Mastering rolling forecasting Patrick Tullemans November 20th 2018

Get information timely to adjust your route

A recent Finext survey suggests a growing trend toward rolling forecasting whereas 44% of companies now use it * Key question: Does a rolling forecast make sense for my organization and if so, how? How many organizations are adopting using rolling forecasting and why? What is in general the horizon of rolling forecasting and what is driving this? What’s the cadence to update the forecast? E.g. do we want to look ahead 12 months, 18 months, or more? Is there an opportunity to focus on key drivers to have more efficient planning and forecasting processes? What are success factors to rolling forecasting? What are lessons learned from practitioners? Which ideas or leading practices can I consider to improve effectiveness and efficiency of rolling forecasting?

Building blocks of (rolling) forecasting 1. Customer (s) 2. Purpose 3. Horizon 4. Frequency 5. Review structure 6. KPIs 7. Information requirements 8. Process and timeline 9. IT support 5. Review structure

Reasons for rolling forecasting in practice Drive cost efficiency towards target on longer term e.g. beyond year-end Manage growth and rebase targets and resources Visibility of debt ratios 4 quarters ahead Anticipate changing business conditions instead of focus on short term Eliminate budgeting

External stakeholders The requirements to (rolling) forecasting should be aligned across its “customers” or stakeholders Illustrative External stakeholders Business / OPCO ExCo Group FP&A Forecast accuracy Continuous performance improvement Integration FC and S&OP Dual focus on short and long term Meet analyst consensus Rebase targets for next quarters Common process “One” IT system Instant insight in financial outcome

Building blocks of (rolling) forecasting 1. Customer (s) 2. Purpose 3. Horizon 4. Frequency 5. Review structure 6. KPIs 7. Information requirements 8. Process and timeline 9. IT support 5. Review structure

The horizon of rolling forecasting varies across companies Jan till April : current calendar year. As from May : this year and next Calendar year Various rolling forecasts exist 12 to 18 months current calendar year only year end forecast current year + 5 years; we intend to upate our forecast 4 times a year and add another year only once a year; stricktly speaking, it is not really a rolling forecast Nog current year only, planning to extend period 5-jaren plan Through currenct year Just starting with RF Next 4 years First simple model in Excel Rolling forecast starting after the 1st quarter of the current year. Then each month forecasting to the end of the current year. No rolling, only current year + 2 years there after uncertain yet Through current year

Organizations conduct rolling forecasting quarterly or monthly - We can’t conclude that companies forecast MORE FREQUENT WITH ROLLING FORECASTS Quarterly more formal, monthly “flash”, light update of R/O There is no universal standard process that works for every organization. Forecasting needs to be tailored to the needs of your own organization. Design covers 9 topics,

Moving to a rolling forecast Assess Design Implement

Challenges when moving to rolling forecasting Insufficient tools. Excel based Time consuming Involves technical trend analysis unpredictable business due to short lead times unclear market outlook Not the rigtht tools and capacity Organisatie meekrijgen Poor forecast alignment between functions No right tooling in place yet Adoptability It will be a new topic for our organisation. A 'learning curve' period is anticipated not only to increase the quality of the data, but also training the organisation to supply and use the data. Data quality and tooling Less accuracy beyond current year Perception extra effort required Other Business inertia to change cadence Lack of business partner engagement

SMART ideas for (rolling) forecasting SALES & VOLUME (P x Q) AS BASELINE Snapshots operational plans as baseline Active involvement beyond Finance M MEASURE FORECAST ACCURACY Forecast is always wrong Eliminate bias caused by systematic error A ACTION ORIENTED Structured review meeting Decisions on corrective actions for gap closing R REDUCE AMOUNT OF DATA Balance materiality and volatility Forecast less, more often! Rigorous repetitive process Delink forecasting from month-end closure Delink forecasting from budgeting T TIME EFFICIENT PROCESS

Key success factor is to use rolling forecasts as a management instead of a measurement tool Forecasting is management instead of measurement tool Automation Cross-functional collaboration Other Support /buy-inby relevant departments Organisatie meekrijgen identifying the drivers Skilled business partners (F&C managers) have can deal with less detailed information to still build a reasonable forecast.

Implement the basics first and then gradually mature Next level Integrated Planning Advanced Driver based roling forecasting Basics (Rolling) forecast via Onestream Now - 8 -

Takeaways The reasons for rolling forecasting vary across companies SMART ideas can inspire you to improve effectiveness and efficiency of (rolling) forecasting Implementation of rolling forecasting is an evolution, not a one-time project 1. RoFo does not replace budgeting, but their functions in the planning control cycle are fundamentally different 2. Generally often adopted practices to consider in the design or redesign of your forecast process 3. Companies often do not anticipate many of the challenges that arise after the transition to a rolling forecast. Progressive companies continue to refine their process and make fairly significant adjustments over the years after the initial adoption. By adequately preparing for the transition and understanding how the process must adapt to the needs of the business, new practitioners of rolling forecasting will avoid common pitfalls during transition.

Mastering rolling forecasting Patrick Tullemans November 20th 2018