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In this era of limited resources and continued financial strain, school business officials need to combine accounting and analysis, along with compelling communication skills, to meet the present and future needs of their organizations.

The multiyear projection is one of the most critical working documents the school business office produces. When done well, the multiyear projection becomes a living instrument that speaks with numbers and pictures and focuses internal and external stakeholders on the key opportunities and issues facing the district.

Elements of a K-12 Financial Plan Projection

Operational or Strategic?

A well-constructed multiyear projection should serve both operational and strategic functions.

From an operational perspective, the multiyear projection should include enough detail to be useful for budgeting and cash flow planning. If you manage your district’s investment portfolio, the multiyear projection will help define the long-term investment opportunities or, in some cases, short-term borrowing needs. You should be able to use data from the multiyear projection in internal or external reports or as a foundational support document for your bond ratings or continuing disclosure obligations.

From a strategic perspective, the multiyear projection should be a centerpiece for financial and budget decisions related to future educational services and infrastructure improvements.

It is important to consider how internal and external stakeholders will engage with the output of your multiyear projection. When setting up your multiyear projection model or evaluating a third-party application, consider the kinds of reports you need. You will be using your multiyear projection as a communications vehicle, so your reports must speak to a wide range of audiences on both operational and strategic issues.

Elective or Required?

Maintaining an multiyear projection may be an elective task within your state; however, some states require school districts to submit a financial forecast as a scheduled compliance task. In those states, the required projection period is generally three to five years. Even when optional, local governments commonly use a five-year period for their projections.

In states that require an multiyear projection, districts typically submit their projection using a specific state-developed form. Many of those state forms are unsuitable for use in strategic discussions with your board or community as they have limited strategic or communications value. In fact, presenting a compliance document with 100 or more pages may confuse more people than it engages.

Take the time to produce an executive summary of the data with useful charts and dashboards. Your report will more likely be understood if it is delivered in a graphics-rich format.

How to Use the Multiyear Projections

The multiyear projection forecast becomes the central tool in financial discussions with governance boards. After the governance board members become familiar with the mechanics of the forecast and have access to their preferred data views, they will likely ask the question, “How does this affect our multiyear projection?” By extending the financial forecast further into the future, boards focus more on growth and sustainability. The multiyear projection can provide a board with more insight and certainty in decisions and subsequently increase the community’s confidence in those decisions — and in the board itself.

The best forecasting models allow you to simulate “what-if” scenarios on demand and quickly and confidently answer questions about new investments and other affordability issues with a longer-term perspective. Additionally, you can use scenario comparisons and data visualization to engage decision makers and stakeholders with graphics that increase their understanding and accelerate their decisions. The ability to answer difficult financial questions quickly and confidently is an invaluable feature.

The Critical Components of a Multiyear Projection

As you develop your multiyear projection, focus your effort in four key areas:

• The source and structure of the foundational data. If you are using your budget structure for the projection, determine the level of granularity that you want to use to support decision making.
• The assumptions and variables that will drive future revenues and expenses. Understanding the key variables and their relative impact on financial outcomes is critical.
• The reporting output that people can understand. Your audience may represent a wide spectrum of experience and analytical perspectives. Supporting your projection with both tabular and graphical data is important to improve understanding and engagement.
• The ability to simulate and track changes. In addition to being able to create what-if scenarios, you will need an airtight process of cataloguing the changes that have been introduced to each simulation so you have a clean audit trail for each scenario.

When Revenues Are Volatile

You may be in a position where your revenues are subject to volatile political swings, or your revenues may be under pressure because of local tax constraints. In such cases of revenue uncertainty, you can still benefit from an multiyear projection.

Focus on the expense side of the forecast. When you have loaded the desired expense components to support a required or the visionary level of programming, you will be in a position to perform a basic financial gap analysis. Use the expense side of your multiyear projection to calculate the funding level required to provide the services. The presentation and the talking points for this analysis are relatively simple and might sound like this: “If we continue at this current level of funding, we will be unable to provide the types of services that our community is seeking. To provide this higher level of service, we need X dollars more in funding over a five-year period.”

The financial gap analysis then becomes a great communication tool with stakeholders, including taxpayers, parents of students, legislators, elected leaders, and employees of the local government.

You may be in a situation where the likelihood of additional funding is remote, bringing up the question of the value of the exercise. But without a clear definition of the preferred level of programming, it will be difficult to communicate and engage critical stakeholders in a way that eventually achieves your goals. Additionally, as you look forward and begin to consider the potential infrastructure and staffing requirements of the multiyear projection, you may gain other strategic insights regarding the current state of your organization.

New Concepts in Financial Projections

Twenty years ago, Excel spreadsheets revolutionized the forecasting process. Spreadsheets remain a valuable financial analysis tool today, but high-performing public- and private-sector entities are now using database technology to create and manage their forecasts.

Databases can be used to manage large file structures and easily compare multiple complex budget scenarios. Additionally, the increased processing capacity allows you to use your entire general ledger with the ability to aggregate and work with the data at different levels and in different views. Applications with “in-memory” data processing can convert your financial history and your projection into a giant pivot table that is much faster and easier to use than an Excel spreadsheet.

By capturing the entire general ledger in the system, you can create projections down to the lowest level of detail in your chart of accounts. This expanded processing capacity may allow you to consolidate your budgeting and forecasting projects into a single project. In other words, if your multiyear projection includes all of the accounts in your general ledger, you will be creating next year’s budget as you finalize your forecast. In contrast, when you execute the multiyear projection with aggregated annual financial report data, you may lose the details that you need for your budgeting process.

The Long-Term Impact

Many school districts use an multiyear projection as a focal point for their strategic planning. A well-constructed and documented forecast not only assists in the planning and decision making, but also can establish a professional brand for the district that provides significant value over time. School business officials who lead this charge and demonstrate command over their district’s financial data enjoy increased levels of internal and external support and can serve their communities at the highest level possible.

Executing a five-year financial projection can be a time consuming and complicated process — especially if you are starting the process for the first time. However, administrators that approach this type of project with a strategic perspective will understand that a financial projection is more than just a spreadsheet. A meaningful multi-year financial forecast can produce tremendous value for a school district — beyond the tables, charts, and graphs that are generated as output.

High-performing organizations look at financial projections as both a strategic process and as a valuable instrument. Furthermore, they don’t view a financial forecast as a static document that is filed on a shelf after execution. Rather, they understand that a five-year projection is a dynamic mechanism that facilitates organizational growth and improvement.

A Strategic Process

Let’s look at some of the main benefits of looking at a five-year forecast as a process that enables:

• Collection and organization of important information
• Assessment of key variables that will impact the organization
• Collaboration with internal and external stakeholders

The process of developing a multi-year forecast requires time and resources. As a first step, collecting information and input from key areas of the district is critical for success. Spending sufficient time to assess and discuss the key drivers for revenues and expenses with stakeholder groups will help improve the accuracy of the projection. Additionally, collaboration between administrators allows valuable perspective to be gained and incorporated into the forecast, while at the same time increasing the level of buy-in for a finalized plan.

A Valuable Instrument

Now, let’s turn to the benefits of using a five-year forecast as an instrument that facilitates:

• Measurement of historical performance
• Strategic alignment of resources
• Communication of challenges and opportunities

Many times, the process of looking forward can be enhanced by looking backward. Using historical data to inform future assumptions can be valuable. Historical review also provides an opportunity to examine performance of budget vs. actuals.

Depending on the financial strength of the organization, the forecast may initiate valuable discussions and decisions regarding the allocation of limited resources. Organizations can use the forecast as an instrument to define priorities and service levels with sustainability insight. Further, a projection model that allows for the modeling of “what-if” scenarios can assist in modeling the optimal alignment of resources.

School districts have often been asked to “do more with less” while also being able to make decisions with 20/20 foresight. A well-constructed financial projection can facilitate deeper understanding and communication with stakeholders around organizational challenges and opportunities.

Additional Benefits

Many organizations look at forecasting as a year-round function that seeks to continually fine-tune and adjust the forecast to current information.

By looking at the projection as a perpetual and dynamic process, organizations can achieve enjoy numerous benefits including:

• Efficiencies in the budgeting process
• Elevated performance from on-going benchmarking of plans vs. outcomes
• Increased understanding of key drivers and risk metrics
• Enhanced communication of objectives with internal staff
• Improved organizational brand through transparency and accountability

Historically, developing a budget and developing a five-year forecast were tackled as two separate projects. Some would use elements of the five-year plan to inform areas of the budget. But in many cases, an unintegrated process between budgeting and projecting leaves organizations in a position of financial and reputational risk.

Now, high-performing teams are looking at budgeting and forecasting as an integrated, year-round effort. And they are using tools and processes to connect the flow of information in a manner that benefits the entire organization, as well as increasing the reputation and brand of the district as transparent and accountable. An “analytics” or “data-informed” brand can prove to have immeasurable advantages for an organization that is seeking to serve students, staff, and the community with excellence.

When you look at a five-year forecast as more than a spreadsheet and move to the next level of viewing it as a process and an instrument for continual improvement, your district and your community will enjoy numerous tangible and intangible benefits.

When I began as a brand-new school business manager for a small rural district, I had a vague idea of being expected to crunch numbers during negotiations. Instead, fresh on the heels of a legislative overhaul of K–12 funding in Washington State, I found myself as one of the lead bargainers, attempting to refute the financial analysis presented by the state teachers’ union.

Bargaining in reaction to outdated and sometimes misleading information is extremely uncomfortable. The experience left its mark and underscored the importance of communicating our district’s “story” to all stakeholders well before any negotiation sessions. That means presenting beyond “where are we now” to “where we expect to be” in a year, two years, and five years down the road based on current trends. It means not only using analytics but also finding a way to make their interpretation easily accessible to everyone.

Ask any school business manager in the country where their budget story begins, and the almost-unanimous answer is “enrollment.” With few exceptions, enrollment is the driver for public school funding.

During bargaining, you must have a firm grasp of the revenue you are expecting before committing to any of the asks on the table. Is your enrollment climbing or declining, or has it plateaued? Are you expecting to rebound quickly from the COVID-19 pandemic enrollment drops, or do your data show a slower recovery? What do the answers mean for your state funding and local levy collections?

Although much has been made of the enrollment declines during the pandemic and the need for states to continue to provide budgeted funding amounts, school officials are also coming to grips with the prospect of losing millions in local levy collections. How then does this translate into revenue projections?

Make sure your stakeholders (school board, superintendent, and community — which includes your bargaining unit members) have ample opportunity to review the effect of enrollment on the sustainability of bargained agreements. As a side note, every ask during bargaining has an attached cost, even if it doesn’t appear so on the surface. Those costs add up in a hurry!

Coupled with your revenue projections are your fund balance trends. At the end of 2020–2021, many districts were sitting on seemingly healthy balances because of the savings in supplies and operational costs afforded by remote learning. Those balances may be deceptive! Analytics are critical in looking ahead to see where you expect to be throughout the bargained agreement.

The Ins and Outs of Bargaining

Although Dieringer School District showed a fund balance of just under 20% at the end of the past fiscal year, that’s not a complete picture. Every projection scenario we created reflects a dip into the negative by the end of the 2023–2024 fiscal year, unless staffing is adjusted. That is even without any additional bargained compensation.

Based on this knowledge, the question then becomes how the requested compensation increases will further affect the district’s ability to maintain staffing levels. It’s important to be prepared to show that information early and often (see Figure 1).

Figure 1. Amount and Percent of General Fund Expenditures

Once at the bargaining table, the next hurdle to clear is the selection of comparable districts. More often than not, bargaining groups will look to their neighbors as comps; however, that may not necessarily be advantageous if, like us, your neighbors are 10 times your size and sitting on a significantly larger tax base.

Taking the time to find peer districts with enrollment stories similar to yours concerning income, English language learners, and total enrollment will help you frame your response to questions of spending and staffing trends (see Figure 2). You may find you need a different peer group for compensation questions than for administrative spending. Although you may show a highly inflated percentage of spending for total administration compared with larger districts, the analytics may show that you are right in line with like sized districts.

Figure 2. Demographics of Peer Districts

Peer groups may also present the opportunity to explain your outlier spending trends. Our district far outspends our peers in special education programs because our board has made special education a budget priority, and we employ far more paraeducators than districts of similar size. Because our teachers have come to rely on that instructional support, the board is more willing to negotiate with an eye toward leaving enough budget capacity to maintain that staffing.

Before bringing it to the table, know what your data say about your spending patterns compared with your peers (see Figures 3 and 4).

Figure 3. Administration as a Percentage of Total General Fund Expense

Figure 4. Special Education as a Percent of Total General Fund Expense

The onset of the pandemic and the associated staff concerns over health and safety measures have brought working conditions to the forefront of bargaining. Although class size has always been a hot button, it’s never before been accompanied by outright fear that students are sitting too close to one another or to their teacher. Trend data can be used to counter both the argument that your district has the biggest class sizes and that there are too many students in a classroom.

Looking at our teaching staffing ratio, we find that we are absolutely in line with our peers. When total staffing is brought into the picture, an even starker contrast is painted between what the state funds and how the district has prioritized small class sizes during the pandemic. Districts that are being asked to use available dollars from the Elementary and Secondary School Emergency Relief Fund to reduce class sizes or to compensate teachers for larger classes will find this analysis particularly helpful (see Figure 5).

Figure 5. Teacher Staffing Ratio Comparison

Inevitably, the negotiations will turn to the topics of compensation and retention, the meat and potatoes of any negotiation. Some critical pieces of data will be your average staff experience (as this usually translates into higher placement on a salary schedule), your average salary, per pupil spending on instructional staff, and turnover rates.

I’ve heard everything from “We don’t want to keep losing staff to . . .” to “You’re getting plenty of money from the state to make this happen.” By analyzing our teacher turnover, we were able to rebut with clear evidence not only that we were not losing staff members to any particular district, but that we were actually hiring and retaining the most experienced staff members in our region.

By the same token, analytics showed that the district was contributing the second highest amount toward compensation above state funding among those same peer districts. It shifted the conversation from whether our starting salaries were competitive to how to sustain salaries for a highly experienced staff.

Analytics also debunked the myth that our district lagged behind our peers in average salary and in awarding salary increases. In fact, they showed just the opposite: our certificated staff members enjoyed the highest average salary of our peers and had bargained an unprecedented 27% salary increase in three years.

One last point about salaries: typically, salaries and benefits run 75%–85% of a district’s budget. Because the data show we are already spending just under 84% of our budget on compensation, it’s imperative that I share the narrative with my board that little room is left in our salary cap, so to speak, for further increases unless we see a drastic change in our revenues. Buildings still need to be heated, and the lights still need to shine (see Figure 6 and Table 1).

Figure 6. Comparison of Percent of Operating Expense

Table 1. Funded Salary vs Average Paid Salary Comparison

The Key to Success

In the end, you’ll know you’ve used your data to the best of your ability to tell your story if both sides come away from the table agreeing that you’ve done good work. It’s possible. I’ve had the pleasure, once I got the hang of proper preparation and communication. Analytics were the key.

This article originally appeared in the March 2022 School Business Affairs magazine and is reprinted with permission of the Association of School Business Officials International (ASBO). The text herein does not necessarily represent the views or policies of ASBO International, and use of this imprint does not imply any endorsement or recognition by ASBO International and its officers or affiliates.

Financial systems for school districts are great tools to accurately record revenue and expense transactions. But, as anyone who is charged with creating monthly reports can tell you, that’s where their ease of use ends. It typically takes hours — even days — of work to manually extract the right data and then build reports the district relies on to manage the health of the budget.

As a former chief financial officer of a large district in suburban Chicago, I know how much time my finance team devoted to the process every month. In addition to driving strategic financial decisions, the reports were a critical part of how we kept the district’s administrators and school board up to date. We had no choice but to dig in to get the information we needed.

I knew someday there would be a better way.

That’s why I’m so excited about Frontline’s Budget Management Analytics, powered by Forecast5. Instead of hours or days, with just a few clicks of the mouse the module creates monthly (or quarterly, year-to-date, custom, whatever you need) reports in minutes. The time formerly needed just to compile and generate the reports can now be used to analyze the results, identify trends and confidently predict where you’ll be at the end of the fiscal year.

Reports in minutes

Around the middle of the month, when the bank reconciliation for the previous month is available, a school district simply uploads data from their financial system to Budget Management Analytics, which then automatically updates the financial database on a year-to-date and projected basis. Then, it’s Go Time.

Standard reports

Based on pre-set templates, Budget Management Analytics analyzes the appropriate data and generates a standard set of reports and a dashboard view of revenues and expenditures. This is the information that helps CFOs gauge where they are at for the year and make strategic decisions to cut expenses if needed or invest in key initiatives like technology if excess funds are available.

In addition to the aggregate report, fund specific reports are generated automatically.

Now there’s time to dig deeper if needed to better understand the causes of variances by looking at the data from a different view.

For example, if there’s interest in the current revenue variances for the educational fund, the Revenue Input Results report is readily available.

It’s also easy to pull up the Expenditure Input Results report for the educational fund (or any other fund) to quickly understand where expenses are incurred.

Custom reports

Creating custom reports to answer specific questions from administrators or for personal analysis purposes also only takes a few minutes. View all funds or a specific fund, specify the level of detail needed by indicating a source level, and identify the monetary threshold for review. Results pop up in seconds.

Respond quickly to colleagues or uncover answers to internal queries without ending up in the weeds filtering out data that’s immaterial. Easily change what data is reviewed by picking different parameters for the analysis.

Put time on your side

Instead of devoting lots of time to the generation of reports, now there’s a simple and fast way to access all the data from multiple angles with the ability to produce more accurate analyses. Budget Management Analytics enables school districts to focus on managing the future with projections based on trends and up-to-date information that minimizes the margin of error…with some time to spare.

How many line items are in your K-12 annual budget? 750? 1000? More? That’s a lot of places for the unexpected to creep in and mess with your carefully crafted financial plan. Save the surprises for birthday parties by getting a better handle on what’s headed your way with a process called operational forecasting.

School district budgets are complicated. While it’s impossible to anticipate every shift in expected revenues and expenses, there are ways to get better visibility into monthly performance at the aggregate level and identify trends based on historical data. By combining and analyzing past and present financial reports, you can forecast what’s needed to support the remainder of the fiscal year and make adjustments.

Sounds complicated and time-consuming, right? Fortunately, Frontline’s Budget Management Analytics simplifies the process.

See into the future

Like most school districts, you likely have a financial system that’s great for logging and assigning transactions to specific line items in your funds. But that’s where usability hits a wall. To extract meaning from all the stored data, you need to search for what you need, then painstakingly cut-and-paste the information into a spreadsheet making sure all your formulas are working properly. Only then can you play with the data to come up with a useful analysis.
Or, you could simply upload monthly transactions from your financial system into Budget Management Analytics. Then, you can easily run standard or one-off reports to assess where you’re at compared to plan, look at trend reports from previous years, identify variances and model ‘what if?’ scenarios. The module does the heavy lifting leaving you time to apply what you learned to manage the budget. It’s all done in a matter of minutes versus the hours it takes to create manual reports.

Monthly re-forecasting

Ready to stop surprises in their tracks? It’s important to undertake a key element of operational forecasting: variance analysis.

With Budget Management Analytics, you’re able to identify significant variances to the annual budget plan using present thresholds quantified as dollars or percentages. You can also uncover what caused the variances as well as assess the impact.

Armed with this information, you’re able re-forecast the remaining monthly allocations, reallocate funds to address the unexpected and fund priority initiatives if needed.

The data you need to start operational forecasting is buried in all those line items. You just need a better way to put the data to work to remove the element of surprise from your budget management process.