Budget! Actuals! Projections!
Here are a few things to keep in mind as you’re sorting through these three sets of numbers.
Budgets are certainly the critical framework for any org’s financial activity. They are, in essence, Board approved projections of anticipated revenues and expenses, established before the start of your fiscal cycle. All activity during the year is focused on meeting those goals and limitations.
Why, then, the need to complicate matters with ongoing projections? Many organizations don’t provide projections as such, and rely strictly on reports indicating the performance of actual activity against the approved goals. Are they missing out? I would argue that yes, they are.
A projection, developed midway into the FY, is a line by line derivation of actual activity, budgeted expectations, and (most importantly) ongoing discovery/realization.
For example, say your Foundation budget for the year is $100K, you’re six months into the year and your actual Foundation gifts received to date is $50K. Your performance to budget looks right on track, and all is well, yes?
But what if you had a phone call a couple of weeks ago letting you know that the Biggest & Best Foundation’s gift, budgeted at $35K, will not be coming in this year. This kind of news doesn’t fit into an actual or budget column. It’s absence will show up eventually, but at the moment, it’s a perfect candidate to be represented in a Projection column. You take the actuals to date, add in that activity budgeted, but not yet received, and then adjust downward based on the news that a budgeted item wouldn’t be coming in at all. This is now your projected end of year balance for that account.
The addition of a Projection column adds a needed perspective to the actuals and budget, and its dynamic revelation of ongoing impacts makes it, in my view, an indispensable tool for an organization’s management and Board.
If you have questions on setting up this metric within your financial systems, or are unsure how to work with the information it provides, do give me a call.