The time for rolling forecasts has come.
Annual budgets and forecasts are not agile enough to support today’s constantly changing business environment. An annual budget makes assumptions about spend, but doesn’t replace assumptions with actuals once the year is underway. When the business climate changes, your budget can’t respond to new prioritizations. This puts you at a disadvantage.
Forecasting, by incorporating actuals, is a better option, but it still only looks at the current financial year (FY) in isolation. An agile budgetary process needs to look across multiple financial years and incorporate the most recent periods of actuals.
Rolling (or continuous) forecasts offer a complete planning solution, giving organizations the agility they need to respond to unforeseen challenges. This changes planning from a one-and-done exercise to an ongoing process that is always looking forward with the most recent actuals.
So, why aren’t more organizations using rolling forecasts? Despite being the accepted medicine for budget variance ills, IT organizations struggle to get buy-in for them. The annual planning event requires a level of effort that can’t be replicated in a rolling forecast. The two planning events have different purposes and organizations must understand the specific goals of a rolling forecast. Here are five steps to prepare for successful rolling forecasts.
#1 Focus on the biggest drivers of variance
On-premise infrastructure, midway through a depreciation cycle, isn’t a lever you can pull to control spend. The OpEx impact from a four-year depreciation cycle is locked into place with a definitive start and end point. There’s little to be done about it. A rolling forecast needs to zero in on areas where change in spend can have an immediate impact: for example, public cloud and/or labor and maintenance agreements that are reaching the end of their contract period.
#2 Track corporate strategy KPIs
Forecasts provide an opportunity to pause and course-correct. Reviewing spend and identifying levers helps align spend to corporate goals; for example, run the business (RTB) versus grow the business (GTB) investment, IT objectives, direct/indirect service blend, etc. Quarterly business reviews (QBR) with business stakeholders should leverage rolling forecasts to socialize corporate IT KPIs.
>see also: Top 10 metrics to manage the business of IT
#3 Build cost center (CC) owner accountability
Annual budgets aren’t built for flexibility. Neither a paternal, top-down approach (“This is your budget. It’s 2% less than last year. Carry on.”) nor a zero-based budget (“Build your budget from scratch, again.”) empower budget owners to truly own spending decisions—particularly when they are looking out through the current FY. By bringing in recent actuals and always planning 6–9 months ahead, cost center owners have the tools to respond to changing business needs and track impact to KPIs.
#4 Define an implementation strategy
Rolling forecasts need specific capabilities to deliver plan agility. If an annual plan takes two months to build it is impossible to roll out monthly forecasts using the same method. A sprawling planning process has to be simplified. Repetitive, low-value aspects of building rolling forecasts need to be automated (ex. asset depreciation schedules, static FTE numbers) to free up time for analysis and socialization of recommendations.
#5 Build stakeholder buy-in
Monthly budgeting and annual targets are less important for rolling forecasts. IT management and business stakeholders need to understand what is taking their place. Each forecast must focus on high-level KPIs that can point to further analysis. For example: a project portfolio has a falling KPI (% of project spend on customer-facing initiatives) that needs further analysis. This KPI alone isn’t enough to postulate action (Is our approval process broken? Are we not prioritizing the customer experience high enough?), but it guides next steps (“Let’s bring in the project owner for customer application projects and discuss the approval process.”)
Rolling forecasts build credibility with the business on measuring KPIs for IT value. They empower cost center owners to be accountable for spend by giving them the agility to respond to a changing business climate.
To setup your organization for rolling forecast success, you should:
- Focus on the biggest drivers of variance
- Flag outlier spend driving variance from strategic KPIs
- Build CC owner accountability with planning agility
- Define an implementation strategy, not just the tactic
- Limit the KPIs to build rollout buy-in
Rolling forecasts with Apptio IT Financial Management Foundation
Apptio IT Financial Management Foundation is a new product that offers collaborative budgeting, forecasting, variance analysis, and multi-year planning purpose-built for IT. It incorporates resource-based planning into standard, IT-relevant areas of spend like: labor, hardware, software, and vendors. Apptio IT Financial Management Foundation provides confidence that every IT dollar is spent and spent on the highest priority items for your business. As a result, IT finance leaders spend less time working in spreadsheets and more time delivering valuable insights about how and where to best support the business.
Download Nailing Your IT Financial Plan for an overview on how you can overcome common IT budgeting and forecasting challenges.
Download this webinar recording for an inside look at our new product tailored for IT finance professionals, Apptio ITFM Foundation.