the forecast and removing the oldest period. Frequent updates ensure that your forecast remains relevant and accurate.

6. Monitor and Adjust

Continuously monitor your financial performance against the forecast and make adjustments as needed. Analyze variances to understand their causes and take corrective actions to stay on track with your goals.

7. Communicate and Collaborate

Share the rolling forecast with key stakeholders and collaborate on financial planning. Ensure that everyone involved understands the forecast and its implications for business strategy and operations.

What is Rolling-Based Budgeting?

Rolling-based budgeting is a dynamic approach to financial planning that involves continuously updating the budget to reflect the most current information. Unlike traditional budgeting, which typically involves setting a fixed budget for a year, rolling-based budgeting allows for ongoing adjustments based on actual performance and changing conditions. This method helps businesses remain agile and responsive to market changes.

How to Create a Budget Forecast

Creating a budget forecast involves several steps:

1. Identify Key Drivers

Determine the key drivers of your business’s financial performance, such as sales volume, pricing, and cost structures. Understanding these drivers helps in creating accurate forecasts.

2. Develop Assumptions

Establish assumptions for each key driver. For example, assume a 5% increase in sales or a 2% rise in operational costs based on market research and historical data.

3. Build Forecast Models

Create financial models that incorporate your assumptions. This might involve using spreadsheets or specialized forecasting software to project future revenue, expenses, and profitability.

4. Validate Forecasts

Review your forecasts to ensure they are realistic and achievable. Compare them with historical data and industry benchmarks to validate their accuracy.

5. Implement and Monitor

Implement the forecast and regularly monitor performance against it. Adjust your assumptions and models based on actual results and changing conditions.

How to Implement a Rolling Forecast for Dynamic Budgeting: Example

Here’s an example of how to implement a rolling forecast for dynamic budgeting:

1. Define the Timeframe

Choose a 12-month rolling forecast period. This means you’ll always have a forecast covering the next 12 months.

2. Gather Data

Collect historical data for the past 12 months, including sales, expenses, and cash flow.

3. Set Assumptions

Assume a 5% monthly growth in sales and a 3% increase in operational costs. Factor in seasonal variations if applicable.

4. Create Models

Build a financial model projecting monthly revenue, expenses, and cash flow for the next 12 months. Update the model monthly by adding a new month and removing the oldest.

5. Update Regularly

At the end of each month, update the forecast by incorporating actual performance data. Adjust assumptions based on new information and trends.

6. Monitor Performance

Track performance against the forecast and analyze any variances. For example, if sales growth exceeds expectations, adjust future forecasts accordingly.

12-Month Rolling Forecast Example

A 12-month rolling forecast might look like this:

Month	Revenue	Expenses	Net Income
Jan 2024	$50,000	$30,000	$20,000
Feb 2024	$52,000	$31,000	$21,000
Mar 2024	$54,000	$32,000	$22,000
...	...	...	...
Dec 2024	$60,000	$35,000	$25,000
Jan 2025	$62,000	$36,000	$26,000

Each month, you would add a new column for the next month and remove the oldest, ensuring that the forecast always covers a 12-month period.

Rolling Forecast Template Excel

A rolling forecast template in Excel typically includes columns for each month, along with rows for revenue, expenses, and other financial metrics. You can use Excel functions to create formulas that automatically update the forecast as new data is entered.

Sample Excel Formula for Rolling Forecast:

excel
=IF(MONTH(TODAY())>MONTH(A1), A1, "Update Required")

This formula helps in checking if the forecast needs updating based on the current date.

Rolling Forecast vs Budget

Rolling Forecast:

• Continuously updated
• Adapts to changes
• Covers a fixed future period (e.g., 12 months)

Budget:

• Fixed for a set period (e.g., annually)
• Less flexible
• Based on static assumptions

Rolling forecasts offer greater flexibility and adaptability compared to traditional budgets, making them suitable for dynamic business environments.

3+9 Forecast Example

A 3+9 forecast is a specific type of rolling forecast where you forecast the next 3 months in detail and the following 9 months in broader terms. This approach provides detailed short-term planning while maintaining a longer-term view.

Example:

Month	Detail (3 months)	Summary (9 months)
Jan 2024	Detailed projections	Broad estimates
Feb 2024	Detailed projections	Broad estimates
Mar 2024	Detailed projections	Broad estimates
Apr 2024	Broad estimates	Broad estimates
...	...	...

Rolling Forecast Formula

The rolling forecast formula involves projecting future periods based on historical data and updated assumptions. A basic formula might look like:

excel
=Previous Period Forecast * (1 + Growth Rate)

This formula calculates the forecast for the next period by applying a growth rate to the previous period’s forecast.

12-Month Rolling Forecast Template Excel

A 12-month rolling forecast template in Excel helps manage and update financial forecasts dynamically. Here’s a simple structure for a 12-month rolling forecast template:

Month	Revenue	Expenses	Net Income
Jan 2024	$50,000	$30,000	$20,000
Feb 2024	$52,000	$31,000	$21,000
Mar 2024	$54,000	$32,000	$22,000
...	...	...	...
Dec 2024	$60,000	$35,000	$25,000

To create this template in Excel, set up columns for each month and rows for key financial metrics. Use Excel functions to calculate totals and project future values.

Conclusion

Implementing a rolling forecast for dynamic budgeting allows businesses to remain agile and responsive to changes. By regularly updating your forecast, you can maintain a current view of your financial position and make informed decisions. Use the steps, examples, and templates provided to effectively integrate a rolling forecast into your financial planning process. This approach will help you adapt to market conditions, manage resources efficiently, and achieve your business goals.