Budgeting is a control tool. Dynamic financial planning (DFP) is a management tool.
Essentials of DFP
The Chapter treasurer constructs a month-to-month spreadsheet projection of anticipated revenues and expenditures out 15 or 18 months.
At the end of each month, actual results are posted in the column immediately adjacent to the projection and a third column, Variance, constructed to show item-by-item differences both in dollars and percentages.
Chapter officers analyze each month's results, posing questions such as:
- What happened?
- Why?
- What might be the implications and/or impacts of the difference (by line item)?
- What revisions need/ought to be made to the DFP based on experience and results?
This analysis has two components:
- Variance analysis (projected v. actual)
- Cost/benefit analysis (e.g., if $1 were added to a particular line item, would it (or could it) result in a $2 (or more) increase to the bottom line?
DFP is a rolling-basis plan. Each month, after the analyses are completed, future months' projections are revised as needed and another month is added on at the end. Effectively, the organization is consistently working with a 15- or 18-month financial planning horizon.
Benefits of DFP
- It works to eliminate bean counter logic (BCL). BCL asks only the question: "What will it cost to do xxxxx?" That is only half of the real question. Also ask: "What will it cost not to do xxxxx?"
- Focus on revenues and expenses. This is appropriate to RMA chapters and likely mirrors what they now do, to an extent. We can assume that most local organizations will review their monthly P&L as submitted by the treasurer. DFP takes this a step further by making the process proactive and involving the chapter officers/board in the analysis/decision-making process.
For more information, please contact William F. Githens, director, Membership Relations, at bgithens@rmahq.org or 215-446-4124.