Not-for-profit business, like for-profit enterprise, involves strategic purpose and method. Rarely does any organization thrive, much less survive, by aimlessly diving into activities intended to change the world. All businesses require planning. Furthermore, all businesses need capital to operate. The development of sound financial planning is essential to the success and flourishing of every organization.
Strategic planning often occurs best in the context of meetings designed exclusively for that purpose. A board represents not only the ultimate leadership of an organization; it also represents a significant brain trust. It is an ideal source of original thinking oriented towards the development of strategic plans. Therefore, boards, or their designated committees, constitute the ideal “think-tanks” from which organizations can establish strategic direction.
Effective strategic planning involves an analysis and understanding of the environment, both internal and external, in which an organization operates. Internally, a board must identify and understand its organization’s strengths and weaknesses. This can be tricky, in part, because boards are so close to the action. Even though they may know these characteristics, articulating them can occur more accurately and completely through the engagement of a planning consultant or facilitator.
In addition, boards and planning committees need to understand the external environment. They need to identify opportunities within the marketplace as well as the threats that might arise from regulatory, technological and competitive environments. Again, the use of a consultant to help guide a board in its thinking and understanding of these opportunities and threats can help immensely in creating an “environmental canvas” upon which strategic alternatives can be identified and developed.
A consultant can also greatly facilitate an exchange of ideas about alternative courses of action. At some point in every planning process, the planner must analyze the potential benefits and costs of alternatives. Organizations are usually ill-equipped to flesh these things out due both to a scarcity of time and expertise. Ultimately, as an organization hones its vision and strategy, it needs to tie financial implications to it in the form of a financial model and plan. Alternatives not only need financial projection; they also need to be developed in the context of a sensitivity analysis. Inherently financial projections involve best guesses about outcomes that can only project approximations of the future. Therefore, variations in both fixed and variable income and costs require boards to choose courses based not only on opportunity, but also based upon an understanding of financial risk.