How can non-profits use economic forecasting to plan for the future?

Las organizaciones sin fines de lucro están utilizando los pronósticos económicos como una herramienta poderosa para proyectar su futuro y garantizar su sostenibilidad. Al adoptar un enfoque proactivo y creativo, están demostrando que ser sin fines de lucro no significa estar exento de desafíos financieros, ?sino más bien encontrar formas innovadoras de superarlos!

Spending policy should be indexed to economic indicators ?For many non-profits, including endowments and foundations, a minimum annual spending rule applies (often 5%) to maintain their tax-favored status (in the US). ?To ensure the oft-required policy doesn’t erode the investment portfolio’s principal value, the spending methodology should be indexed to an economic indicator, such as inflation. ?Regardless of indicator (PCE v CPI), the nominal dollar and/or percentage method should be indexed to inflation, and the investment portfolio can support that objective if managed correctly. ?This maintains the purchasing power of gifts that non-profits distribute to their benefactors, ensuring continued effectiveness.

Regardless of the nature of your business, nonprofit or for-profit, big or small, and your industry, anticipating key market trends is always important. For instance, you are a nonprofit fighting for green energy, so you need forecasts for energy use and green vs other energy forms forecasts to understand the size of the problem you are trying to solve. And since most market trends drive, to some extent, economic developments, you need economic forecasting as well.

As part of our Middle East-based advisory team, we drafted a financial plan for a non-profit focused on providing education to underprivileged children amid economic uncertainty. Challenges included fluctuating donor contributions and changes in government funding. We analyzed donor retention, program efficiency, SROI, government spending on education, and funding dependency. We recommended diversifying revenue streams through partnerships and grants and creating contingency plans to mitigate funding cuts. Our plan provides a roadmap for financial resilience and continued impact.

The question surprises me because it seems obviously important for any nonprofit organization to have forecasts about market and economic conditions. Fundraising is much more difficult in recession times, for instance. So, if a nonprofit wishes to have a proper financial planning, they should forecast their financial inflows and outflow, probably as a function of the economic outlook. They don't need to have forecast models for entire economy, instead relying on external forecasts for that. But they should have a notion of their future inflows and outflows to better plan their activities and projects.

Eu n?o recomendo a institui??es sem fins lucrarivos a atividade de construir modelos de projec?o econ?mica. N?o que essa constru??o seja muito difícil, mas de certo exigiria um esfor?o e expertise que, em geral, essas institui??es n?o possuem. Acho muito mais efetivo a utiliza??o de proje??es de mercado (relatório Focus divulgados pelo Bacen toda 2a feira) ou mesmo relatórios de conjuntura divulgados por institui??es financeiras, com acesso gratuíto. S?o informa??es de qualidade a custo zero, e sem desviar o foco da opera??o e propósito principal da institui??o. Já o uso dessas previs?es no planejamento interno é algo que deve ser em muito estimulado, como podemos observar nos demais topicos dessa tread...

Economic forecasting involves defining purpose and scope, collecting and analyzing data, selecting a model, and validating results. It includes considering time horizon, variables, and audience, using methods like regression analysis or scenario planning to ensure accuracy and reliability.

Through systemic thinking. Non-profit organizations, which interact with a diverse range of stakeholders, when conducting market research/economic forecasting need to consider not only isolated indicators but also the connections between them (changes in funding sources, demand for services, policies and regulatory frameworks, social and environmental factors and competition from other organizations). This approach enables a more precise understanding of economic trends and potential developments. Emphasizing the interdependence and causal relationships within the economic system allows organizations to anticipate trends and mitigate risks more effectively.

Non profits may not have stable and reliable data to perform historical analysis to come up with statistical models. Thus, initial investment needs to be done to build accurate and reliable data pipeline and use external data side by side to start forecasting.

First you need to identify what you want to predict such as the size of a market or some other KPI. Then, which other variables may be good predictors of what you want to forecast. For economic forecasting, macro conditions, demographics, and local market parameters may be important on top of any domain-specific KPI for your organization. Then you need to gather all available data for all variables both the one you wish to forecast and the predictor variables. This is easier said than done, as your may have incomplete data, low quality or non uniform information, so you might need to cleanse and harmonize your data. Finally you need to chose the right forecasting model, or use a specialized software or agency to perform the forecast.

Non-profits can use economic forecasting to identify potential risks, such as funding cuts or changes in donor behavior, and develop strategies to mitigate these risks.

An education-focused non-profit could leverage economic forecasting methodologies to project the financial implications of expanding into new communities. By scrutinizing historical data and assessing existing partnerships, they can estimate associated costs and identify prospective funding avenues with greater precision. This analytical approach enhances strategic planning, enabling the organization to allocate resources efficiently and optimize its expansion initiatives.

?Totalmente de acuerdo! El pronóstico económico es como tener una bola de cristal para las organizaciones sin fines de lucro. Pero no se trata solo de números, ?sino de trabajar juntos y ser creativos! Invitar a todos a la mesa, desde voluntarios hasta expertos en tecnología, puede agregar perspectivas frescas y soluciones innovadoras. Así podemos estar un paso adelante, adaptándonos y encontrando nuevas formas de hacer el bien en un mundo que cambia constantemente.

Al hablar de una empresa sin fines de lucro, se puede considerar una proyección en los temas que no podemos tener perdidas, caídas o simplemente números rojos. Digamos que representamos a la administración de un ancianato. Un tema sumamente importante puede ser tener un presupuesto austero para no exceder los gastos de los familiares de nuestros residentes. Estableciendo mejoras continuas tanto a residentes como a la infraestructura, de manera preventiva a fin de disminuir excesos abruptos o de emergencia.

A non-profit focused on education might use economic forecasting to plan for expansions into new communities, anticipating both the costs involved and potential funding sources based on past trends and current partnerships.

Non-profits can employ economic forecasting to anticipate future financial trends, aiding in strategic planning. Firstly, gather historical data on donations, grants, and expenses. Utilize forecasting tools or experts to analyze economic indicators, like GDP growth or unemployment rates, which impact donor behavior and funding availability. Forecasting helps predict potential funding fluctuations, allowing non-profits to adjust fundraising strategies or allocate resources efficiently. Regularly reassess forecasts to adapt to changing economic conditions, ensuring the organization remains financially resilient and can continue its mission effectively.

Forecasts, while not predictive guarantees, are informed estimates drawn from available data and assumptions. Non-profits should view forecasts as strategic planning aids rather than replacements for judgment and creativity. Scenario analysis helps them explore potential futures, test strategy resilience, and identify optimal or challenging scenarios. Sensitivity analysis assists in understanding forecast uncertainty and variability, evaluating the impact of different factors or events. Gap analysis measures variances between forecasts and actual outcomes, aiding in performance evaluation and adjustment of actions or expectations.

As organiza??es sem fins lucrativos podem utilizar previs?es econ?micas como uma ferramenta estratégica para planejar seu futuro. Ao analisar indicadores como taxas de infla??o, desemprego e crescimento econ?mico, elas podem antecipar tendências e ajustar suas estratégias. Isso possibilita uma melhor gest?o financeira, permitindo que as organiza??es se preparem para períodos de instabilidade econ?mica e aproveitem oportunidades de crescimento. Ao integrar análises econ?micas em seu planejamento estratégico, as organiza??es sem fins lucrativos podem aumentar sua eficiência, impacto e sustentabilidade a longo prazo.

It's worth stressing that predictive model exploit dependence patterns in the data, but they are not designed to establish causality.

Com base em previs?es econ?micas, as organiza??es podem ajustar suas estratégias de capta??o de recursos para alinhar-se melhor com as tendências econ?micas projetadas. Por exemplo, em um cenário econ?mico otimista, elas podem buscar doa??es mais agressivamente, enquanto em um cenário desfavorável, podem focar em estratégias de reten??o de doadores e eficiência operacional.

Forecast should be amendable to changing economic realities to ensure robustness. Data collection on merging realities (variables or factors) should be done as soon as practicable to improve the accuracy of forecasts.

Use a mix of hard data with a dash of human insight. Using tech to crunch numbers helps, but understanding people's feelings & societal trends adds that extra accuracy. It's about finding the sweet spot between what the data says and what human behavior suggests to keep our predictions forward-thinking.

There are many strategies for improving forecasts. Feature engineering (or variable selection) always payoff regardless of the methods you are employing. Another almost sure bet is model and forecast combinations.

Non-profits can leverage economic forecasting to make informed decisions and plan for the future effectively. By analyzing economic trends, such as GDP growth, inflation rates, and employment levels, organizations can anticipate changes in funding, donations, and demand for their services. This enables them to adjust their strategies, allocate resources efficiently, and implement proactive measures to mitigate potential risks or capitalize on opportunities. Economic forecasting empowers non-profits to adapt and thrive in an ever-changing economic landscape while fulfilling their mission impactfully.

Melhorar as previs?es requer uma abordagem cuidadosa e a utiliza??o de métodos mais avan?ados e precisos. Aqui est?o algumas estratégias para aprimorar as previs?es: Coleta de Dados de Qualidade Utiliza??o de Modelos Avan?ados Valida??o Cruzada Melhoria da Granularidade dos Dados Monitoramento Contínuo Envolvimento de Especialistas Setoriais Avalia??o de Incertezas Feedback e Aprendizado Integra??o de Tecnologia Lembre-se de que a melhoria contínua é um aspecto crítico das previs?es. Ao implementar essas estratégias, as organiza??es podem aprimorar a precis?o e a utilidade de suas previs?es ao longo do tempo.

Non profit organizations may defer in their essentials as the organizational spectrum goes, but ultimately, they should be regarded as businesses with no exceptions. When it comes to forecasting and its many aspects as well as defining frame works and scopes and analyzing different scenarios for the future, they should also not forget about the networking side of the business and taking it into account as well. There are many numbers and risks in which you can bring in your charts and tables but perhaps the most important factor that you can't bring in so easily when it comes to historical data is how you've managed the business so far and how strong your network actually is as it determines the effectiveness of your forecasting process.

Forecasting is a vital skill for any organization looking to navigate the future with confidence. Here's how to refine your approach: 1. Leverage Historical Data: Dive into past performance to spot trends and inform future decisions. 2. Stay Current: Keep a pulse on industry shifts and economic signals to anticipate changes. 3. Embrace Methods: Utilize trend analysis, scenario planning, and zero-based budgeting to cover all bases. 4. Tech Integration: Implement forecasting software to bring precision to your financial planning. 5. Strategic Planning: Align your forecasting with organizational objectives for a clear direction. 6. Best Practices: Adopt proven budgeting and forecasting techniques to stay on track.

Non-profits can leverage economic forecasting to make informed decisions and plan for the future effectively. By analyzing economic trends, such as GDP growth, inflation rates, and employment levels, organizations can anticipate changes in funding, donations, and demand for their services.

Performing and using the forecast is just one step of the process. Since no forecast is 100% correct, you need to evaluate your forecast’s accuracy and offer a min-max range. The latter is important and is usually referred to as a prediction interval presenting the uncertainty around your forecast. One of the best ways to evaluate your forecast is what we call out-of-sample testing. Let's say you have 100 data points. Instead of using them all for training your forecasting model, you use just a part (eg 80 points, the in-sample) to train your model and then you forecast and compare against the remaining data (20 in our example, the out of sample) and test for accuracy. If the accuracy is great then you have a great model!

Es importante que los pronósticos y previsiones no sean solo individuales o sectoriales. Las ONG son actores en un mundo económico globalizado, por lo que tener en cuenta el contexto económico general y las dinámicas del resto de agentes y organizaciones es imprescindible para entender como esa interrelación afecta a la economía propia.