Download - Forecasting and Analysis for Associations
Learning Objectives
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Discuss financial best practices for associations
• Explain relationship between budget, forecast, and analytics• List types of reports and platforms• Review management processes and governance
Review basics of forecasting and financial analysis
• Outline goal of forecasting and various methodologies • Describe how analysis supports forecasting• Illustrate examples of analytics for associations
Support reporting, analysis, and
planning efforts
Assess day-to-day decisions and help
implement solutions
Evaluate macro trends and provide
insights to make big decisions
Manage data and systems Partner with operations Strategic advisor to leadership
Broad roles of finance
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Effective finance functions do more than just accounting and reporting. They lead an organization forward through analysis and insights.
Past(Reports)
Day-to-Day(Transactions)
Future(Plans)
Accounts payable
Accounts receivable
Payroll
CRM
Month-end accounting
Reporting
KPI Monitoring
Analysis
Budget
Forecast
Strategy
Business model
Tactical roles of finance
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today’s focus
• New forecasting and analytics function at MGMA National level
• Where are you on spectrum of financial sophistication, resource availability?
• What common elements can be applied across our associations?
• How can outsourced finance function best support you?
Level set: where are we in finance evolution?
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Financial management life cycle
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Reassess• Forecast• Trend analysis• Cash flow• Predictive analytics
Plan• Budget• Workforce• LRP / strategy• What-if, scenario analysis
Execute and Monitor• Financial / operational reporting• Variance analysis• KPIs / Dashboards• Accountability / mgmt. process
Why do we budget?
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• Setting goals and business priorities
• Define and measure success
• Plan for future financial needs
• Use as guidepost to change course if needed
• Serve as formal approval process
• Accountability
Types of budgets
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Revenue and expenses generated by day-to-day business activityOperational• Full income statement budget by month
• Primary deliverable of any budget process
• Usually consolidation of smaller department or line item budgets (see next slide)
Fixed asset investments or expendituresCapital• Estimated amounts and timing of fixed asset purchases during a given budget period
• Typically requires prioritization and approval process
• Not recognized as expenses on income statement, but rather depreciated over many years
Estimation of cash flows over budget periodCash• Measure increase or decrease in cash based on planned activities
• Calculated using assumptions from operational and capital budgets, as well as financing / investing activities
• Consider all sources of capital to fund the business
Budget life cycle
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Best practices
• Create plan in advance
• Goal setting with leadership
• Allow time for iterations
• Generate ‘buy-in’
• Thorough review process
Life cycle dependencies
• Business needs / restrictions
• Methodology or approach
• Scale and complexity
• Operator involvement
• Approval process
Example budget cycle
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Best practices
• Create plan in advance
• Goal setting with leadership
• Allow time for iterations
• Generate ‘buy-in’
• Thorough review process
Lifecycle dependencies
• Business needs / restrictions
• Methodology or approach
• Scale and complexity
• Operator involvement
• Approval process
Months until start of new budget year:
012345
Planning / goal setting
Budgeting
Reviews Reviews
Final Approval
Considerations for building a budget:
• Tie assumptions to operational metrics you can track
• Fixed vs flexible budgeting
• Review tools and reports
• Benchmarking (internal and external)
• Maintain clear documentation
• Operator involvement / autonomy
Budgeting mechanics
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Budget watch-outs
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• Padding or ‘sandbagging’
• Use it or lose it mentality
• Overly aggressive targets
Planning should span multiple time horizons
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Rolling forecastDetailed budget Long range plan
12-18 months
Annual operating plans and
commitments (goal performance)
High operator involvement and
accountability
1-3 years
Guide post when budget no longer
relevant (expected performance)
Stretches beyond current budget,
basis for future budget
3-5 years
Align strategic direction with long
range financials
Informs capital planning
Integrate forecast and budget process for most effective planning
Why do we forecast?
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Anticipate change and plan for future financial need
• Unforeseen expenses or circumstances
• Changes in economic conditions or demand
• New product or service offerings
1
Report expected performance to governing body or stakeholder
• Executive team, board of directors, shareholders
• Helps inform decisions around strategy or operational plans2
Serves as secondary goal when budget no longer works
• Useful when budget assumptions become outdated
• Tool for performance management
• Hold business or department owners accountable
3
Accurate forecasting requires context
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Where are we going(future changes)
Where have we been(past performance)
• Budget variances
• Trends
• Events and timing
• Non-recurring items
• New initiatives / projects
• Internal and external forces
• Org strategy
• Deviation in assumptions
Forecast Methodologies
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• No right or wrong method
• Varying levels of involvement
• Hybrid approach is usually best
• Can use same methods in budgeting
Zero based
Activity based
Traditional
B
H
Forecast Methodologies
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• Uses historical performance (a.k.a. run rate) as starting point
• Adjust up / down based on current info
• Most simple methodology, but relies on accurate past results
• Contextual knowledge helpful
Traditional
Zero based
Activity based
Traditional
Forecast Methodologies
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• ‘Bottom-up’ approach (i.e. start at 0)
• Expenses must be justified
• Typically most lean / efficient output
• More time intensive
Zero based
Zero based
Activity based
Traditional
Forecast Methodologies
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• ‘Top-down’ approach
• Targets set first
• Must ‘back into’ inputs and assumptions that achieve targets
• Expenses based on output needed
Activity based
Zero based
Activity based
Traditional
Initiatives based forecasting
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• Use prior methods• “Steady state” assumptions
Base Case
New Initiatives
Final Output
• Cost reduction• Member acquisition• Long-term investments
• Financial statements• Operational metrics
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BUT… HOW DO WE KNOW WHAT ASSUMPTIONS TO USE IN
FORECASTING?
Reporting to support financial management process
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DASHBOARDS
Overall health
Quantitative or qualitative
Most important metrics only
Aligned with strategy and goals
FINANCIAL STATEMENTS
Income statement
Balance sheet
Cash flow
General ledger
WHAT
VARIANCE ANALYSIS
Budget
Prior periods
Forecast
Trend
Benchmarks
Goals / targets
WHERE
ANALYTICS / KPIs
Rate + volume
Customer mix
Labor
Fixed + variable costs
Marketing effectiveness
Sales conversion
WHY
Increasing level of detail
• Standard reports to track key operational metrics
• Ad hoc analysis to evaluate outliers
• Normalize for unusual items
• Peel back layers of metrics to find insights or trends
• Compare to internal trends or external benchmarks / ratios
The role of analytics
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Analytics go deeper than surface-level variance reporting.
They address the underlying drivers of top-level financials.
• New member acquisition
• Member or customer retention
• Customer demographics
• Seasonality
• Customer engagement
• Marketing effectiveness (and return)
• Staffing and productivity
Examples of association analytics
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Most importantly, effective reporting is actionable
Example: new member acquisition
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Elements to consider:
• Rate x Volume = Dollars
(informs variance analysis)
• Monthly vs rolling average
• Compare to budget, forecast, prior periods
• External forces
• Lead conversion rates
Example: new member acquisition (cont’d)
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Elements to consider:
• Member type “drill-throughs”
(e.g. how product mix impacts rate)
• Impact of marketing campaigns or initiatives
• Discounting
Avg New Member Price Total 2019 2020 L3M L6M L12M
[Member type 1] 297 299 294 300 300 300
[Member type 2] 156 153 155 179 170 163
[Member type 3] 380 379 389 376 378 384
[Member type 4] 691 686 693 685 684 687
[Member type 5] 348 - 349 344 347 348
[Member type 6] 287 285 285 299 294 291
[Member type 7] 349 - - 349 349 349
[Member type 8] 290 - - - - -
[Member type 9] 34 33 35 35 35 35
[Member type 10] 35 35 35 35 35 35
Total 321 317 308 336 350 337
Example: member renewal
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Elements to consider:
• Monthly vs rolling average
• Member vs revenue renewal rate
• Movement across member types
• Eligibility timing and process
• Member count trends (new + renew)
• Payment and renewal timing
Product Movement
From: REG_N < select
To: REG_R < select
Example: member renewal (cont’d)
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Count of Paid Invoices by Days to Renew
(days between current invoice paid date and prior invoice cycle end date)
Renewal Report Status: Renew New Total
Product Code Type: Renew New Total Renew New Total
- (365) 1 - 1 - - - 1
(365) (270) - - - - - - -
(270) (180) - - - - - - -
(180) (90) 2 - 2 - - - 2
(90) (60) 8 - 8 - - - 8
(60) (30) 31 - 31 - - - 31
(30) - 257 1 258 - - - 258 paid early
- 30 118 1 119 - - - 119
30 60 18 - 18 - - - 18 grace period
60 90 3 - 3 - - - 3
90 180 - - - 6 10 16 16 lapsed
180 270 - - - 2 7 9 9
270 365 - - - 3 5 8 8
365 + - - - 3 24 27 27
438 2 440 14 46 60 500
Example: seasonality
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Elements to consider:
• Intra-year seasonality
• Changes year-over-year
• Internal business process
• External forces
• Changes in customer behavior
Example: customer demographics
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Elements to consider:
• Geographical distribution (and white space)
• Size and type (e.g. specialty)
• Member title / position within organization
• Customer purchasing tendencies, by type
• Top customers
Analytics watch outs
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• Oversimplification
• Outliers
• Dirty data
• Overcomplication
Consider most appropriate reporting medium
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Format / platform
• PDF, memo
• Excel
• Interactive dashboard
Delivery method
• Push v pull
• Written v verbal presentation
• On-demand
Frequency
• Ad hoc v recurring
• Level of detail
• Management process dependence
Establishing a management process
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Content
• Prior period variances, trends, forecast
• Operational metrics and initiatives
• Feedback, input, approval
Frequency
• Business need
• Huddles vs formal monthly / quarterly
• Beware of meeting overload
Audience
• Align with frequency and content
• Decision-makers, operators
• Stakeholders (direct, indirect)
Why is this important?
• Proactively manage the business, adapt quickly
• Accountability to budgets, goals, long-term plans
• Cross-functional information flow and awareness
Effective boards have deep understanding of their organization, enabled by effective reporting and analytics
• Financial statement review
• Internal controls and compliance
• Review and approve budget
• Assess current and future risks
• Understand financial implications of vision, strategy, and goals
Board role in financial management
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References
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• CLA• https://www.claconnect.com/resources/articles/2019/whole-organization-finance-mapping-nonprofit-financial-leadership
• MGMA and Kaufman Hall• https://www.mgma.com/event-registration/mgma18-the-operations-conference/session-handouts/con501_no-surprises-
better-budgeting-and-forecasti
• Strategic Finance• https://sfmagazine.com/post-entry/november-2017-12-principles-of-best-practice-fpa/