Note: This post first appeared at the Dodge Foundation Blog. Click here to read the post in its entirety.
For a nonprofit organization, the annual budgeting process is typically the primary vehicle for financial planning.
Organizational leaders and stakeholders come to that process with a sense of plans and goals for the year, and (ideally) come to collective decisions about how resources will be allocated to advance and prioritize among them. Then, once the board gives its final approval and the new year begins, the team sets about putting those plans into action and monitoring results, until it’s time to do the whole thing over again next year.
Unfortunately, this “one year at a time” approach can often leave organizations vulnerable to longer-term trends, changes or challenges. Some trends or uncertainties may require years of advance planning and action to effectively hedge against them. And while a formal strategic planning process should always include financial plans and projections, those typically only happen every several years.
So between the year-by-year budget development process and the every-few-years strategic plan, we need some means of considering possible financial changes across multiple years. Otherwise, we risk not being able to make the adjustments necessary to address these long-term trends, perhaps until it is too late.
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