“Capital activism” in action: How rolling forecasts fuel strategic capital allocation

Capital activists – enterprise stakeholders who take an “always on” approach to allocating and managing capital – unlock 2.5% more value than their peers, yet just 17% of organizations exhibit the key traits of a capital responsive strategy, according to Gartner.

One culprit? Traditional approaches to budgeting. Budgets created on a yearly basis don’t provide the agility needed to reallocate resources as conditions change.

Rolling forecasts are a way to attack this problem. They give decision-makers the flexibility to quickly reallocate capital to the most promising opportunities, rather than waiting until budgeting season comes around again. In the process, projects that have the most merit at a given point in time rise to the top, while those that do not can be re-evaluated. Curious how? Read on.

What are rolling forecasts, and how do they work?

Unlike traditional budgets that are revised once a year, rolling forecasts are updated on a monthly basis. Here’s how it works: At the end of January, the forecast is extended to include the following January. This process repeats each month, ensuring there’s always a fresh 12-month projection.

Rolling forecasts unlock a range of benefits, including:

Streamlining decision-making for maximum impact

Traditional budgeting is notorious for bureaucratic complexities and slow approval processes. This stifles decision-making and breeds inefficiency. By facilitating the continuous evaluation of investment opportunities, rolling forecasts enable leaders to swiftly:

  • Capitalize on emerging opportunities: Identify and pounce on promising ventures as they arise.
  • Double down on promising initiatives: Quickly identify high-performing initiatives and fuel their growth with additional investment.
  • Quickly pause or exit under-performers: Cut bait on underperforming investments before they consume more capital. Rolling forecasts provide the agility to do this on a monthly basis, rather than waiting until budgeting season. 

Maximizing portfolio-wide performance

Traditional budgeting practices abide by a “use it or lose it” funding policy. To secure funding for the next year, departments are incentivized to exhaust their budget, whether they have productive uses for it or not. This drags down overall returns on the organization’s capital.

Capital activists, on the other hand, embrace a “nothing is sacred” mindset. Rather than being tied to outdated budgetary commitments, funding is allocated to areas that can generate the most value. In a rolling forecast structure, capital is constantly migrating to the strongest opportunities.

Continuous evaluation of well-vetted project proposals

Capital activist CFOs understand that maximizing resource efficiency is a collaborative effort. The first step is to establish a set of objective, organization-wide evaluation criteria. This shared framework ensures consistent and fair assessment of project proposals across all departments.

CFOs can then socialize these criteria with department heads and work together to continually assess a well-defined pipeline of project proposals. In a rolling forecast framework, these evaluations can be done on a monthly basis.

Cultivating a culture of experimentation and continuous Improvement

Innovation requires experimentation. With rolling forecasts, projects are constantly being added and subtracted based on real-time performance. This constant reallocation dismantles the traditional stigma associated with abandoning projects, transforming it into a strategic advantage.

Every project, successful or otherwise, offers valuable lessons. Rolling forecasts unlock a continuous learning cycle — data from both underperforming initiatives and star projects inform future resource allocation decisions. In this environment, experimentation becomes the fuel for consistent innovation.

Improve all aspects of your forecasting process with Finario

For many CFOs, embracing an activist approach to capital allocation is too daunting. Gartner highlights that “Only 31% of CFOs lead companies that consistently take bold steps to redistribute their investment portfolios, such as significantly changing how they allocate economic capital as the risk-opportunity landscape resets.” 

With a proper, purpose-build solution for capital planning such as Finario, however, many if not most of the hurdles associated with activist allocation, including rolling forecasts, are eliminated. It starts with a holistic view of all Capex projects in every portfolio, easily accessible and essential project-level detail, real-time project actuals, and the ability to quickly compare and rank those projects that are in the “grey area.” With this data, insight, and forecasting accuracy, financial leaders can confidently make critical decisions, quickly.

Book a demo today to learn more about Finario can help you switch to a rolling forecast process and embrace an activist approach to capital allocation.