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

By Mike English

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

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, the collection of information and input from key areas of the district is critical for success. Spending a sufficient amount of 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.

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. More so, historical review provides an opportunity to examine performance of budget vs. actuals.

In recent years, community colleges are experiencing an increasing range and level of expectations. With constrained financial resources, leaders are expected to "produce 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.

Many colleges 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 enjoy numerous benefits:

• 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 district brand through transparency and accountability

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 college, 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 a community college that is seeking to grow and serve constituents.

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 community college and your community will enjoy numerous tangible and intangible benefits.

Byline: Mike English is a founder and the CEO/President of Forecast5 Analytics, Inc. – a technology company focused on software development and data analytics for the public sector. Mike has spent his entire career concentrating on the development of financial and strategic solutions for schools, community colleges, and municipalities. Forecast5 is headquartered in Naperville, Illinois – a suburb 30 miles west of Chicago.