Back to the Future: Harnessing the Power of Historical Data to Better Manage Your BudgetPosted on Jun 26, 2017 11:23:37 AM
By looking back, you can see further into the future.
A message pulled from a fortune cookie that leaves you pondering? Possibly. For me, it’s a maxim I like to share with the financial operations folks at higher education institutions. It’s a way to point out the power of all the historical data living in spreadsheets, general ledgers and enrollment records to help them better forecast and fine-tune their budgets.
The only trick is knowing how to combine and analyze all that information. It's not hard; it just requires a new way of thinking.
Dealing with the short term
The finance office is already hard at work meeting a growing list of demands from a variety of stakeholders. It must also react to a changing economy that produces inconsistent enrollment, increasing costs and fluctuating funding sources. Managing the variances of the current year’s budget can leave little time or personnel resources to devote to forecasting.
But, without the benefit of strategic planning, finance professionals never get the chance to break the cycle of having to make the budget fit in the short term.
Planning for the long term
That’s where historical data plays a key role. By tapping key metrics and financial figures from the previous five years, institutions have the information they need to project their financial position one to five years out. A meaningful financial forecast produces tremendous insight for the future – helping move beyond simple tables, charts, and graphs – to matching short-term demands with long-term strategic goals.
Where’s the data?
The best mix of data to inform long-term strategic plans comes from six categories:
- Expenditures – benefits, salary/staffing needs, contracted services, retirement incentives
- Staffing – administrative reductions/needs, supportive services, new programs
- Resources – tuition and fees, scholarship and investment income, property taxes, state support
- Supporting Services – information technology
- Impacts – enrollment declines, economic conditions, employee compensations
- Policy/Legal – wage/hours changes, higher learning commission, federal and state grant requirements, donors’ compliance
The general ledger is the best place to start for much of this information. Some data isn't stored in the accounting system. You need an easy way to pull figures from other systems or departments and enable a way to analyze how changes in variables for one set of data impacts requirements for the budget down the road.
Look at it from a different direction
That’s where the new way of thinking begins. There are tools available now that are built to connect the dots between the flow of information from various parts of the organization. The implementation process is simple, and the impact is immediate.
What I’m talking about is an analytic tool that makes decision-making better by using a historical perspective to analyze trends and relevant benchmark comparisons. The financial office no longer has to find time to gather data and build models. Instead, the team can simulate possible scenarios, compare what-if scenarios, analyze results by multiple views and then share the results across the organization.
The only hurdle is making the decision to move forward now with what will soon be a standard operational tool for all higher education institutions. I'm confident if your future self were able to time travel, it would tell you not to wait another minute.
Thomas M. Ridout is a Senior Analytics Advisor for the community college market with Forecast5 Analytics. He is the former Executive Director of Finance for Northeast Iowa Community College (NICC) in Calmar, Iowa. Thomas was employed with NICC for 41 years, also serving as an Accountant and Business Manager. Prior to NICC, he was employed with Dee Gosling and Co. CPA’s in Waukon, Iowa. He graduated from Northeast Iowa Community College with an Accounting degree. He is also a member of the Northeast Iowa Community College Alumni Hall of Fame.