Using Business Intelligence for School Budgeting and ForecastingPosted on Feb 3, 2016 12:00:00 AM
Developing and Presenting a (Business) Intelligent Budget
The budgeting season is well under way. And, for most public sector CFOs, the challenge with this year's budget is not going to be how to spend new resources of money.
Rather, as we have seen for the last several years, the process will be more focused on the allocation of limited or shrinking funds. Developing a budget plan in this environment is challenging…especially one that considers multi-year sustainability.
Absolutely. Many high performing local governments have adopted analytic strategies that play a central role in the budgeting process. These organizations have used business intelligence in their budgeting process in three key areas: data discovery, stakeholder communications, and decision support. In this post, I would like to share some of the ideas and best practices that I have seen executed successfully around the country…strategies that are delivering the following benefits:
- Identifying actionable financial opportunities
- Generating long term financial strength
- Increasing stakeholder engagement in the master plan
Let me quickly define a business intelligence system as a data analysis tool that organizes historical performance data and comparative benchmark information (if available) allowing an organization to generate financial and operational insights. Generally, the highly graphical output of a business intelligence system will serve to accelerate the insights and understanding of the information.
Data Discovery: The data foundation of the budget
High performing local governments are using business intelligence to identify and create opportunities for their communities. There are two critical components that have to be in place to best execute the data discovery phase in budget building…data and time. In many cases, the data is easier to access than the time required to analyze it. Accepting and overcoming the time challenge is absolutely crucial to achieve the potential benefits. How much time does your organization allocate to the data discovery phase of the budget?
In this phase, there are two specific levels of analysis that I see being executed and presented effectively…historical trend analysis and benchmark comparisons. For both revenues and expenses, you should be working with three to five years of financial history in a system that allows you to quickly aggregate and disaggregate the data. The process of “slicing and dicing” or “pivoting” the data may require some uninterrupted “quiet time”, but this time will be well spent identifying the historical trends that may have significant impact on the budget this year and going forward.
In addition to your organization’s trend analysis, developing benchmark comparisons will help solidify your insights. Having comparative reference points for critical areas such as staffing ratios, salary and benefits, and other department and program level expenditures will allow you to identify areas that may be out of line with relevant peers. It may also be useful to study the multi-year trends of your peers to see if they are performing in a similar manner over time. Developing the right peer group is an important part of the data discovery process…and it can also be instrumental in the stakeholder communication process. It is not just about finding peers that you can “beat”. High performers find peers that are the best performers in order to glean new insights and financial opportunities.
Stakeholder Communications: Building support with data
The information that can be built up during the data discovery phase is meant to be used in the stakeholder communications phase. But, there are two important questions to answer before you proceed:
- Who are your stakeholders?
- If you identify different stakeholder groups, should you present the budget information in the same format?
As you develop the budget communication strategy, you may need to prepare for several different types of presentations as you consider your stakeholders groups. Starting from the inside of your organization and working outward, think about the level of information you are presenting. As you move outward and consider the needs of a governance board or the community at-large, consider how the information should be presented to achieve the best outcomes. Detailed spreadsheets and granular data may be required for internal stakeholders, while “USA Today” graphics and summary financial data may be better for external groups in order to facilitate their understanding and ultimate buy-in for the plan.
Preparing the information in a visual format will generally accelerate an audience’s understanding of the historical performance, the current financial situation, and the relevant benchmarks. Using the business intelligence system to produce dashboards and charts in anticipation of the questions that people may have will help build support and consensus. Additionally, these efforts which demonstrate a command of the data will promote confidence in the organization.
Decision Support: Buy-in with a budget plan backed by data
Preparing for a budget presentation can require a significant amount of research and planning. Data gleaned in the data discovery phase should provide a great foundation, but there may be more information that is required to successfully present the budget and potential contingencies. Thinking about the various groups that will be considering (or even voting on) your budget, you may need to be prepared to respond to a wide variety of questions. You can divide the preparation for the decision support phase into three areas:
- Thorough knowledge of the historical trends
- Firm grasp of the relevant benchmarks
- Command of the “what-if” scenarios
The first two areas of history and benchmarks can be mostly covered in the ground work you have already done. The “quiet time” investment made in the data discovery phase will pay dividends when questions arise such as, “How have we done historically…”, “How do our peers perform in this area…”, “Do we have any opportunities for savings”?
Understanding how the budget may be impacted under different revenue and expense scenarios is also an important element to generate support for the plan. The “what-if” questions that might arise should be anticipated and modeled in advance of the presentation in order to be able to respond to questions efficiently and effectively. At a minimum, scenarios should be built that consider the potential impact of changes in major revenue and expense items. These scenarios do not necessarily need to be presented, but they should be available in order to quickly respond to “what-if” questions.
Preparing and presenting a budget can become a great opportunity to study and learn. By breaking down the process into the three phases of data discovery, stakeholder communication, and decision support you will be in the best position to identify opportunities and effectively present your plan to internal and external parties. Using a business intelligence system to inform the budgeting process will provide additional insight and output that can be used for presentations. While the data discovery component of process may require hard-to-find “quiet time”, the pay-off may be immediate with just one or two actionable insights. Moreover, the additional depth of knowledge will demonstrate your command of the data and result in a convincing budget presentation.
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Mike English is a founder and the CEO/President of Forecast5 Analytics, Inc. – a technology company focused on software development and data analytics for the public sector. Mike has spent his entire career concentrating on the development of financial and strategic solutions for schools and municipalities. Forecast5 is headquartered in Naperville, Illinois – a suburb 30 miles west of Chicago.