Can a Sketch Work Better Than a Financial Forecast?

Business, financial, and operational professionals love concepts related to financial forecasts. It is our way to view an abstract complicated plan in terms of dollars and the impact on resources both positive (surpluses – add to resources) and negative (deficits – use of resources). But outside our inner circle, forecasts are often viewed with misunderstanding, trepidation, and sometimes even fear. Taking a “sketch” approach can help people to embrace financial forecasts, enhance engagement, and be more confident with planning for new projects and efforts.

At a basic level, a financial forecast is a fiscal and financial management tool that attempts to model future financial outcomes. A financial forecast can be prepared for almost anything, such as planning for a new small project, a general growing of operations, or adding major strategic partnerships, or just to prepare multi-year budgets for different scenarios to see how potential future efforts will impact financial resources.

This sounds straightforward, but people have a general anxiety of numbers, and a forecast sounds like numbers on steroids. To address these anxieties, consider taking a sketch approach, replacing the word forecast with the word sketch.

The word “sketch” conjures images of a rough draft, informal pencil drawing, or outline, all of which appear softer and less rigid and complicated than a forecast. These visualizations can be used in two ways: (1) to simplify and focus your financial modeling; and (2) to lower temperatures and raise engagement.

Financial forecasts are always a guess, often using complicated modeling assumptions in attempts to make the guesses more accurate. Aim to simplify the process by focusing on just one or two key assumptions, “sketching out” a financial calculation based on these assumptions. Keep the sketch centered on the new or major changing circumstances, showing expected outcomes resulting from the key assumptions.

Next, use this lower key approach to engage individuals in the process, asking them for reactions, comments, and even their opinions related to the sketch. Referring to the simplified forecast as a sketch will lessen hesitations to engage.

A quick story. An arts therapy nonprofit that was weighed down by legacy programs and operations was hesitant to explore making changes. After meeting with the Board and talking to the treasurer, one point of emphasis kept popping up. The Board of mostly artists was petrified of reviewing and discussing financial forecasts. During our discussions, the treasurer commented that the forecast is just a sketch of future possibilities. The light went on. We immediately started calling the forecast a sketch. Barriers to engagement just melted away. Artists are always sketching out their future artworks.

Planning Tip – When preparing and discussing financial forecasts, make sure to focus on the purpose for the forecast, and spend less time on explaining and defending the process. Financial forecasts are so much more effective when a strong recognizable purpose is guiding the effort. A clear purpose sharpens discussions related to goals, conquering challenges, and improving performance. Without a clear purpose, it will be difficult to navigate the seemingly random and infinite array of options. This can become an obstacle in and of itself and make it almost impossible to identify an effective course of action.

It is OK to think about your financial sketch as a simplified and condensed financial forecast. Hesitancy will disappear, engagement will increase, and new ideas will flow.

Originally published at https://institute.uschamber.com/blog by the U.S. Chamber of Commerce Foundation, Institute for Organization Management.