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Analyzing Monthly Financials to Better Manage Your Annual Budget


How many times have you uttered the old adage, “Hindsight is 20/20” in a wistful manner? If only you’d had access to the information you now have, you could have made a different, better decision.

Often those insights come during the month-end closing process when you get a truer picture of actual transactions and revenues versus what was planned for the current budget year period.

That’s why I’m such a fan of operational forecasting. It’s a fresh approach to analyzing monthly financials that increases a school district’s visibility into budget performance. It enables chief financial officers and their teams to improve the accuracy of forward-looking assumptions and it gives them the ability to quickly — and proactively — adapt as needed to make good decisions.

Monthly Financial Analysis

Instead of just closing the books on a month, operational forecasting takes advantage of the treasure trove of financial data school districts have from previous years and combines it with current information to make timely updates to the budget forecast and better predict what is needed to support the next one to five fiscal years.

1. Monthly Budgets

Operational forecasting enables a school district to create budgets for each month based on historical trends that incorporate actuals as a percentage of the total to produce a monthly average.

It requires analyzing historical trends to uncover correlations between financial and operating data. For example, do revenues and expenditures tend to vary with the level of economic activity (CPI), or are they independent of business cycles?

Five years of historic data is ideal to the recognition of anomalous events and patterns with exponential smoothing of trend percentages.

2. Actuals vs Budgets

Monthly financial reporting shows the district’s progress in implementing the budget by evaluating the current month’s performance (MTD) and the year-to-date budget (YTD) with comparisons of what was budgeted versus what actually occurred.

It’s also important to compare prior years’ actuals to budget and incorporate what is learned from trend analysis to make adjustments as needed to the remainder of the fiscal year.

3. Comparative Analysis

Monthly financial reporting is also an opportunity to implement a best practice of comparing current data against target goals for both MTD and YTD, as well as multi-year evaluations.

4. Variance Analysis

It’s also critical to understand why there are variances in the actuals versus what was planned in the budget to more accurately measure financial performance and proactively identify potential future budget variance.

Then a school district is better able to reallocate funds from the current year to address the unexpected or fund priority initiatives. By maintaining control over expenses, the team can create year-end estimates and anticipate projected year-end variances from the budget.

Projected Year-End Position

By understanding the variances between planned and actual revenue/expenditures, there’s an opportunity to adjust or re-forecast targets, objectives, or strategies for the current fiscal year.

The Right Tools Make the Difference

Operational forecasting requires being able to model and analyze “what if?” scenarios to identify the cause of changes, the impact of the change, and what action should be taken.

Traditional financial systems geared for school districts often stand in the way. They are great for recording transactions. But, to enable accurate operational forecasting requires analysis of current and historical data, something legacy solutions are ill equipped to handle.

That’s why there’s Budget Management Analytics, powered by Forecast5. It enables school districts to take advantage of operational forecasting to immediately upload monthly transactions from their financial systems to assess where they are at and compare to the trend reports from previous years, identify variances, and see where they’re headed for the fiscal year.

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David Torres

David Torres served at Forecast5 Analytics, now a Frontline Education company. Prior to that, he worked as a Chief Financial Officer/Treasurer for over 30 years at Township High School District 211, in Palatine, Illinois. During his extensive experience as a CFO, he successfully engaged in the development of several strategic planning projects and long-term capital improvement programs. David received his BA in Business Economics, and has a MA and certification in school business management.