Financial Projections: A Critical Component of a District's Long Term Plan

By: Brian DuMond and Johanna Dorrance of Dermody, Burke & Brown, CPAs, LLC (Jul, 2011)

When considering 3 to 5 year financial projections, some districts take the approach of Norman Vincent Peale: "If you want to get somewhere you have to know where you want to go and how to get there. Then never, never, never give up." Most districts have a sense of where they would like to go in the next 3 to 5 years. However, the only thing that seems certain when projecting revenues and expenditures is uncertainty. Because of this, other districts take the approach of W.C. Fields in regard to preparing a 3 to 5 year financial projection: "If at first you don't succeed, try, try again. Then quit. There's no point in being a damn fool about it."

With all due respect to W.C. Fields, at Dermody, Burke & Brown, we believe every district should have a 3 to 5 year financial projection in place for their General Fund and district as a whole.

The core of the 3 to 5 year projection is estimates of long range revenue and expenditure projections. How this is done is the key to a successful outcome. Many districts we are associated with have a template with known or estimable costs and revenues with a section for variable/uncertain costs and revenues. While this is an excellent practice, it is possible that at some districts, the process in place could be enhanced further. We offer the following concepts for your district's consideration:

  • Engage Administrators and Department Supervisors in identifying issues, analyzing them, and developing strategies. All departments should be looking at their budgets with both a short and long term perspective.
  • Goals and Objectives, Forecast Assumptions, and Reserve Standards should be as transparent as possible.
  • Close collaboration between the Board of Education and Management is critical for all to make the best decisions for the district.
  • Consistently monitor the environment for changes that may be necessary, so the district can react appropriately.
  • Nobody can predict the future. Recognize changes and update forecast assumptions as soon as possible so preventative actions can be taken.

In conclusion, we believe that long term planning provides a district with a strategic framework to deliver its educational resources. Part of this long term plan should be a 3 to 5 year financial projection so the district can determine how those needs will be met.