• Planning & Financial
  • Financial Forecasting
  • Strategic Planning
• Human Resources
  • Staff Planning
  • Cross Training
  • Shared Administrators
  • Sick Leave Management
  • Succession Planning
• Fleet
  • Consolidated Operations & Fleet Maintenance Partnerships
  • Centralized Fleet Management
  • Fuel Management & Oversight
  • Fuel Conservation Policies
• Facility
  • Energy Management
  • Facility Use Management
• Operations
  • Snow & Ice Control
  • Communications Center Accreditation
  • Dispatch Consolidation
  • Police Shifts
• Technology
  • Server Consolidation
  • Process Automation

Planning & Financial Management

Financial Forecasting

Forecasting is a key component in determining future operations, problems, and opportunities. Good financial forecasts benefit governments by enabling decision-makers to:

• Develop an understanding of available funding
• Evaluate financial risk
• Assess the likelihood that services can be sustained
• Assess the level at which capital investment can be made
• Identify future commitments and resource demands
• Identify the key variables that cause changes in the level of revenue and expenditures

Governments at all levels find forecasting beneficial in determining available resources and developing budgeted expenditure amounts. Most public entities use forecasts that extend three to five years beyond the current budget period, although some entities use 10-year forecasts. In any case, the forecast should be monitored and updated on a regular basis.

Quantitative or qualitative methods, or a combination of both, can be used to develop forecasts. Qualitative methods are more intuitive and are based on the following types of information:

• Judgmental
  Based on “good sense” or a decision made through discerning and evaluating. For example, a city auditor uses prior experience to project the impact of an increase in income tax revenue.
• Consensus
  Based on collective opinion or general accord. For example, a management discussion is used to determine the service level and corresponding cost impact of a policy to limit garbage collection.
• Expert
  Based on the advice of an expert. For example, a township clerk uses a State Employee Relations Board report on benefit costs to project future cost increases.

Quantitative methods include any of the following types of information:

• Trend Analysis
  Compares historical information to forecast percentage changes. For instance, in prior years, step and cost-of-living increases were about 4 percent for village employees. This percentage change is used to project future wage increases.
• Multiple Regression Analysis
  Uses chosen factors to determine the forecasted percentage change. For instance, a regression analysis is used to identify the health care cost reductions resulting from a wellness program instituted by a state agency.
• Time-Series Analysis
  Uses the average percentage change during specific time periods. For instance, over the past 10 years, police and fire department costs have increased at twice the rate of population growth. If the population is expected to increase at 3 percent annually, the costs for public safety may increase at 6 percent annually.

While entities may use either of these methods, research has shown that combining qualitative and quantitative methods improves forecasting accuracy.

Regardless of which method or combination of methods is used to develop a forecast, the following steps should always be followed:

1. Establish a base year.
2. Assess revenue and expenditure growth trends.
3. Clearly specify underlying assumptions.
4. Select a forecasting method.
5. Assess the reliability and validity of the data used to determine assumptions.
6. Monitor actual revenue and expenditure levels against the forecast and explain variances.
7. Update the forecast based on changes.

Ohio Examples

District Employs Year-Round Forecasting & Strategic Planning Process
Medina City School District (see audit page 2-9)

Medina has implemented leading practices in its forecasting and budgeting processes. The treasurer puts together forecast scenarios based upon reduction plans, state funding changes, levy attempts, and other information.

Forecasting is a year-round process. All administrators at the building and department level are involved in the budgeting process through the creation of their own respective budgets. Those budgets are presented to a central office committee for review. After the central office committee reviews the budgets, the five-year forecast is created and presented to the board and a citizen finance committee for review, input, and approval. The treasurer then gives presentations to the board throughout the year as changes are made to the forecast.

Forecasting Allows School Board to Anticipate Potential Problems
Chillicothe City School District (see audit page 2-14)

Chillicothe City Schools have instituted a process where the treasurer updates the five-year forecast on a monthly basis, and presents it at the school board meetings. This provides timely, up-to-date financial information for the board, which can be used to identify potential financial problems before they occur and to make incremental changes to improve performance over both the short and long term.

District Develops Multiple Budget Scenarios to Plan for Future
Springboro Community City School District (see audit page 1-5)

In Springboro, the treasurer creates separate scenarios for the superintendent and board to depict the district’s financial situation depending on various district outcomes. The treasurer also creates a spending plan, which is directly linked to the district forecast and compares how the district’s actual revenues and spending compares with the forecasted estimated amounts. This enables the district administration to view the district’s future financial conditions and make well informed decisions based on anticipated outcomes.

County Five-Year Plan Guides Decision Making
Montgomery County

Montgomery County’s Office of Management and Budget developed a General Fund, Five-Year Financial Plan for 2010-2014. The plan includes:

• An extensive overview of the conditions that affect the county’s revenues and expenses, as well as recommendations for improving these conditions and maintaining a balanced budget.
• Detailed assumptions to accompany the forecasted revenues and expenditures.
• Detailed staffing, operations, program, and performance information for each of its general fund entities.

The practice of the development of long range financial planning for the County General Fund has assisted us in maintaining the financial stability of the fund through annual balanced budgets, favorable bond ratings and investments through economic development initiatives. Our Elected Officials, Agencies and Offices have collaborated with the County in the prudent use of taxpayer funds and maintaining excellent services despite many years of budget reductions. We continue to use the General Fund Financial Plan recommendations as a guiding principle as we develop our annual General Fund appropriations.” Tim Nolan
Director, Office of Management & Budget
Montgomery County

National Examples

Financial Plan Identifies Revenue, Anticipates Risks
City of Portland, Oregon

The City of Portland’s Office of Management & Finance creates and publishes a five-year General Fund forecast. The forecast focuses on the city’s projected financial condition, as well as the steps necessary for the city to control expenditures consistent with projected revenue. In addition, the forecast document identifies revenue and expense risks, or areas of likely volatility, that could affect the overall accuracy of the current forecasted financial position.

Web Resources

• Government Finance Officers Association
• International City/County Management Association
• The Association of Government Accountants