Economic volatility and supply chain disruptions evolving from the COVID-19 pandemic have called into question the usefulness of traditional budgeting and forecasting methods. Pandemic shifted consumer preferences along with labor shortages and global trade tensions of today continue to put stress on the stability of the flow of goods. Fast-changing economic and market conditions can suddenly make a traditional static forecast obsolete. Manufacturers that have not already adopted a rolling forecast model may want to strongly consider the need for flexibility in today’s market.

The key differences

The traditional static budget is viewed as a once-a-year process that may not give a clear understanding of missed goals or a plan for future success. Once the annual budget is set, managers may not compare actual to forecasted performance until year end. A common issue is that the budget may take longer to complete and can be based upon assumptions that turn out to be wrong after the fact.  After the company has already fallen short of its goals, it is too late and costly to re-vamp and re-look at variances. 

With a rolling forecast, rather than setting a one-year budget and forgetting about it, management revisits the budget periodically — quarterly or monthly, for example — and adjusts the numbers to reflect changing circumstances. A rolling budget allows updates in increments relevant to the company generating faster, easier to assimilate models.  If your budget is for a 12-month period, as each month ends, a new month is added showing a continuous 12-month expectation.   A monthly process is created, and data is viewed and evaluated continuously. A quarterly review would work the same – after the 1^st quarter revisit and review and add a new 1^st quarter to the end of the budget

 Benefits

Some benefits of a rolling forecast include:

Improved Accuracy
By comparing actual to forecasted performance more frequently and updating the numbers in real time data is much more reliable. Mistakes can be quickly addressed instead of letting them compound over a year. Greater control and confidence will help guide more reliable decisions.

Increased Agility
Updating your forecast regularly allows you to spot trends early and make necessary adjustments for unexpected events or evolving market conditions before it is too late.

Contingency Planning
Some manufacturing processes rely heavily on a particular raw material or component part. Creating “what if” scenarios allows you to see how a sudden price increase or shortage would affect your Company. The rolling budget allows companies to increase focus on how the business will operate under certain conditions and assist in pro-active planning.

Ease of Implementation
Annual budgets occupy a large amount of time, talent and research tying up Company resources. A rolling forecast is fluid evaluating the entire year in manageable increments with the ability to make better judgements based upon new and relevant data.

Related Read: Tracking Individual Product Costs to Maximize Profits

Time to get rolling

Once your process is in place, rolling forecasts should not increase budgeting process costs. In fact, the process is usually less disruptive than static annual budgeting while creating a more tailored product for your Company. Essentially, you can automate the process by using budget and forecasting software. Contact your financial advisor to determine if a rolling forecast is right for your manufacturing business.

For more information, contact Joyce Carlson at [email protected] or 312.670.7444. Visit ORBA.com to learn more about our Manufacturing and Distribution Group. Sign up here to receive our blogs, newsletters and Client Alerts.