How can you determine the appropriate time horizon for a rolling forecast?

For the companies I work for I usually set up an annual budget which is a P&L for each month of the financial year. Once we are a few months into the financial year this is then updated monthly for the actual amounts for each P&L line and the sales might be looked at by channel and customer. The budget is then adjusted going forward based on the trend the actual numbers are showing. This means that the company has a fairly good idea of what the annual outturn will be and can react accordingly. This can be coupled with a 5 year plan, but I find these are useful for planning, and setting intent, but the outcome is never as projected. The 5byear plan is rolled forward each financial year.

Determining the appropriate time horizon for a rolling forecast involves balancing accuracy and flexibility. Start by assessing the industry dynamics, market volatility, and the organization's strategic goals. In stable industries, a longer horizon (e.g., 12-24 months) may be suitable for comprehensive planning. Conversely, in rapidly changing markets, a shorter horizon (e.g., 6-12 months) allows for agility. Consider the business cycle and lead times for key inputs. Industries with longer lead times may benefit from a more extended forecast to manage supply chain complexities. Additionally, align the horizon with budgeting cycles and strategic planning sessions to ensure synchronization across organizational processes.

Evaluate the data availability and reliability. If historical data is consistent and readily available, a longer horizon may be feasible. However, if the organization operates in a dynamic environment with limited historical data, a shorter horizon may be more appropriate. Regularly reassess and adjust the forecast horizon based on emerging trends and external factors. Conduct regular reviews to incorporate new information, ensuring that the rolling forecast remains relevant and reflective of the evolving business landscape. Ultimately, the key is to strike a balance between foresight and adaptability to enhance the forecast's effectiveness in guiding strategic decisions.

One thing I have found helpful, is to have a budget forecast that is aligned to the years plan. The planned activities determine the role over forecast. Activities such as level of sales as envisioned, planned production and other direct costs as well as recurring costs or overhead costs changes as forecasted. Zero based or activity budgeting approach in forecasting depicts a clear picture of the organization based on vision, mission, objectives, strategies and the plans which form the annual budget. The forecast should have good practices in budgeting such as clarity, budget heads aligned to chart of accounts, Timeliness (forecast timetable) and forgotten costs such rent, recruitment costs, insurances and any pending contingency costs.

A rolling forecast is a dynamic type of financial forecast that extends beyond the current fiscal year and is updated periodically, usually quarterly or monthly. Unlike static forecasts, fixed at the beginning of the year and only revised occasionally, a rolling forecast continuously incorporates the latest actual results and assumptions. For example, it adapts as market conditions, business strategies, or economic factors shift over time. Key benefits of adopting a rolling forecast include improving planning agility, better anticipating emerging trends and developments, tighter alignment between operational activities and strategic plans, and enhanced data-driven decision-making.

In near term we can rely on receivables and payable ledgers to forecast cash inflows and outflows but this becomes tricky in more distant time periods. We would need to overlay forecast cash impact of sales and purchases that have not occurred yet. This is a drawback of direct method for cash flows.

I'd say, it depends on the client. For some it's much easier to do a 12 month rolling forecast, as they have more visibility of future sales, more experience in business, more retainer services, etc. But with some clients, when they charge one off per client, the further into the future we go, the more blue the "blue sky" pipeline becomes, and there's hardly a point in looking at 12 months rolling into the future. This is when it's better to do it at 3 or 6 months. The key is understanding the client, their business, their needs and what will REALLY make a difference to them.

A rolling forecast balances near-term precision and long-term vision. Limited 1–6-month views back operational decisions yet need to assess downstream impacts adequately. Horizons above 12 months increase variability from assumptions. Ideal horizons validate immediate moves while forecasting long-term outcomes aligned with corporate goals. Reforecasting tempers uncertainty, but organizations must purposefully weigh current details against future insight needed to direct strategy.

The time horizon of your rolling forecast is the number of periods (months, quarters, or years) that you include in your projection. For example, if you have a 12-month rolling forecast,

The timeline of the budget only matters to the extent that it reflects the same timeline as the implementation of the strategic plan. Our process is first to complete the strategic plan. Next to turn the strategic plan into a project implementation plan in a gantt chart with a detailed timings of tasks and activities. Then cost each task and activity. Apply time based adjustments for things like inflation and seasonal cost changes, etc. Add it all up, and Bob, as they say, is your uncle.

After analyzing and proper planning for the goal the better way of doing it is to engage with the key stakeholders mainly suppliers and customers. Marketing to provide a thorough analyzed data of their consumers. It is not safe for business o have a rolling forecast for more than a year as lately things keep on changing.

The optimal rolling forecast horizon is tailored to a company's unique traits and goals. The firm's development stage, industry, business model, operational tempo, decision-making cadence, and forecasting agility are key considerations. Horizons may range from 1-3 months for operational, 3-12 months for tactical, to over 12 months for strategic planning. Alignment with core business drivers, such as sales seasonality, campaign durations, or budget cycles, is essential.

Depends on the length of time of the thing you are budgeting. If for example, you current strategy has a five year horizon, then your budget should follow suit.

To implement and monitor a rolling forecast effectively, align it closely with your strategic plan, ensuring consistency in assumptions and targets. Involve key stakeholders to infuse the forecast with diverse insights. Streamline the process using a standardized template, and actively assess the forecast's accuracy and usefulness regularly. This continuous refinement transforms the rolling forecast into a dynamic, essential tool for strategic decision-making.

Successful implementation starts by defining a consistent rolling forecast methodology and leveraging existing financial reporting systems and platforms where possible for efficiency. Centralized coordination of the end-to-end process by a forecasting team helps drive alignment and adoption. Ongoing monitoring via regular variance analysis between projections and actuals enhances inputs and assumptions over time. Tracking key performance indicators ensures operations tie back to and support forecasts. These practices lead to integration between finance and operating plans.

Once you have chosen the optimal time horizon for your rolling forecast, it's important to implement and monitor it effectively and efficiently. To do this, ensure that your rolling forecast is consistent and coherent with your strategic plan by using the same assumptions, metrics, and targets. Additionally, involve key stakeholders such as management, business units, and functional areas by soliciting their feedback and input. Furthermore, simplify and standardize the forecasting process by using a common template, format, and methodology. Lastly, evaluate and improve forecasting performance by measuring accuracy, reliability, and usefulness. This helps to enhance the quality and value of your forecast.

Keep it real. All the stakeholders in value chain are now exposed to VUCA factors, it is very difficult to time which factor will playout when. The Objective of rolling forecast is to overcome shortcomings of static nature of annual budgeting/strategic plan exercises. Rolling forecast should be aligned with the current trends in the business environment (external factors) as well as current operational realities (Internal factors). The Risk and opportunities in rolling forecast should be based on reality rather than balancing act of getting numbers aligned to budget.

Rolling forecasts offer flexibility for a business to adapt to new demands and realign spending quickly. But they demand extensive effort and resources. It is, therefore, important to have a good forecast model with automated tools and interfaces to reap the maximum benefits.

In the recent uncertain economic environment, a rolling forecast is a must because we can monitor and evaluate actual performance realistically against a rolling forecast due to its flexibility. Global changes are happening in fast-paced, broad economic conditions that ultimately affect industries and companies, too, so if prepared realistically considering economic and market conditions, a rolling forecast provides accurate performance monitoring.

Align forecasts with business cycles, like annual budgets or quarterly reviews, to support planning milestones. For forecasts, essential data includes revenue, bookings, and costs, with data accessibility influencing the horizon. Use a solid baseline methodology, appropriate systems, and clear ownership for forecast maturity across timeframes. Ensure change management through stakeholder communication, executive backing, and comprehensive training. Research industry benchmarks for forecast horizons to follow best practices. Regularly reassess and adjust the forecast horizon to align with changing business needs.

Considerando positivos os comentários já postados até agora, destaco que a determinação de um horizonte para um modelo de previsão contínua depende do tipo de negócio, pela natureza do seu produto, ou conjunto de produtos, de necessidade constante ou não no mercado consumidor abrangido pela empresa. Mas sempre há uma possibilidade de, com base em média móvel da atividade realizada, fazer-se previsão para o próximo exercício e estender para, por exemplo, mais quatro exercícios futuros, a mesma linha de raciocínio, acrescentando variáveis de ensaios, como previsões de mercado oficiais, expectativas de metas de inflação oficiais, de clima e de rendimentos de safras, dentre outras, escolhendo as que melhor se relacionem com a atividade.