The assumption that rolling forecasts improve accuracy really tests the validity of our data in healthcare. Do we know enough about the metrics that are driving a useful driver-based forecast? The rolling forecast is usually a quarterly budget with a two to three year horizon that keeps a close eye on the organization’s trajectory. Typically the forecast budget is not prepared at the department level but may instead focus on divisions or even at an entity level. Global budget drivers and assumptions will typically be the same as the annual budget but those unique to a department or division may not be line itemed. The forecast is built using historical trends, current conditions and future assumptions for budget drivers. Some forecasts may be primarily driven by revenue drivers with expenses flowing from ratios defined to the model. The forecast feedback process fosters the partnership between finance and operations to allow the organization to course correct sooner and reinforce the cause-effect relationships that impact reality. Some organizations use the rolling forecast process in conjunction with the annual budget and others have moved to using the forecast only.
Benefits of replacing the annual process with a rolling forecast may include:
- Spending fewer resources on budget preparation and variance analysis.
- Reinforces a culture of continuous performance management.
- Allows a longer ramp-up time for course correction.
- Supports the organization’s economic model (3-5 year macro level plan) used for capital allocation decisions, margin targets, M&A modeling and other purposes.
The rolling forecast should be tailored to meet your organization’s needs and based on my experience, the forecast should be a continuous learning process and more flexible to make necessary changes when needed from both a process and a technology perspective.
Stop by Perficient’s booth #118 at the Oracle Healthcare Industry Group conference in Las Vegas June 7-10th to learn how we have helped clients deploy rolling forecast applications using Oracle Hyperion Planning and/or Strategic Finance and learn more about our High-Performance Costing Expressway solution.
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