Contingency Planning and Musings on Uncertain Times
The swift passing of a few weeks has given me some time to reflect on all the uncertainty of the past few weeks of chaos in the world of nonprofit finance. I’ve been questioning some of the fundamental strategies for planning and handling uncertainty.
What is contingency planning? In essence, it’s preparing your organization to move quickly and make the right decisions when the unexpected happens. What’s the right decision? Well there my friends, is the hard part. I believe I’ve settled on a framework of leadership, information, and a little luck.
We all know nonprofit leadership is a complex endeavor wrought with style and form challenges. Collaboration is an amazing thing, and teamwork can be a big multiplier, but sometimes, it’s not quite so fluid and the gears of action can become jammed.
Unfortunately, in addition to challenges with government funding, we are at an all-time low in recorded history for giving to nonprofits. I see a few things at play here. One quite honestly is donor fatigue. There are a lot of nonprofits asking for a lot of money. The other is that macroeconomic indicators are still largely strong, but many view that as a mirage. Households are struggling and consumer and small business cash flow are not great. Not to mention federal funding, because I’m exhausted from tracking that already with a long potholed road ahead.
Leadership comes down to planning and execution in my eyes. There are a lot of different manners and styles to go about leadership, but at the end of the day, steering the ship is about getting it safely port to port. And there will always be storms along the way. In my view, collaboration is a great asset for getting stuff done and tackling committee projects, but strategy, contingency planning, and decision making in times of duress are better left for a strong executive team or select committee. Too many voices can make strategic action impossible, especially in times of everyone-must-pivot.
I encourage finance commitee members to understand their organizations fundamentally, that is how sales, pricing, operations, and admin feed into the numbers. What’s going on at a high level this month/quarter?
The other important part is having the understanding to conduct variance, trend, and expectation analysis to review the numbers and how they tie into the fundamentals. Hopefully you have a good advisor to help answer questions and work at developing other metrics and projects to advance the organization financially.
The essence of contingency planning goes something like this in my eyes. Start with the future, you have to see where the ship is going. It’s dark and stormy? Well, light the way and buy a radar.
Start talking about and planning for what could go wrong. It may be a little late, but the next best time is now. Strategic plans and budgets are wonderful exercises, but they aren’t sufficient for planning for change.
Well, too late, here we are. Triage is the next step. Time to update those forecasts and budgets. If the budget is an immovable object, at least start to analyze the real world version and call it whatever you like.
After triage, it’s time to scenario plan. This starts with brainstorming development and operations, which then feeds into projections and scenario analysis. This forms the core of objectivity and informed decision making, with a strong dose of instinct steering the ship decisively, or if the luxury is available, sitting back and waiting for more information.
Of course, all this is rooted in good information. Good information is rooted in good systems and processes. Information should be current and well organized. Vital metrics should be tracked weekly at a minimum. Sales and fundraising projections should be challenged. Goals are not projections.
Making the right call in times of upheaval is the result of a process, it’s one consisting of information, instinct, intelligence, and experience. When it’s time to batten down the hatches (and in my personal opinion, it is), steady hands that have been there before are a tremendous asset. With a good plan in place, take action and hope for the best.
I don’t want to end this musing on an entirely dark and gloomy note. With every period of economic change, opportunities abound. Unmet needs will be painful, but temporary. Hard times are part of the human experience, always have been, and we will get through the next ones together. With good leadership and a little luck, emerging stronger on the other side of the storm.
Joe Minich, CPA is a Fractional CFO and Controller for nonprofit organizations at Ridgeline Business Solutions LLC.
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