Strategic Planning for Nonprofit Organizations:
Financial Forecasting - Projecting Future Growth and Mergers
Presentation to Volunteers of America
National Conference Salt Lake City, UT

Introduction

The process of strategic planning/future forecasting involves the determination of:

1. what your organization intends to accomplish by when
2. what resources are now available to your organization or can be recruited
3. what courses of action will be taken in order to direct the organization toward accomplishing these goals including what mergers, acquisitions and strategic alliances will be formed to accomplish your goals
4. the costs, as best as they can be estimated, necessary to accomplish every goal of the organization
5. what critical issues need to be addressed before rapid growth can be contemplated and planned for, for example, operating deficiencies, governance, board performance, leadership and staff performance, public relations, financial performance, etc.

This process of determination involves data collection and fundamental decisions regarding the following:

• the vision, mission and measurable goals of the organization
• whom the organization seeks to serve (Target audience and Needs Assessment for the services considered in the future for significant growth or first time offering)
• the kinds of programming, services or products the organization will offer
• identification of the budgetary resources needed to succeed including human capital, financial capital, facilities, etc.
• determination of the strategic approach to insure how these factors can be best combined to accomplish the organization’s mission
• determination that the organization can do an excellent job in expanding, developing or initiating this new programmatic or service endeavor
• planning as necessary to resolve all critical issues that require “fixing” before significant growth is sought for the organization

The time period of the strategic plan can be as little as 1 to 3 years or as long as 5 to 15 years. Regardless of the size of the organization, all non-profits can also benefit from operational or short range planning in which they develop yearly budget and work plans. These short range plans help to keep the organization on track as it moves toward its goals. As progress is made within these short range plans, it is essential to adjust the strategic plan periodically in order to take into account what has been learned from achieving more short term goals. Non-profits that keep in excess of 1m in the bank at all times should have a 15 year financial plan since there are many financial instruments (like equity indexed CD”s that are fully insured, guarantee 6.5% annual returns and required a 10-12 holding period.) (Note, the S&P for 1996-2001 was up 55% and the KAM Index was up 117%).

FIVE FORCES

Strategic plans/future forecasting take into account five forces –

• mission and core values of the organization
  ÿ outside opportunities available to the organization (scanning)
• capabilities and financial/budgetary resources that can be generated
• needs in the community
• critical issues and challenges facing the organization

Strategic plans/future forecasting answers several questions:

• what will the organization accomplish over the prescribed time span
• how will current critical issues, problems and challenges of the organization be resolved and by when at what cost
• how much will it cost to accomplish these activities
• what other organizations will your organization work with in the form of a strategic alliance, acquire or merge with to accomplish its goals
• what will be the scope of that work in terms of number and skill levels (competencies) of paid people, amount of real estate necessary, number and type of volunteers, IT/computer related equipment necessary, etc.?
• what will be the plan for capturing the resources and support needed to successfully develop and carry out these plans and who will take the lead responsibility for securing these resources?
• how will the organization be stronger at the conclusion of the time span
• what percentage of the need is being met by the organization’s new programs?

Incorporating budgeting and accounting related information at the earliest stages of the strategic planning process is a necessity. Integrating budgeting/accounting data early in the strategic planning process provides the following benefits:

• Improved Information Upon Which the Organization Can Base Decisions
• Improved, expected and actual Results
• Momentum and Focus
• More rapid Problem Solving
• Greater Teamwork, Learning and Commitment
• Enhanced Communication and Marketing Efforts
• Greater Influence over its circumstances and world
• Greater role definition among key employees, Board Members and Stakeholders
• Encourages use of Defining Moments Analysis
  Challenges Of Strategic Planning/Future Forecasting

Key challenges in the strategic planning/future forecasting process include:

• Costs of planning/future forecasting can be significant, especially staff time in all aspects, especially needs assessment
• Mergers, acquisitions and strategic alliances cause the organization to plan for items and actions it can not control
• Tackling critical issues, problems and challenges of the organization in the strategic planning process can bog down the process if not done well
• It is very hard to distinguish good planning from poor planning as the plans are being drafted – someone must be in charge of quality control and that might well be an outsider who can be objective and forthright
• Often one must rely on outside sources for data and information and can not verify the data especially regarding needs assessment
• Plans are very sensitive to the quality of assumptions about the future, quality of leadership and group dynamics, quality of capabilities and resource assessment, and accuracy, timeliness and understandability of information and budgetary data.

SPECIFIC APPROACHES

Using a regular 1, 3 or 5 year cycle with real deadlines leads to a more organized, focused, vision-supported, mission-driven and goals-directed entity when early in the process a careful look at the budgetary numbers for each activity is made.

• Estimate with care the amount of Time, Money and Resource Availability/Commitment Necessary to do an adequate Strategic Plan
• Tackle the Tough Organizational Problems (TOP) in the strategic plan
• Specify the Overall Leadership and Allocation of Responsibilities in the strategic planning process – Role of Relationship Manager
• Number of People and Groups involved (IROMD)
  • Identify all Stakeholders (including the accountants/budget folks
  • recruit the right personnel
  • organize them into meaningful groups
  • manage each group and individual in the process
  • deploy all resources/people in an efficient and effective manner.
• Mini-Plans or Business Plans as subparts of the Strategic Plan
  Determine if a series of mini-plans or business plans for each division or section of the organization is desirable. (This system is used in the New Orleans’ Volunteers of America program).
• Budget, Technical and Political Issues
  Obtain all budget, technical information and data needed for the plan, and decide if any other groups will need to be involved. This is especially important if your strategic plan includes Mergers or Acquisitions.
• Strategic Planning/Future Forecasting Initial Checklist
  • Executive Summary
  • Mission and Vision Statement, Values or guiding principles
  • Organizational Profile and Situation Analysis for the Current Organization
  • Situation Analysis for the Current Community Environment (Needs Assessment, Competitive Analysis and Trends Analysis)
  • Goals and Strategies (or objectives)
  • Merger and Acquisition/Strategic Alliance Opportunities
  • Service, Staffing levels, real estate and IT/computer equipment needed
  • Financial plans/budgets
  • Marketing and Public Relations Plans
  • Implementation plans
  • Mini business plans
  • Evaluation plan for each program, service or offering
  • Appendices

Planning for Growth and Mergers - Benefits:

• Sharpen the organization
  • Gain clarity of focus on programs and community impact
  • Handle the tough organizational problems with a plan
• Estimating the Costs of a Merger/Acquisition
  • Brokers charge an 8% fee and they are efficient
  • Valuations are 2 or 3 times gross
    revenues for entity acquired
  • Multiply valuation times brokerage fee = cost of staff time to sign the deal since a broker is usually not used
  • Plan for the cost in staff time of three times initial cost to secure integration
  • Plan for the cost in PR budget, redevelopment of board, staff integration
  • Expect productivity to drop for one year by 10 - 20% and reallocate staff accordingly taking into account the new reality
• Gain advantages associated with size
  • Use of aggressive expansion plans or alliances and mergers with complementary organizations, but beware of upfront/first year costs
  • Gain advantages such as reaching larger numbers of people, mobilizing greater resources, gaining operating efficiencies, developing more specialized services, gaining larger contracts, diversifying funding space, or increasing visibility
• Find a Niche, Dominate a Market
• Carve out a distinctive and important role in the community, so that people think of your organization first when a certain issue is mentioned
• Know the needs of the community better than anyone else so that you can claim the right to deliver the services you want to offer and so that you will know best what services and how to deliver the
  services/programs for the most effective impact.
• Focus on one or two success factors for each program’s evaluation
• Include evaluation in your strategic plan as a key element
• Create budget for evaluation
• Create public relations plan as part of strategic plan

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