How to create Rolling Forecasts in Adaptive Planning
Using Versions to Facilitate Your Rolling Forecast
A Rolling Forecast is the most effective approach to budgeting and forecasting for most businesses. In general, creating an Annual Budget takes a considerable amount of effort. If this budget is then out of date (due to economic or environmental changes) and therefore useless 45-90 days after its completion, the value of this annual exercise is questionable. However, if you create a Rolling Forecast you will always have an accurate view of at least 12 months of forecasted financials.
To begin this process, create your Annual Budget as an Adaptive Planning version that includes 2 years. The first year is your official Annual Budget and the second year is an out year forecast. Once this Annual Budget is approved by your board, the version should be locked, so the data cannot be changed. This keeps it consistent for use as the benchmark to compare with all other scenarios through the rest of the year. Then on a monthly basis, update your Actuals version with the most recent month’s actual data and create a new version that is a copy of the prior month’s version. For example, if your fiscal year is the calendar year, in February once you update your Actuals version with January actual data, you would copy your locked Annual Budget to create a new version. Then set the Start of Plan variable for this new version to February of the budget year. This will allow the January actual data to be seen within this new version. At this point, your new version is the Annual Budget updated with January Actual results. Continue this process during the year – in March you would copy the February version, and then so forth each month.
Each month when you update with actuals and create your new version, you should tune or update this new version with any changes that are required to reflect any changes in your business. These could be as simple as a new employee or additional sales or as complex as a new division. This allows you to keep tuning your forecast each month, but at the same time maintain your prior monthly forecasts and your original Annual Budget. Any or all of these are available for comparison to one another.
As a best practice, you should develop a naming convention to allow you to easily distinguish the various versions, since by year end you’ll have at least 12 versions. This could be as simple as naming the Annual Budget, “2012 Annual Budget”, and then naming each forecast, “2012 Forecast 1-11”. The 1-11 in the forecast name indicates the months of actual data (1) and months of forecast data (11).
To continue the Rolling Forecast process, at the beginning of the next budget cycle, simply create a new version from the latest forecast version, and extend the planning horizon one year by moving the End of Plan variable out one year. Then use this new version as the starting point for your next Annual Budget. Since you have been updating each Forecast version, this new version will be pretty accurate and should mostly need tuning in the new out year.
This Rolling Forecast process is easy to maintain and provides tremendous flexibility for reporting variances between your Annual Budget and various monthly Forecasts or other scenarios.