Stage 9: Long-Term Financial Planning
As the recovery strategies begin to have positive impacts, the organization should follow-up by developing a regular, institutionalized long-term financial planning process. This stage will provide the answers to the following long-term financial planning questions:
- What is a long-term financial plan?
- Why is it important to do regular financial planning?
- What are the pillars of a sound financial planning process?
- What are the major phases in a regular long-term financial planning process?
- What other resources does GFOA have for financial planning?
What is a Long-Term Financial Plan?
- A combination of technical analysis and strategizing. Long-term forecasts and analysis are used to identify long-term imbalances. Then, financial strategies are developed to counteract these imbalances.
- A collaborative and visionary process. A plan does not just forecast the status quo into the future. It considers different possible futures. It also involves other stakeholders. Elected officials, operating departments, and the public can all help identify financial issues, develop consensus strategies, and ensure a successful implementation.
- An anchor of financial sustainability. A plan develops big-picture and long-term thinking among elected and appointed officials.
Why is Regular Long-Term Financial Planning Important?
Here are the reasons for undertaking a regular financial planning process:
- To determine financial position and condition. Regularly highlight long-term financial condition and issues.
- To build the case for action. Make stakeholders aware of long-term issues and increase their desire to confront them.
- To develop a mix of strategies. Make sure you have long-term strategies to complement your short-term ones.
- To build trust with citizens. Citizens are often prepared to pay more in taxes if that is necessary to realize the future they want, but only if steps are taken to increase accountability and trust. Financial planning provides great accountability for how resources are used.
- To comply with rating agency expectations. Financial planning is described by Standard and Poors as one of the top 10 management characteristics of highly rated credits.
The Pillars of a Sound Financial Planning Process
- A long-term service vision. Define the future the community wants.
- Financial policies. Define the standards of stewardship of the public's tax money.
- Technically sound analysis and forecasting. Provide accurate and credible financial foresight.
- Collaborative and particpative process. Gain the benefit of different perspectives.
- Connection to other plans. Long-term financial planning is part of a complete planning portfolio.
Major Phases in the Financial Planning Process
The Mobilization Phase is about getting the pieces in place for a successful planning process.
- Align resources. Identify the people you will need and the process you will follow.
- Preliminary analysis. Begin to diagnose financial condition and critical financial issues facing the government.
- Service-level objectives. Define strategic service priorities and objectives.
- Financial Policies. Set the standard against which long-term financial stewardship can be judged.
- Define purpose and scope. Establish a common understanding of the purpose of the plan and set expectations for what planning will accomplish.
In the Analysis Phase you gather information to identify potential future imbalances in financial condition and to support the development of strategies to counteract the imbalance.
- Environmental analysis. Build capacity for forecasting and strategizing by developing an expert understanding of the economic and financial environment.
- Revenue and expenditure forecasting. Provide foresight into future financial condition.
- Debt analysis. Debt has important ramifications for future financial position.
- Financial balance analysis. Pull together the results of all of the foregoing steps to identify potential imbalances in future financial condition.
In the Decision Phase you develop strategies for long-term financial health and conclude the planning process.
- Develop financial strategies. Collaboratively develop long-term financial strategies.
- Plan conclusion and transition to action. Mark the official end of the planning process and put the financial strategies into practice.
Long-term, strategic plans often run the risk of becoming shelf-paper. You prevent this from happening to your long-term financial plan via the Execution Phase.
- Executing the plan. Put the plan into practice with tools and processes that translate strategy into action.
- Monitoring. Keep the financial plan in the forefront by using it regularly for decision making.