Best Practices in
Strategic Financial Forecasting
Brett Matteo
The PFM Group
Kevin Hyatt
UNC – Charlotte
Session Etiquette
• Please turn off all cell phones.
• Please keep side conversations to a minimum.
• If you must leave during the presentation, please do so as quietly as
possible.
• Thank you for your cooperation!
2
Framework for Discussion
• Overview of the PFM Group
• Overview of the proposed engagement
• Demonstration
• The implementation process
• Illustrative pricing
• Why strategic financial forecasting?
3
Overview of the PFM Group
Public Financial Management, Inc.
Financial advisory services
•
Public Financial Management, Inc. (PFM)
provides independent financial advisory
services
 General government
 States
 Cities
 Counties
 Local governments
 Utilities
 Water
 Wastewater
 Power
 Gas
 Transportation
 Toll roads
 Transit agencies
 Airports
 Ports
 Healthcare institutions
 School districts
 501c(3)’s
•
#1 ranked financial advisor for debt
transactions for 15 years
5
PFM Asset Management LLC
Investment management services
•
Experience
 33 years of asset management experience
 $49.9 billion of assets under management
•
Specialties






•
Fixed-income strategies
Cash and short-term asset management
Bond proceeds management
Arbitrage rebate management
Derivative products strategies and procurement
Multi-asset class investments
Success
 Long record of performance in excess of
benchmarks
 Successfully navigated the credit crisis
 Completely avoided defaulted credits, SIVs,
subprime mortgages, CDOs, auction-rate
securities
6
Higher education finance
•
The PFM Group is the #1 advisor to higher
education institutions

•
All types of institutions

Colleges

Universities

University systems

Community colleges

Community college systems

Public/private

Large/small
Our financial advisor provide analysis and
advice in a fiduciary capacity

Capital structure development

Financial risk management

Transaction structuring, pricing, and
optimization

Credit management
7
Overview of the Proposed Engagement
The problem
•
At most colleges and universities strategic
forecasting is often difficult and inefficient
 Complex (multi-variable, multi-order) relationships
among key variables
 Data is often scattered among single-focus models,
accounting systems, ERP systems
 Difficult to project a Statement of Net Assets
 Difficult to track Net Assets
 Most institutions are resource constrained
•
Mission-level questions from key stakeholders
(Board, President, investors, rating agencies) take
days, weeks, or even months to answer
 Answers are not comprehensively determined and
are often uni-dimensional
 Staff is inefficient in providing the answers because
there is no single institutional analytical approach
•
Stakeholders should be able to get nearly
immediate feedback on key strategic questions
An institution’s strategic plan should be
crossed against a reliable business plan
(with supporting sensitivity analysis)
9
The solution
• The PFM Group provides strategic
forecasting services
 Comprehensive
 Fully-integrated
 Customized
• Permits institutional users to quantify the
strategic ramifications of changing
operating variables, operating initiatives,
capital initiatives, and funding
alternatives
Single institutional point of view
10
The value proposition
• Future Perfect is not a software, system, platform, or tool
• Future Perfect is an ongoing Consulting Relationship
PFM becomes your
financial modeling staff
 Primary deliverable is an Excel-based projection model, but the Value
Proposition is NOT in the model, it’s in the service
• Future Perfect is a simple but elegant modeling architecture
 Permits efficient manipulation of structural elements to mimic client business
models and ongoing changes thereto
• Efficient customization
• Efficient support
• Future Perfect is a modeling discipline
 Fastidious application of modeling rules mitigates risk
• Future Perfect staff add value 3 ways:
 Understanding of your business (your vocabulary)
 Understanding of your accounting (GASB)
 Providing world-class modeling services (fast, smart, efficient  advice)
11
Customized projection logic
• Establish relationships among the hundreds of interdependent
operating, capital, and financial variables, including:
 Student revenues
 Enrollment/retention
 Pricing
 Financial aid
 Employees
 Salaries
 Benefits
 Sponsored research
 Appropriations
 Foundation(s)
 Non-personnel expenses
 Capital projects
 Facilities and deferred maintenance
 Debt
Future Perfect is offered as an ongoing
Consulting Relationship
NOT Software
12
Customized dashboard and outputs


Cross-walk to SRECNA
Financial ratios and other metrics

Rating agency ratios (benchmarked)

Moody’s Scorecard

Composite Financial Index (CFI)

Facilities Condition Index (FCI)

Other in-house or mandated metrics
Return on net assets
15%
10%
5%
0%
-5%
-10%
-15%
Current
Base 1
Base 2
A1-rated
Aa3-rated
Peer group
Calculated metric should exceed
target comparable
13
FY24
Others (e.g., auxiliaries, research)
FY23

FY22
Institution
FY21

Base 2
FY20
Cash-based budget statements (P&Ls)
Base 1
10%
8%
6%
4%
2%
0%
FY19

Statement of Cash flows
Annual operating margin
FY18

Current
10.0
8.0
6.0
4.0
2.0
0.0
FY17
SRECNA
Expendable financial resources to direct debt
FY16

Base 2
0.0
FY15
Statement of Net Assets
Base 1
1.0
FY14

Current
2.0
FY13
GAAP-based financial statements
Base 2
3.0
FY12

Base 1
4.0
FY11
• Customized outputs
Current
5.0
FY10
• Customized dashboard-driven variables and
assumptions
Expendable financial resources to operations
FY09
• Projection model mimics the institution’s
business model
No black box
•
Future Perfect becomes the projection
model you would build internally if you
had the time, expertise, and resources
 Unlimited users (no seat licenses)
 Unlimited copies
•
Expendable resources to debt
Current
Base 1
Base 2
18.0
16.0
14.0
12.0
10.0
8.0
6.0
4.0
2.0
Conduct rigorous analysis and provide
immediate feedback on the short- and
long-term impact of strategic choices
0.0
Debt
New money
Refundings
Existing debt
500M
400M
300M
200M
A1-rated
Aa3-rated
Peer group
Future Perfect resides on your computer(s)
14
FY24
FY23
FY22
FY21
FY20
FY19
FY18
FY17
FY16
FY15
FY14
FY13
FY12
0M
FY11
100M
FY10
Engage stakeholders in quantitativelysupported discussions, brainstorming
sessions, and consensus-building
exercises
FY09
•
Ongoing consulting services
• PFM staff supports the institution in the use of
your Future Perfect model
 You define the questions of the day at your
institution
 You conduct the analysis needed to answer those
questions using the Future Perfect model(s)
residing on your computer(s)

Develop the analytical approach

Manipulate assumptions

Change data

Conduct sensitivity analysis
 You interpret the results
• PFM ensures your Future Perfect model is
structurally capable of supporting the analysis
you define and answering the questions you pose
Direction
Aspirations
Strategy
Vision
Possible
Future
Scenarios
Constraints
Financial
Human
Space
PFM becomes your modeling staff
15
Demonstration
The Implementation Process
Customization process
• The Customization Process is well-conceived and quickly results in a fully-integrated view of the
institution’s prospective strategic/financial position
Initial
Assessment
Design
Process
Customization
Process
Delivery
Ongoing
Preliminary analysis
Meeting 1
(design session)
Revenues/expenses
Meeting 2
(training)
Periodic updates
Webinar I
(assessment)
Webinar II
(Designer Workbook)
Debt/investments
Punch List
Annual rollover
Data request
1st draft of
Final Design
Webinar IV
Ratios
Projects
Pre-load data
Receive and load
requisite data
Dependencies/Dashbo
ard/ Projects
Projects
Ratio analysis
Base Model
Webinar III
(Designer Workbook)
Webinar V
Webinar VI
Structural changes
Initial Design
Final Design
Preliminary Model
Final Model
Help and support
18
Approximate timeline
Week
Initial
Assessment
Design
Customization
Delivery
• Preliminary analysis
• Webinar I -- Assessment
• Initial Assessment
• Receive and pre-load requisite data
• Base Model
1
2
3
4
5
6
7
8
9
10
11
12
13
14
• Meeting 1 -- Design Session (in Philadelphia)
• Webinar II – Preliminary Designer Workbook
• 1st Draft of Design Specification
• Receive requisite data
• 2nd Draft of Design Specification
• Webinar III – Final Design
• Build students, grants, gifts, auxiliaries
• Build employees, expenses, facilities
• Build investments, debt, covenants, ratios
• Webinar IV – Accept design to date
• Build dependencies, dashboard, projects (2)
• Webinar V – Accept Preliminary Model
1
2
3
4
5
6
7
8
9
10
11
12
13
14
1
2
3
4
5
6
7
8
9
10
11
12
13
14
1
2
3
4
5
6
7
8
9
10
11
12
13
14
• Upload to Citrix server
• Meeting 2 -- Training Session (on campus)
• Develop and complete Punch List
• Ratios update
• Build remaining Projects (4)
• Webinar VI -- Accept Final Model
19
Why Strategic Financial Forecasting?
Why PFM Consulting Services?
• Better decision making

Comprehensive and integrated analysis

Prospective analysis (beyond immediate and impending budget year)
• Better capital budgeting

Considers timing, cost, funding on integrated multi-year basis

Better assessment of affordability

Better allocation of scarce resources
• Better communication

Within the institution

With Trustees

With outside stakeholders (e.g., accreditation bodies, rating agencies, investors)
• Better oversight and control

Proactive management
• More transparency
21
Questions & Answers
22
Thank You!
Brett Matteo
The PFM Group
matteob@pfm.com
(215)557-1491