24 is the new black
Rolling planning should be the mandatory state for every business. This blog isn’t to advocate the benefits of rolling planning over a single annual plan and its narrow lookout towards the end of financial year. Surely there is unanimity regarding the weakness of this approach.
This blog asks what period we should be rolling for. When rolling forecasts became the in thing, everyone – including myself – advocated 15 months and quarterly increments. Look up your current CPA, ACCA, white papers, etc. and check what the market’s financial thought leaders were promoting. Yes, 15 was the new black!
A 15-month rolling forecast makes a business feel good and it’s a big improvement. An extra three months and a continual time horizon add to the view of the world, and a business will always have a view of what’s to come.
But why 15 months? Did we ask? When I think back to my days as Finance Director in industry, my accountant’s answer was “because it’s one quarter out”. Customers think in financial years and quarters, don’t they?
However, what does a 15-month rolling forecast allow you to do? It can correct, adjust, support short-term alignments, assist firefighting, etc.
Of course, a business can also have a long-term outlook, i.e. a five-year strategic plan, but the two are often disconnected – purely financial outlooks.
Also, look at the big decisions a business takes, such as opening a new factory, finding a new key distributor, bringing a new product to market, etc. From concept to fruition, these things require a longer outlook.
24 should be the new black
You don’t have to take my word for it! Oliver Wight, advocates and pioneers of S&OP and Integrated Business Planning (IBP), shaped their view from the operations and business side. 24 has always been their view, because the IBP methodology places the emphasis on operational and financial planning alignment. It includes a view of the product, portfolio and strategy.