There are several approaches to making financial projections. This article will briefly describe several techniques you can try at your own organizations or use with DataArts’ Make a Projection Tool.
Financial projections usually stem from a baseline, or starting point - usually the results or financial statements from a prior year or a prior period. This is not absolutely critical, but it’s good to have an understanding of previous trends, to help you think about what should change and what should stay the same going forward.
Before you enter or alter any numbers in your projection template, remember that projections start with plans. Work with your staff and board to come up with goals and plans for the next year or years, or to come up with some ways to address whatever issue you’re working on at the moment. Once you have your plans in place, these can translate into financial changes.
Making projections may involve some research and several iterations. For example, if you plan to create a new staff position, you know your personnel expenses will increase, but to determine the size of the increase, research the salary and benefits your organization plans to offer, or can afford, or what a typical salary and benefits package for that position looks like for other organizations like yours. If you plan to start a new program, consider all of the likely expenses associated with that program, and what revenue streams will support it.
Here are some projection techniques you can try:
- Keep everything the same. If you think nothing will change from the previous year, you can simply use last year’s results as the next year’s projections, or round the numbers up to the nearest ten to make them easier to work with. This gives you a baseline to start with, and these projections can be updated as you gather more information and make plans.
- Change results by a percentage. If you want factor in some changes based on previous trends, increase or decrease values by a percentage. You could calculate the percentage change manually, or with Excel, or use the % change column in your DataArts Analytic Reports. You can project continuing trends, or make projections that will change or reverse those trends.
- Make changes on a case-by-case basis. While you may expect most of your revenues and expenses to remain the same, or only change by a small amount, there may be some items you know will increase or decrease. For example, if one of your staff members is retiring and you know you are not going to fill that position right away, you can decrease your personnel expenses. Or if you know you’re going to apply for a specific project grant in the next year, you might add that projection to Foundation Contributions.
- Create scenarios. As part of your planning process, you may not know exactly how things will change, or you may be choosing between several alternatives. Use your budget template or the DataArts Make a Projection tool to create multiple versions of future years, each following a different scenario. In each version, start with a baseline projection, and then only change the lines affected by the scenario. This will allow you to see how each scenario is different from the others, and from prior years, and how it affects your revenue and expense totals, and your bottom line.
- Start from scratch. This is more time consuming process, but allows you to evaluate everything your organization spends and receives, and assign a projected value to all revenue and expense areas.
However you determine the values, financial projections are a great tool to help you think about and plan for your organization’s future.
For more on financial projections, see:
Where do financial projections fit into financial management? 
