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J. Michael Stephens I work closely with my clients to provide a practical, understandable approach to the audit process to ensure that we not only provide them with audited financial statements, but that they learn something from the engagement that can help them in the operation of their organization.

J. Michael Stephens

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Creating a Culture of Projections; The Many Benefits of Looking Ahead – Not Calculating Ahead

Category: Articles

By A. Michael Gellman, CPA, CGMA

When it comes to projections and forecasts, accountants too often fall into the trap of formula heaven. We passionately believe that data mining is the key.  That somewhere buried in the numbers a magic trend 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. These tools can be valuable but do not replace good old-fashioned thinking. The trap is that we tend to over-rely on these tools as a substitute for interactive management.

Creating an interactive culture of projections must be a primary practice within your organization. From this many benefits will be realized. Be careful of leaning too hard on historical trend analysis as a substitute for inclusive interactive planning. I am a firm believer in concise, tightly presented financial statements and financial dashboards that enable users to track the financial heartbeat of their organization and address sustainability. But these reports by themselves do not solve any equations. Instead, they can act as a starting point for interactive questioning, planning, and projection-based forward thinking and problem resolution.

Linking a culture of interactive projections with engaged staff and management will support and ensure a vibrant and progressive organization. There are three critical factors that need to be addressed that will help your organization to prepare and integrate projections.

  1. Design your core budget systems to support the nonfinancial manager, especially program and project managers.
  2. Ensure that ownership and planning are never taken away from project managers and their staff and that they are encouraged to actively plan and problem solve, based on both short-term and long-term outcomes.
  3. Enhance interactive sharing of planning information among managers. Concentrate on answering how the “I Question” (e.g., How am I performing as a manager in my department?) balances with the “We Question” (e.g., How are we performing as an organization, which financially shows up on the bottom line?).

Designing these three factors 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 factors and the important role they play.

1. Supporting program and project managers. Remember that the most effective budget systems are designed to support the project and program managers. These critical managers shoulder the heavy burden of managing the largest portion of your organization’s budget. So, it makes the most sense that your budget system should be first designed and built to meet your project managers’ needs.

These 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 failure. On the path to success, project managers must consider how to efficiently and strategically use financial resources. Their initial gauge is to compare progress to their budget for that project. This benchmark allows them to assess the burn rate of these resources against goals they had established earlier when they had assembled the budget for the coming year.

A budget system that supports the project managers will enhance their engagement with financial reports by offering managers ownership of the budget, respect for creative input, and access to overall organization financial picture so they can see how the pieces of the puzzle fit together.

Ownership is enhanced at the beginning through engagement in the budget-building process. Without knowing it, senior management often takes ownership away from project managers by dominating the assembly process for next year’s budget. Connections here are most important. Allow project 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 process as the “Selfish Draft” to emphasize to project managers that this is your budget and your opportunity to design your program, make changes, and vision new outcomes. The tone of ownership is set not only for this budget but for future budgets and the next step of constantly looking forward through rolling projections.

2. Get managers looking forward. The second key factor to creating a culture of projections is to get program and project managers to own the process of looking forward and not overly relying on year-to-date budget comparisons as their only benchmark for success. Engagement in the process of forward thinking and introducing rational sustainability-planning concepts will acclimate project managers into an assessment process that considers how past performance along with new current information impacts future performance.

To consider only past performance (year-to-date budget comparison results) is short-sighted and incomplete without integrating changing economic conditions, new input from the field, or other new information that will have an impact on future results. The perfect example of a flawed year-to-date budget analysis is reporting a savings on expenses for a project that is in a short delay—knowing that, when activity picks up again, costs will be at least be on budget, if not greater, as a result of the delay.

3. Sharing of planning information. The third and final factor to consider is interactive sharing of forward planning information with other project managers and senior management. Integrating projections into a project manager’s psyche will have a profound impact on how they perceive year-to-date results and plan for completion of their projects. However, performance is exponentially enhanced when projections are shared among project managers and senior management.

This enables project managers to cover the “I Question” (How am I performing as a manger?) in the interactive context of the “We Question” (How are we performing as an organization?), receiving both feedback and encouragement to manage through an interactive network process that will both address long-term sustainability initiatives and improve results for positive outcomes in the current budget cycle. You can formalize this process by integrating regular projection discussions into monthly manager meetings and encourage informal sharing of projections through cross-department manager planning forums and committee meetings.

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

A. Michael Gellman, CPA, CGMA is a senior advisor and former shareholder with Rubino & Company, where he managed the Consulting Services Group (CSG).  Rubino & Company’s Consulting Services Group provides specialized management and accounting consulting services to exempt organizations, organizations and companies receiving Federal Funds and government contractors 

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