Achieving the Rolling Forecast: An Incremental Approach with Rapid Results

Rolling forecasts can be a powerful differentiator for companies striving to remain competitive. Unfortunately, most organizations can’t achieve them today. What if it didn’t have to take years, large investments and big process changes to get there? Your current technology, processes and planning models might be closer than you realize.

Who will benefit from this e-book?

FP&A, Corporate Planning, Corporate Strategy, Finance

E-book

In many companies, the budgetary planning process remains largely unchanged from its original design, which may have occurred years or even decades ago. Typically, a highly manual, time-consuming process is attempted only once a year, with budgeting season often inspiring a mix of resignation and dread by line managers. From their perspective, this rote, low-return exercise doesn’t appear to help either them or the company effectively plan or measure performance.

However, as a company’s agility becomes more and more of a prerequisite to success in a modern economy, annual planning processes are quickly gaining attention as important areas for improvement and transformation. Some reasons for this include:

In fact, due to the above and other accelerating technological and market forces, rolling forecasting, also referred to as continuous planning, may be the biggest aspirational trend in financial planning and analysis (FP&A) in the last 5 to 10 years.

Large corporations have increasingly made investments in extensive planning solutions and hired teams of staff to do nothing but manage the systems and processes to achieve continuous planning. These organizations see planning and forecasting as critical processes in their ability to do business profitably, manage growth and respond to market conditions.

Introduction

Current Tools and ProcessesDedicated planning solutions such as Oracle Hyperion Financial Management (HFM) and SAP Business Planning and Consolidation (BPC) provide extensive process automation and highly sophisticated planning capabilities to assist large, complicated organizations with complex forecasting needs. But for small and medium-sized enterprises (SMEs), these kinds of expensive, complicated, and risk-filled planning system projects are challenging to afford and accommodate. Further, some of the solutions used by larger companies are quite simply over-engineered for the needs of a smaller company.

Microsoft Excel Still DominatesIn fact, the vast majority of companies ― 86 percent according to “The Planning Survey 14” by BARC ― still use Microsoft Excel for at least a part of their planning process2. Excel remains the go-to tool for business professionals creating budget planning models due to its availability, analytical power, ease of use and low cost. However, if it is not directly connected to the existing enterprise resource planning (ERP) system, many of the processes in budget planning become highly manual, making it potentially too cumbersome for monthly forecasts, not

Production cycles are much shorter now: even more so when considering that many goods are intangible today, and products can quickly evolve from idea to market

Faster flow of information ― and more information

Increased market volatility due to globalization: fragile national economies, exchange rate fluctuations, productivity-enhancing reallocations

In Aberdeen Group’s “Financial Planning, Budgeting, and Forecasting in the New Economy” study, 96% percent of best-in-class companies are characterized by the ability to track actual performance against budget, while 82% have the ability to reforecast as market conditions change1.

The Status Quo:Limited Functionality with Excel Alone

to mention risky in terms of data integrity. Additionally, consistency and transparency are nearly impossible to achieve when finance and operations are potentially working from data that was extracted at different times from the ERP system.

Why a Manual Process in Excel isn’t Enough Anymore

Manual Excel processes are difficult to either accelerate or scale, and this leads companies to stagnate in improving their planning processes and capabilities with their existing tools.

This stagnation often regresses toward merely trending last year’s budget via a top-down approach because producing a budget from the bottom-up cannot be done efficiently enough.

A crudely-trended budget may serve its purpose in containing runaway spending, but it does little to nothing in terms of fostering a collective understanding of key cost and revenue drivers at both a micro and macro level. For an organization currently entrenched in a planning process like this, rolling forecasts can therefore seem unattainable without large investments and significant organizational change.

In the BARC survey, 97 percent of respondents viewed planning as important or very important, yet only 12 percent feel they have no problems with their planning process. Some of the top problems cited were:

• Lengthy process coordination (49%)

• Strategy not considered for near-term planning/forecasting (42%)

• Poor flexibility (29%), outdated plan once finalized (26%)

• Insufficient data quality (22%)

The BARC survey indicates that conducting sub-budgeting activities exclusively with Excel takes five days for supplying actuals and inputting budget data; three days for transforming and consolidating it to produce the budget; and just three days for data analysis ― the most important part. This means that an entire eight days are essentially wasted merely processing data, which is at least seven days too many. It’s no wonder that companies with this planning and budgeting framework have difficulty contemplating rolling forecasts.

Continuous Planning, The Holy GrailMany organizations are moving toward continuous planning and strategy cycles, according to the BARC survey. Eighty-one percent of best-in-class companies said they have a year-end forecast that replaces the prior period’s budget data with actuals and re-forecasts remaining months to the end of the fiscal year. Also, 47% of these organizations use rolling forecasts that drop the previous period’s data and add another period to the end so they always forecast 12 periods ahead.

Utilizing this continuous cycle, managers can better refine their forecasting techniques by learning from a larger sample of past variances. In parallel, this enables more frequent evaluation of market conditions for the most efficient re-allocation of resources to the areas of highest value. Also, planning and financial close become an integrated and inter-related process. The month-end close isn’t merely a means to record the past, but also a forward-facing activity of adjusting outbound periods.

Continuous planning as a process serves as a much fairer and more useful measure of performance management when compared with annual budgeting. Annual budgets are still a valuable and necessary construct in terms of cost control, but are grossly misused as a performance benchmark (assuming a change in market conditions or strategy during the twelve months the budget is in force). In contrast, affording a manager the opportunity to reflect and re-organize his/her plan each month provides a proper measuring stick for performance evaluation.

Comparing cost or revenue results against a budget that was prepared nine months ago will only tell you what is already self-evident ― that either internal or external conditions shifted after the budget was completed. Constructing a budget revision to replace the original budget is a recommended

exercise following a shift in landscape, but cannot be easily achieved unless

a continuous planning framework is already

in place. But how do you get

there?

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For companies who can’t currently execute continuous planning, the biggest impediments are often time and cost.Current manual planning processes and tools do not allow quick and easy incremental adjustments ― only complete “rebuilds” that require too many hours to tackle more than once a year.

Cost comes into play when organizations realize that a specialized ― and often expensive ― planning solution may be needed to accomplish rolling forecasting and continuous planning, because Excel alone is not flexible, accurate or timely enough to do so. But when the BARC survey asked why companies hadn’t adopted such a solution, 40% said they had a poor cost-benefit ratio. Other reasons were that specialized solutions still could not fulfill requirements (32%), existing solutions were satisfactory (32%) and specialized tools were too complex (20%).

Starting from scratch with a dedicated planning solution and new processes is an option that some companies do choose to pursue. However, incremental improvements to existing processes and tools may be a better initial approach than an expensive technology solution, big-bang implementation, and completely new process for managers and users.

The BARC study highlights an important potential stepwise option ― specialized Excel planning add-ins ― for companies who have shied away

from expensive tools that don’t link directly to their ERP system or are extremely complex, and who would like to continue to use Excel. Excel add-ins integrate their own functionality into an Excel interface so spreadsheets are the front end to the ERP system. Real-time integration between Excel and the ERP system can eliminate manual historical data collection steps, as well as automate the uploading of Excel-based planning information back into the ERP system.

Implementation time and cost for Excel-based solutions in general tend to be much quicker and inexpensive than dedicated new solutions, further strengthening the business case for considering an Excel option.

Staying on an Excel platform for budget planning also means that companies can examine how to leverage their current Excel planning models and input spreadsheets, while improving them with specific updates. Existing company planning models can become refreshable and reusable, enabling more frequent adjustments and taking an important step toward achieving rolling forecasting capability. Extending the life of existing Excel models and processes can buy the organization time to evaluate and budget for a dedicated planning solution, while getting powerful new capabilities and insights relatively quickly and at low investment.

Finally, automating Excel planning processes with Excel add-ins that integrate Excel directly to the ERP system eliminates a major source of potential data inaccuracy. The add-ins both retrieve and push data from and to the ERP system, removing the need for static exports, extracts, and keying/ re-keying between the ERP and Excel.

Incremental Automation Leverages Existing Systems and Skills

With Excel add-ins, business users can also continue using a solution that is comfortable and familiar, minimizing training requirements and improving acceptance of change.

Gradually stepping toward automation and real-time modeling may help the business and managers to absorb change and see how to apply new capabilities for results, with better long-term cultural acceptance of new ways of doing things. For companies already depending on Excel for planning tasks, leveraging Excel’s power and ease of use, while automating and extending it, could be a successful intermediate step to explore.

Here are three steps companies should consider for a smooth transition to rolling forecasts using an Excel add-in that integrates to the ERP system.

Three Considerations for the Journey to Rolling Forecasts

Prepare a cost element and account structure for planning. This can be achieved through modifying your existing hierarchy to suit both financial and managerial reporting, or through creating an alternate hierarchy expressly purposed for planning and management reporting.

Upfront preparation for a transition to rolling forecasting as described in these three steps can expedite the project and provide an even faster return on investment. Depending on the organization’s current state and appetite for change, don’t be afraid to consider this type of step-wise transition.

Integrate your current Excel planning framework with live ERP bidirectional data using Excel add-ins. Use existing templates and models and modify them incrementally for quick results and ongoing improvements.

Modest improvements every month for six months could deliver significantly improved forecasting capability before the next annual planning cycle begins ― and in bite-sized pieces for managers and users to digest more easily.

Conduct a current state assessment of your planning process.1.

2.

3.

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Create current process mapping with data inflows

and outflows, as well as roles and responsibilities. Document

where and how Excel is being used today.

Identify process gaps and inefficiencies.

Identify key stakeholders and champions for the transition

to rolling forecasts.

Create process mapping for the desired future state.

a.

b.c.

d.

Excel add-ins offer businesses ― especially SMEs ― an option for incrementally automating planning processes and achieving rolling forecasts, without the expense and risk of a larger planning system investment. Leveraging the business user’s tool of choice, Excel, can also allow an organization to minimize the negative impacts of change, reduce training requirements and accelerate the move to better visibility. Given the ability to update Excel-based forecasts with little time and manual effort required, managers can better allocate resources to areas with bigger payoffs while attaining the agility to more quickly adapt to rapidly shifting markets and demand. Rolling forecasting is not just for the Fortune 500 anymore, and getting started today with simple tools for big results may be just the right approach for your organization.

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Excel4apps is a best-in-class provider of Microsoft Excel-based reporting and data loading software for use with SAP, Oracle and other applications. By empowering business professionals in a range of industries with independent and secure access to real-time ERP data via Microsoft Excel, the company’s products expedite accurate and timely business decisions. Excel4apps products include the award-winning GL Wand for financial reporting, as well as software for budget and planning data uploads and other types of reports. Founded in 2005, Excel4apps has offices in North America, Europe, Africa, the Middle East, Asia and Australia to serve the needs of both local and global multinational companies.

www.excel4apps.com | info@excel4apps.com

Andrew Stutzman is Solution Specialist with Excel4apps, which leverages its collective expertise in Excel, SAP FI-CO, and FP&A to produce award-winning planning and reporting solutions for SAP companies. Andrew is a former accountant, as well as technical SAP FI-CO analyst. He has also served as the technical administrator and implementer of an SAP BPC environment at a Fortune 500 company.

Andrew StutzmanSolution Specialist

About the Author

References1. Aberdeen Group, Nick Castellina and David Hatch, “Financial Planning, Budgeting, and Forecasting in the New Economy,”

March 2011

2. BARC Institute, Dr. Christian Fuchs, and Nikolai Janoschek, “The Planning Survey,” March 2014

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