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Why rolling forecasts matter in this economy

Are you using rolling forecasts or a more traditional yearly budgeting model? While the annual model is effective, we don't know many community bank financial leaders who relish the task of coming up with a forecast for the entire year. It's a time-consuming and often cumbersome process that can be fraught with flaws, not the least of which is the inability to set realistic expectations amid changing economic conditions.

For that reason alone, traditional annual budgeting and forecasting may not be the best tool for you in this uncertain economy. There's an alternative solution: Rolling forecasts. They are flexible and agile, giving you more up-to-date information. In these current economic conditions, timely data is vital for banks to be able to "roll" with the changing tides.

A rolling forecast, according to U.S. Analytics, is a type of financial model that predicts the future performance of a business over a continuous period, based on historical data. It uses an "add/drop" approach that drops a month or period as it passes and adds a new month or period automatically.

You can choose any time period, but one common approach is to use a model covering 12, 18 or even 24 months. It allows you to plan continuously, as one month drops off when it ends, and another rolls onto the end of the model. Unlike a traditional forecast, a rolling forecast is more like a living resource, working with you as the weeks and months go on. Some best practices suggest that you should be forecasting at least four to eight quarters past your current quarter’s actual. Others suggest monthly forecasts extending at least 12 months past the current month. Regardless of the forecasting interval you choose, the important thing is that you forecast with regularity.

In this way, banks with rolling forecasts have the information they need to adapt to changing conditions, which helps them manage risk exposure. That's important when current market conditions are in flux. Right now, the ability to react in real time is crucial.

The rolling forecast financial model is the best way to ensure that performance projections are based on the most recent numbers and time frame, which is critical in our ever-fluctuating business environment. But there can be challenges to shifting your annual forecasting model to a rolling forecast, including institutional resistance to change, time lost in training and getting people up to speed. More on those factors later.

Six truths about rolling forecasts

Here are six powerful benefits of adopting rolling forecasts:

1. They improve accuracy. Many bankers say that by the time they've completed their traditional yearly forecast, it's already obsolete. The performance goals set in that budget are based on assumptions made months ago. The business environment will have changed. Yes, the economy is in flux right now, but even in the most stable of times, there are variables like interest rate movement, competition, branch resizing, the lending boom and other factors that can come and go. The assumptions will become outdated. The practice of using a rolling forecast improves the accuracy of your financial planning by keeping you aligned with changes in the business environment.

2. They mitigate risk. A more accurate forecast means less risk overall. Market changes can and do happen without much warning, as we all know after the first quarter of 2020. That possibility of volatility creates risk. A rolling forecast will help you adapt to those changes quickly and allow you to reduce your exposure to risks.

3. They allow you to manage expectations. If you’re straying from your original budget and forecast, the rolling forecast process will allow you to update expected results and reset expectations for all stakeholders. Perhaps your loan pipeline is weaker than you thought it would be. Or too many deposits are moving to banks with higher rates. You’ll be able to account for this in your next forecast, make the CEO and board aware and more quickly take action to get back on track. This agility and the ability to react quickly is one of the most powerful benefits of rolling forecasts.

4. They identify untapped opportunity. If the business environment has changed in your favor since your last forecast, you adjust your assumptions and see how your forecast would be affected if you made strategic changes. For example, you might find that deposits are higher than anticipated, allowing you to sufficiently fund more of your loans without buying funds. The earlier you seize profit-making potential, the better. In this way, the rolling forecast allows you to stretch a bit, go after opportunities and in the end, profit from them.

5. They give you more current information. CEOs expect CFOs to help drive profitable growth. To do so, you must be accessing and analyzing up-to-date performance information. Consistently high-performing banks are intentional about performance management. They follow a cycle that relies on frequent forecasting to drive strategy and future performance.

6. They shorten the budgeting process. Many people believe that the annual budgeting process is so fraught with flaws (and universally disliked by FI professionals) that it should be replaced with rolling forecasts. While you may not be ready to do away with your annual budget, know this: Rolling forecasts could cut your budgeting time significantly.

Best practices for rolling forecasts

In this ever-changing economy, rolling forecasts help you be more agile and responsive to the economic uncertainty we're all living with currently. Here are nine best practices to effectively implement rolling forecasts in your institution:

Get buy-in and participation early

Before you make any wholesale change, it's crucial to get the team on board. Embracing change in any industry can be difficult, and finance is no exception. Institutions like banks rely heavily on tradition. Even now, despite the finance industry being disrupted by Fintech and roiled by a new economic shock, it's hard for people to let go of traditional processes like annual budgeting and forecasting. If it has been a yearly process within your banking system forever, switching it up to a rolling forecast can seem like a sea change. Get your people to see the positives of switching from spending significant time once a year creating their forecast to dedicating shorter periods of time throughout the year on the process. It's likely they'll welcome the change.

Don't be afraid to identify flaws in the status quo

This goes hand in hand with getting buy-in from employees. If you, as the CFO, are convinced rolling forecasts are more efficient and effective, that will go a long way to getting employee buy-in. Another powerful way to get people on board with the change is to identify inefficiencies and inaccuracies in the traditional process.

Determine your timeline

Do you want to chart your budget course monthly? Quarterly? According to Wall Street Prep, it depends on your business cycle. It's simply a matter of determining how far in the future your forecasts will stretch out. Say you choose monthly increments for a period of one year. After one month is over, it will drop out of your forecast and a future monthly data point will be added at the end. So, although you're looking at those numbers monthly, you always have 12 months laid out in front of you.

Decide how much detail you need

According to the Corporate Finance Institute, the level of detail depends on the length of your forecast. You should also include scenarios for several different outcomes. New information, new trends and new economic factors can pop up. You can look out for the next 12 to 18 months and create scenarios based on trends like less reliance on lobby activity and more use of digital banking. But some factors simply cannot be foreseen. Nobody knew six months before COVID-19 hit that we'd be dealing with a worldwide economic shutdown, for example. That's another reason for your forecasting to be nimble. One important point to note: Set the goal for your forecast based on the most current financial goals of the institution. Surprisingly, this step does indeed get overlooked.

Consider future business decisions

What, if anything, may occur over the next 12 to 18 months that could help or hurt the institution’s performance? For example, you should know if there are plans to open or close branches, sell or purchase property, launch a new product offering or grow or shrink the workforce. Review expenses to determine if you have any new one-time expenses, any new recurring expenses or expenses that will roll off the books. Also, your board of directors may have plans that will affect future financial targets. They could include strategically resizing the company, offering it for sale or moving forward with an acquisition.

Contemplate interest rates

It’s important to think critically about how rates will move in the future. Historical data won’t be accurate enough for your forward-looking forecast. Additionally, as rates change, what will happen with your loan portfolio? Are there large loans that will renew or reprice? What’s in the loan pipeline?

Scrutinize your assumptions

Set numbers or percentages for metrics such as charge-off ratio, risk-weighted assets/total assets, minimum tier 1 leverage ratio, targeted ROA and ROE, and more. You can make these assumptions at a macro (consolidated) or micro (cost center) level and apply them to your forecast.

Use variance analysis

Variance analysis will allow you to compare your forecasts with actual results your bank has seen over time. Using a common variance analysis structure, you can see your results for last month or last quarter alongside your forecast and get a clear picture of how those real-world results varied from the forecast. Not only will it tell you how your bank has performed, it will tell you how accurate your forecast was. That gives you the information you need to tweak and change the process for future forecasts. You can dig into what led to the variances you see in your analysis and alter your forecast, which allows you to make better decisions about what's coming down the road.

Building an accurate forecast relies heavily on historical data. But it’s the hands-on business knowledge you apply to the forecast that helps make it a more predictive and actionable roadmap for your institution.

Automate the process with a performance management tool

A cloud-based performance management tool like Deluxe Banker’s Dashboard will provide the data and analytics you need to automate your rolling forecast. As you create forecasts, the software will help you analyze these factors:

  • Annual budget versus actual results (variances to budget)
  • Balance sheet (mix of loans and deposits)
  • Income statement (interest income and interest expense)
  • Loan pipeline (its overall health and timing of loan closures)
  • Annual budget versus forecast (showing why they are different)

Use the forecasting tools to adjust your assumptions based on your most current performance and future expectations.


Preparing rolling forecasts forces you to look forward constantly and to be responsive to today's dynamic and ever-changing environment. You can provide more up-to-date targets for your employees and ensure that performance evolves. That's because your strategies can change and be revised based on being able to react to current conditions.

Downsides to replacing your traditional annual model with rolling forecasting include resistance to change, the time lost in training, getting people up to speed and implementing the new technology. But given the sea change banking has gone through within the last five years, it's not news to anyone that new processes and techniques can make the bank more relevant, timely and competitive.

Rolling forecasts are a powerful way to make sure your bank is poised to thrive during trying economic times, but they’re equally as powerful during stable times of growth and security. Rolling forecasts help smaller banks stay competitive with the bigger institutions, making them a win-win for FIs and customers alike.

The information provided in this blog does not, and is not intended to, constitute legal or financial advice.

For more information about rolling forecasts and the state of banking today, download our new white paper, "Banking in 2021: The Focus on Efficiency."