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6 steps to improve nonprofit budgeting and forecasting

MUSE  | 

In a majority of nonprofit organizations, the traditional budget process is a tedious annual ritual where organizational goals are created in one silo, number crunching is done in another and staff-level input is generally restricted to a given operational unit. For those reasons, it's no surprise that most annual budgets become obsolete well before target dates are ever reached.

If your current planning, budgeting and forecasting activities are not adding clear value to your organization, there is a better way. In a recent RSM webcast, nonprofit leaders were challenged to rethink conventional assumptions and learn about processes and technologies that can help organizations improve budget planning and performance against strategic objectives. Following is a quick summary of key points from that presentation:

Best practices for budgeting and planning

To help derive maximum value in each budgeting and planning cycle, consider tapping the following six best practices:

  1. Frequency. While the annual budget plan has long been a cornerstone of nonprofit planning, this approach is ill-suited for market volatility, or when sudden course corrections are needed to navigate budget opportunities or constraints. A better way to align organizational strategy and operations is to use rolling forecasts, which force operating units to update business projections each month. This increased frequency provides a more accurate picture of current conditions and allows for more nimble management of staff time and financial resources.
  2. Level of detail. The key benefit of this best practice is simple: Make financial projections only down to the level that helps leaders make sound business decisions. This approach eliminates clutter, improves efficiency and decreases the overall time leaders need to spend reviewing budgetary and financial information.
  3. Driver-based planning. This step begins by researching key external market drivers, such as industry trend reports, peer organization data or pertinent demographic information. When the external fact-finding is complete, narrow the findings to those drivers who add direct value to organizational growth, are directly related to helping the accuracy of budget forecasts and those that are crucial to meeting financial goals. When done consistently, this practice can help provide leaders with confidence that budget forecasts are formulated with both external and internal key performance indicators in mind. 
  4. Participation and collaboration. While executives often set budgets, the process isn't always collaborative.  This is a lost opportunity.  Executives should communicate the organization's strategy and identify the contributions or roles expected of each individual business area. Once this strategic alignment has been defined, business unit leaders and staff will be in an excellent  position to provide the best projections, since they have intimate knowledge of their specific areas and how they can best align with  organizational strategy. So in an effective budget approval process, executives still decide the organization's strategy, but hands-on unit staff provide the needed forecast data. This, in turn, improves management's ability to implement strategic plans. 
  5. Leveraging technology. Excel spreadsheets have been a budget planning workhorse for many years. However, a new generation of software tools are not only more nimble and scalable, but can also automate key processes, provide business intelligence and deliver a unified solution for budgeting, forecasting and reporting.
  6. Process management. Effective process management requires buy-in from all core stakeholders, since their active participation can make–or break–success.  That's why it's important to seek input from business units at the beginning of every budget cycle, and regularly involve them as part of a continuous improvement process.

Corporate performance management (CPM) tools
As previously discussed, Excel spreadsheets have significant limitations and inherent issues when it comes to budgeting and planning. Today, there are a variety of CPM providers serving the middle market, offering tools that can help organizations convert data into actionable, fact-based information that can enhance organizational decision-making and strategic insight.

While CPM tools have clear advantages in budgeting, forecasting and reporting, they also deliver added benefits such as detailed planning for personnel, revenue, programs or other budget centers, as well as consolidations, financial reporting, financial analysis, dashboards and scorecards, and process workflows.

For a more detailed discussion on how your nonprofit organization can improve its approach to budgeting and forecasting, view the webcast or contact RSM's technology and management consulting team.