The Mission-Critical Role Financial Forecasting Plays in Government

One of local government’s most daunting tasks is creating a budget that is effective and realistic. A good budget attends to the needs of the citizens and allows the community to prosper for years to come. In order to create an effective budget, governments must first practice financial forecasting.

Simply put, a financial forecast is a fiscal tool that displays future financial projections. They are created by analyzing the fiscal past of an organization. Doing this unveils trends and patterns that are likely to continue in the future. When properly created, a financial plan can help governments improve decision making and maintain financial discipline. For a more in-depth explanation check out this article by the GFOA.

“The (financial) forecast is an integral part of the annual budget process.”- Government Finance Officers Association. Without long-term financial planning many governments have had to resort to borrowing and investing money to keep up with post-employment liabilities. These strategies are seemingly effective in the short-term. However, as time goes on, keeping up with accumulated debt becomes difficult, and there is no telling how investments will pan out. 

To help endorse the benefits of financial forecasting, Robert Leland, a special adviser with Management Partners, Inc. shared five reasons why governments should embrace long-term budget forecasting

  1. Transparency. Having a government’s financial position and projected future clearly stated allows all members of an organization to be up to date with operations. Increased transparency also improves credibility when sharing an organization’s financial standing. 
  2. Fiscal Discipline. Having all of a government’s accounts and spending habits noted keeps everyone accountable for how they distribute funds. Along with this, a financial forecast eliminates wishful thinking and promotes realistic spending.
  3. Anticipating Complications. Another advantage of having trends revealed is knowing of possible complications before they arise. A knowledge of historic patterns enables governments to better manage in an unpredictable world by allowing them to confidently understand any consequences that may follow their actions.
  4. Promoting Sustainability. Identifying the impact of policy decisions causes people to look for more long-lasting solutions instead of quick fixes. Patching up problems is no way to create a healthy future. Discovering and creating lasting strategies allows organizations to address and resolve more pressing issues.
  5. Living Document. The financial forecast is constantly evolving with time; don’t be afraid to adjust the assumptions and make changes to your forecasts as necessary. The living document offers flexibility in an ever-changing world. It’s a good practice to keep a list of the assumptions for each scenario so that you can have the context for applicable changes in some of the numbers.

Using visual forecasting technology also allows for a more customized approach. GovInvest offers a myriad of software solutions supported by best-in-class consulting that enable governments to maximize their pension, OPEB and labor costing. GovInvest’s software is the first and only financial forecasting software designed specifically for each agency, giving municipalities access to real-time data and the transparency needed for good decision-making. 

For example, Nye County, Nevada was headed into negotiations with labor groups and needed a method to calculate changes quickly. They wanted a great labor costing system that could improve negotiation outcomes, increase transparency and build agency trust. Since implementing GovInvest’s software, the staff can now modify employee groups, track costs individually, measure total compensation and confidently validate results for trust-based decision-making. The bargaining units also appreciate the speed that the county is able to respond to new and updated proposals. You can read the full case study featuring Nye County here

While the forecasts are not perfect predictions, they do provide needed perspective to make well-informed financial decisions that will have a lasting impact. Book a demo with GovInvest’s team to learn more about the benefits of long-term financial forecasting.


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