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by Victor Cherubim

Rolling forecasts are in the process of replacing annual budget statements as trend analyses in business. There appears to be a change of financial policy from the number based trend analysis to no fixed annual targets to evaluate progress. Budgets are thought to be outdated particularly in today's business environment.Rolling Forecasts set longer terms goals based on benchmarks, such as return on capital (ROC). They reassess current plans as market and the economic conditions change.

The ever-changing view of the failure of annual budgets to work following the outcome of Worldcom and others in the US, particularly during downturn in the market, has made Rolling Forecasts to be created every three months over a cycle of five to eight quarters. The advantage of Rolling Forecasts is:

* No fixed forecasting, like at the end of each financial year when income costs and other elements are measured against budget.

* This forecast constantly is refreshed by the latest estimates of economic forecast trends.

* No explaining of numbers as no fixed profit targets or penalties for missing estimates are put in place.

* It relies on information and control systems by all cost centres in a business at the same time.

* The benefit of decentralising decision making helps corrective action speedier.

The disadvantage:

Rolling forecasts may be a novel idea of looking at the business as changes take place during pockets of market turbulence, but may not provide set periodic reviews of financial performance indicators, as in annual budgets.

Should the review take place and assessment criteria deployed, these flash forecasts are mere trends and not number based estimates for market recovery.

Implementation of Rolling Forecasts:

The practice of using Rolling Forecasts beginning on April 3 is being mooted for UK business. It is envisaged that these flash forecasts will look three months and not a year ahead, anymore.

However, yearly two additional forecasts, one looking four years ahead and another some ten years ahead, will also be commissioned to enable executives to monitor progress.

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