The Value of a 5 Year Financial Projection: More Than Just a Spreadsheet

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.