This is the seventh blog post in our #SGInstitute series, led by our Strategic Advising practice on lessons learned from advising schools, networks, and districts on growth and expansion.
Most people groan when they think about financial modeling, but it’s the part of strategic planning that I look forward to most. To be fair, I was the kid in math class who found it incredibly satisfying to see how numbers fit together in a clean and orderly way. A prime number is ALWAYS only divisible by one and itself. The angles in a triangle ALWAYS add up to 180. Algebra is like a riddle whose answer you can ALWAYS figure out — just isolate the X! (I know this makes me a nerd, but I embrace it.)
In my adult life, I get the same satisfaction from a good financial model that pieces together all the parts of a strategic plan in a logical way. For those new to the process, a financial model is basically a big, usually Excel-based, spreadsheet that lays out all the costs and revenue streams associated with a strategic plan, as well as the relationships between them, to calculate a total funding need. This spreadsheet can then be used as a “model” that helps you test various decisions associated with plan implementation, just like a blueprint is a model that guides construction of a new house or building.
Financial models help growing schools or networks understand their funding need, plan for the future, and justify budgets to potential funders. What I like about financial modeling is that it makes a strategy feel concrete. Before you get to modeling in the strategic planning process, the various goals, priorities, and action steps that make up your school’s plan for growth or improvement can feel like vague ideas. Once they’re in Excel and defined by real-world cost estimates, the ideas come to life.
For instance, let’s say you want to build out your data systems to support a growing organization. Okay, but what does that actually mean? Translating your ideas into spreadsheet form will require you to think through what the work will look like on the ground and what specific resources you will need to accomplish various tasks. You’ll probably need to invest in new or upgraded software, train your staff to use it, and perhaps bring a data expert on board to manage it. If you can make some informed guesstimates about how many of each thing you’ll need, when you’ll buy them, and how much they’ll cost, with a bit of math you can get to a reasonably realistic estimate of investment size.
Then you can use that estimate to adjust your strategic plan to better fit the reality of your day-to-day. Back to our data systems example: Don’t think you can afford an investment of that size? To save costs, perhaps you can find less complex software, limit licenses to a few key staff members, or allocate time from a current resource to data management rather than hiring a new staff member. If you flex the inputs in the model to reflect those changes, what happens to the final number? I, for one, feel much more comfortable making decisions armed with numbers.
Now you’re probably thinking: “But financial modeling requires a skillset I don’t have (and don’t really have the time to build)!” Yes, you need to be comfortable with Excel, but I promise that comes with a little practice — and there are simple video tutorials readily available the internet. Beyond that, it’s much more approachable than you think.
Here are three common myths I hear about financial modeling from people unfamiliar with the process: Continue reading