Financial Planning

Financial Planning and Control

Building Blocks

Four building blocks of good financial planning Keeping records Internal Control Budgeting Financial Reporting

Everything starts from information Capturing financial information Interpreting captured information Acting on the interpretation

Types of Information

Attention-directing information: The finance manager provides reports to activity or section managers on actual expenditures to budget. She further highlights the areas where there are considerable over or under expenditures. This information directs the activity manager to investigate or justify delays in implementation or unforeseen expenditures. Score-card information: A donor requires a report on their funds twice yearly to see if planned activities are on track or if there are any deviations noted. The numbers laid out in the financial report comparing actual expenditures to budget provide a 'score card' on how the NGO is progressing with their proposed activities. Problem-solving information: An NGO would like to host a workshop. This workshop will be funded through donor funds, income earned from the sale of workshop books and by charging a small participants' fee. The finance manager can provide information to management on how much funds exist currently for the workshop and how much money would be required to be raised by additional fees.

Overall Architecture

Target Roadmap

Budget: Where we aim to be by the end of the next period

Focus Map : What will we do to achieve our performance measures

Next time we meet

Here and Now

Review Process

Scorecard : How well did we do in the period

Budget : Define targets for key deliverables, revenues and costs Focus Map : Laying down the road map for the period and defining action items for sustainable growth Review Process : A practical and regular review process to track progress towards targets and provide guidance Balanced Scorecard : S.M.A.R.T. review tool to track achievement of Budget and Focus Map objectives

Review Tool 4

Structure of the Forms

Balanced

Budget

Scorecard

Top 2-3 Scorecard Parameters which directly affect revenue or costs.

Other Scorecard Parameters

Revenue Guidance

Initiatives planned in the short term

Focus Areas

Cost Dashboard

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Balanced Scorecard

Internal Process

Mission

“To satisfy our targets, in which internal processes must we excel?"

“Who are our targets? What is our value proposition?”

NGO Financial “To fulfill the Mission, how do we fund Internal Processes?”

Learning & Growth

The balanced scorecard is a strategic planning and management system that is used extensively in business and industry worldwide to align business activities to the vision and strategy of the organization and monitor organization performance against strategic goals.

“What capabilities and tools do our staff require to help them execute our strategy? 6

Sample Balanced Scorecard for a non profit human services provider

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Financial Planning and Budgeting

What are the objectives of the project? What activities will be involved in achieving these objectives? What resources will be needed to perform these activities? What will these resources cost? Where will the funds come from? Is the result realistic? Budgetary Control System A system designed to provide management with the information necessary to keep encumbrances and expenditures within an allotment Provides report for both revenue and appropriations Compares actual financial activity to the original budget and adjusted budget Should be used by the management to monitor and control activity during the year

Projecting your Financials

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Financial Ratio Analysis

Financial ratio analysis is one of the tools used to improve financial decision making Ratios use financial data to summarize organizational performance Financial analysis applicable to profit entities is only partially useful for nonprofits. Profit margins mostly do not apply Revenue streams are different

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Some commonly used financial ratios Income Ratios

Some commonly used financial ratios Expense Ratios

Some commonly used financial ratios Balance Sheet Ratios

Good financial management Makes sure that money is carefully controlled, reducing the risk of fraud Helps managers and field staff understand the financial position, today and in the future Builds trust between different beneficiaries, field staff, managers and donors, through financial transparency Makes sure there is enough money to complete activities and pay salaries Supports decentralized decision-making and flexible planning Helps strengthen dialogue with beneficiaries, e.g. by setting budgets together and discussing financial issues together Encourages managers to work out which specific activities will contribute to wider social changes

This depends on finance staff and programme staff working together - which is the very heart of good financial management in NGOs 14