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Financial Forecasting

Financial Forecasting is a key component to planning future operations, anticipating problems and capitalizing on opportunities. Good financial forecasts benefit governments by enabling decision-makers to:

  • Develop an understanding of available funding

  • Evaluate financial risk

  • Assess the likelihood that services can be sustained

  • Assess the level at which capital investment can be made

  • Identify future commitments and resource demands

  • Identify the key variables that cause changes in the level of revenue and expenditures


Governments at all levels find forecasting beneficial in determining available resources and developing budgeted expenditure amounts. Most public entities use forecasts that extend three to five years beyond the current budget period, although some entities use 10-year forecasts. In any case, the forecast should be monitored and updated on a regular basis.


Quantitative or qualitative methods, or a combination of both, can be used to develop forecasts. Regardless of which method or combination of methods is used to develop a forecast, the following steps should be followed:

 

  1. Establish a base year

  2. Assess revenue and expenditure growth trends

  3. Clearly specify underlying assumptions

  4. Select a forecasting method

  5. Assess the reliability and validity of the data used to determine assumptions

  6. Monitor actual revenue and expenditure levels against the forecast and explain variances

  7. Update the forecast based on changes



Ohio Performance Team
Strategic Planning

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