Creating a Culture of Projections: Actively Engaging Staff in the Financial Planning Process

Creating a culture of interactive, financial projection-based planning must be a primary practice within a nonprofit organization. To effectively achieve this goal, organizations need more than standard historical trend analysis derived from monthly financial statements and financial dashboards. These reports are necessary and important but should be considered as the starting point. Staff and management must be actively engaged in the planning process to create a “culture of projections” in which interactive questioning, rolling forecasts, and forward thinking can thrive.

Accountants and financial professionals too often fall into the trap of formula heaven. We passionately believe that data mining is the key, that somewhere buried in the numbers are magic trends that will surface if we can just find the perfect formula, graphically present historical data, or create the perfect program to sort data, and all the problems of humankind will be solved.

The problem is that historical trend analysis cannot be a substitute for inclusive, interactive planning that actively involves an organization’s non-financial managers (staff and management outside the finance/accounting department). We cannot ignore the critical role those non-financial managers play in implementing the day-to-day financial decisions that affect both short-term outcomes and long-term sustainability. Historical trend analysis should be one component of an organizational culture that links interactive projections and forecasts with engaged staff and management.  

There are three critical drivers that need to be addressed:

1. Design your core budget systems to support your organization’s key non-financial managers (senior management, program and project managers and heads of departments).

2. Encourage your organization’s key non-financial managers and their staff to own the process of rolling projection-based planning.

3. Enhance interactive sharing of planning information among your organization’s key non-financial managers and executive leadership.

Weaving these three drivers into a practice of preparing regular rolling monthly projections will solve the riddle of effectively integrating projections into your management systems. Improved results are sure to follow.

Let’s consider each of these three drivers and the important role they play.

1. Supporting key non-financial managers.

Remember that the most effective budget systems are designed to support your organization’s key non-financial managers, especially program and project managers. These critical managers shoulder the heavy burden of managing the largest portion and potentially fastest changing segments of your organization’s budget. So, it makes the most sense that your budget system should be first designed and built to meet the needs of these senior staff members.

Program and project managers are in constant decision-making mode. They need multiple sources of information to validate that their decisions are taking them down a path to success and not a path to potential failure. To be on a path to success, non-financial managers must consider how to use financial resources efficiently and strategically. Their initial gauge for success is to compare actual year-to-date progress matched to their original budget. This benchmark allows them to assess the burn-rate of resources they are responsible for against goals they had established in their original budget for the current year.

A budget system that supports these key non-financial managers will increase their engagement with financial reports and promote feelings of ownership of the budget and respect for creative input. These staff members will also gain access to the overall organizational financial picture so they can see how the effort of each non-financial manager fits together.

A sense of ownership among key non-financial managers will be enhanced at the beginning through direct input and engagement in the budget-building process. Without knowing it, executive leadership often takes ownership away from these managers by over-dominating the assembly process for next year’s budget. Connections here are most important. Allow key non-financial managers to assemble the first draft of next year’s budget in as “unfiltered” a manner as possible. To bring the point home, I often refer to the first draft of the budget building process as the “Selfish Draft” to emphasize to managers that this is your budget and your opportunity to design your program, reorganize your department, make changes, and envision new outcomes.

Planning Tip – The tone of decentralized ownership of budgets will be enhanced when executive leadership actively makes financial information readily available to key non-financial managers. Encourage key non-financial managers to share budget progress reporting as well as program and effort outcomes at all management and staff meetings. Let them directly participate in the delicate balancing act of comparing resource utilization with mission, program, and administrative effectiveness.

2. Encouraging non-financial managers to own the process of projection-based planning.

The second key driver to creating a culture of projections is to encourage non-financial managers to own the process of looking forward through active and participatory planning and problem solving.

Program and project managers should be guided to not over-rely on year-to-date budget comparisons and historical analysis as their only benchmarks for success. To consider only past performance and year-to-date budget comparisons is short-sighted and incomplete without reflecting on changing economic conditions, new input from the field related to constituent and funder needs, and other new information and changing conditions that will have an impact on future results.

The perfect example of a flawed year-to-date budget analysis is reporting a current savings on expenses for a project that is experiencing a temporary short delay. The pause in spending on the project could make it appear that the organization is under budget and experiencing a cost savings. However, when the project restarts, costs will be at least on budget (if not even greater) as a result of the temporary delay.

Active engagement in the process of projection-based planning will acclimate key non-financial managers into an assessment and planning process that considers how past performance along with new current information impacts future performance. This is where the most benefit will be derived.

Planning Tip – Encourage key non-financial managers to share information on changing conditions as soon as possible. An organization’s ability to pivot to take advantage of changing conditions or move quickly to curtail an effort that is not tracking as planned are both directly affected by how fast that information is made available and acted upon.

3. Enhancing the interactive sharing of planning information.

The third and final driver to consider is interactive sharing of planning information among key non-financial managers and executive leadership. Sharing rolling projections regularly with key non-financial managers helps to cement the importance of planning into their psyche. This will have a profound impact on how they perceive year-to-date results and plan for completion of their projects. Overall performance will be exponentially enhanced when projections are shared among the other non-financial managers and executive leadership.

Efforts and programs within nonprofit organizations are seldom siloed. Almost all efforts and programs are interdependent with intersecting relationships across various departments within the organization. These intersecting relationships can be funding driven (e.g., memberships and general fundraising efforts supporting many unrelated programs and activities), mission driven (e.g., research projects that are connected to fellowship and scholarship programs), or both funding and mission driven (e.g., fee for service programs). Effective sharing of planning information helps managers to bridge these intersections by covering the “I Question” (How I am performing as a manager?) within the interactive greater context of the “We Question” (How are we performing as an organization?).

You can formalize this process by integrating regular projection discussions into monthly manager meetings. Also, encourage informal sharing of planning projections through cross-department manager planning forums, informal coffee hours, and committee meetings. Remember to emphasize that long-term sustainability and improving current budget results must both be considered and balanced.

Planning Tip – There is a tendency for projections and information shared among executive leadership and key non-financial managers to develop an overly-positive bias. To mitigate this potential bias, stress the impact on the organization’s overall projected bottom-line surplus or deficit over the success or perceived failure of a single program or effort. Setting goals based on overall bottom-line results will help to improve the organization’s performance and enhance long-term sustainability.

Projections are never simple. It is hard to gaze into the future and predict with certainty. However, a shared process of looking forward, both individually and collectively, is very enlightening. The discussions themselves will have an impact on management decisions, and the actual financial projections that result will be the icing on the cake.