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Financial planning sits at the heart of good public financial management. Alongside budget preparation, performance management and stakeholder reporting, the ability to look strategically beyond the current budget period is a crucial process to support an organisation’s resilience and long-term financial sustainability.
Given the currently level of global economic uncertainty, fluctuating currency values, and the widespread pressures on public spending, it is more important than ever that public sector organisations have a thorough understanding of their financial outlook and are planning effectively for the future.
Despite, or perhaps because of, our current political, economic and resourcing challenges, taking a longer and more strategic approach to planning will provide a catalyst for future policy and development, while providing the framework against which an organisation’s budget should be produced.
Developing a medium-term financial strategy (MTFS) will help bring together all known factors affecting an organisation’s financial position and its financial sustainability into one place. This should be as wide ranging as possible and include all the assets and liabilities on an organisation’s balance sheet. It allows the finance team to balance the financial implications of objectives and policies against constraints in resources. This should in turn form the basis for decision making.
A good MTFS should provide a clear and concise view of future sustainability and the decisions that need to be made in order to address any gaps in long-term financing. It forms the pivotal link to translate the organisation's ambitions and constraints into deliverable options for the future.
The most sophisticated MTFS may use elaborate and detailed econometric and financial forecasting models to present a view of the future, while others may be more qualitative in nature in providing more basic forecasts and a description of potential variations. The key to the effectiveness of the MTFS, however, is its ability to give a clear and understandable message to decision makers on the actions that are needed to ensure long-term financial sustainability. It is for this reason that while it may be produced by the finance team, it should be owned by the wider organisation, especially by decision makers. Financial forecasting cannot be separated from project management.