10 Foundations of Effective QRF

10 Foundations of Effective QRF

QRF Is an Important Management Tool of the 21st Century

Seasoned executive officers understand that experts, either real or self-proclaimed, offer a consistent diet of new and improved management theories and tools. Some of these are created to sell books while others are honest attempts to introduce new strategies to the senior executive community.

Quarterly rolling forecasting (QRF) is one of the most valuable tools recently introduced for senior management, forsaking convoluted principles, QRF embodies solid, traditional, and logical theorems. Unlike some currently and formerly hot management strategies, QRF typically works well for public, private, non-profit, and government entities equally. Targeting operating goals by quarter is manageable for the most—or least—technologically sophisticated entity.

QRF Is Valuable to Both Large and Small Organizations

Because of the relative simplicity and solidity of QRF, it helps all corporations from the largest Fortune 100 Company to the smallest home-based organization. QRF mandates looking and projecting six quarters into the future. Instead of expending resources on monthly projections, preparing quarterly estimates often displays better accuracy, smoothing out ultra short-term volatility.

As the first of the six quarters expires, a new sixth quarter forecast appears, maintaining a consistent QRF projection. Recording, identifying, and evaluating trends quarterly establishes rolling targets that constantly display 18 months operations into the future.

Valuable features include the ability to base new forecasts (sixth quarter) on recent history combined with ever more accurate data, further improving accuracy. Even smaller organizations, lacking excess forecasting talent, can use and benefit from QRF as it needn’t be overly technically created.

Ten Foundations of Effective QRF

Solid executive management theories are usually built on equally firm foundations. Properly designed QRF is no exception. Here are the most important building blocks of successful QRF management.

1. QRF is not based on what the organization wants, but reflects what they believe and project will happen.

2. Always forecast beyond the current year's end by using six quarters. Along with smoothing out short-term unexpected events, senior management will feel more secure setting longer-term goals and targets based on interrelated forecasts built upon each other.

3. Follow a bottom-up process with a quarterly, not monthly, focus. The opposite of top-down planning, the bottom-up process originates from the lowest rung on the corporate ladder, moving up, as each lower level planning is complete. This process can quickly become tedious and counterproductive using monthly cycles.

4. Identify targets/goals at least one quarter ahead based on forecasts generated by QRF. After the QRF is complete, senior management can set their coming targets and goals in light of the forecasts, making objectives more realistic and attainable.

5. Create annual strategic, operations, marketing, and financial plans as by-products of the QRF data. With six-quarter rolling forecasts, annual plans can be created, not based on pure brainstorming or executive wish lists. Senior management can develop annual plans in relation to QRF projections. Once again, accuracy and attainability improve.

6. Use a quarter-by-quarter funding strategy similar to zero based budgeting doctrine. Eliminate entitlement spending from funding plans based on the QRF. The forecasts will dictate necessary funding allocations and levels, not related to prior period expenditures.

7. Accept that focusing on details seldom leads to accurate projections. Placing details ahead of trends and key concepts often retards both the process and the veracity of forecasting results. Using quarterly forecasting time periods and many details can further distress the accuracy of results.

8. Effective QRF is based on using key components, not details and minutiae. This building block is the corollary to item number seven. Even bottom-up projections should concentrate on the big picture rather than detailed specifics.

9. Create QRF with a fast and light process, as changing trends can always modify initial forecasts. Rolling forecasting is a tool to help senior management strategize and formulate executive decisions for coming periods. Using a fast and light creative process, the QRF should be timely. Should market conditions change, course corrections and modifications should be equally simple to make.

10. When building a QRF electronically, use project or strategic planning software, not common spreadsheet programs. Unlike detailed budget preparation, develop QRF using project planning software. Spreadsheet tools tend to direct users to downplay strategization and focus on budgetary-related concerns and line items.

Quarterly rolling forecasting need not replace other useful management tools. However, from a Board of Director and C-level executive perspective, QRF can help focus and drive important strategy, financial, and operations decisions, including goal and objective identification and direction.