A financial forecast is an estimate of future financial outcomes for an initiative or project. This guide provides basic information on forecasting as well as two examples to assist with forecasting a financial strategy in early childhood system building. Financial forecasting is the practice of projecting the quantitative impact of trends and changes in a working environment on future operations. Therefore, it is an integral part of all ongoing planning efforts. Financial forecasting is important for several reasons:
- Forecasting eases planning efforts by quantifying the future costs and benefits of strategic decisions. Thus, budgetary priorities may be evaluated based on their long-term impacts.
- Forecasting clarifies trends, needs, and issues that must be addressed and evaluated in preparing budgets. For example, enrollment forecasting may reveal growing student populations and focus attention on the need for increased resource allocations for staff, facilities, or both.
- Forecasting enhances decisionmaking at all levels of administration. Forecasts provide valuable insight into future issues, allowing administrators to be proactive. Forecasting creates the framework for anticipatory management.
Although financial forecasting should be a continuing process, it is an important component of budget development. Forecasts of projected enrollments, property tax base and revenues, costs associated with salary adjustments, and the like are important elements in setting baseline budgetary guidelines and creating the basis for assumptions used to prepare budgets. Additionally, forecasting provides fiscal impact analysis that may be integrated into the budget development process. Thus, current budgetary decisions may be evaluated for their long-term results.
To prepare for the forecasting process, several steps should be taken to ensure that reliable and useful data are gathered. The following items need to be considered:
- Clarify the intended purpose of the forecast: The prospective audience may require a certain set of data and related assumptions.
- Match the timeframe with the purpose of the forecast: Timeframes for forecasts will vary according to the purpose (in other words, type) of forecast being prepared.
- Ensure the accuracy of basic data: Original source data should be used rather than extrapolated or summarized versions. Sources should be documented and verified if questions concerning data validity arise.
- Specify the underlying assumptions: Assumptions should be explicit in the forecasts, with proper documentation based on actual data.
- Be consistent in calculations: Spreadsheet programs are recommended for preparing forecasts to ensure the accuracy and consistency of calculations.
- Examine data critically: A scan of the data may reveal anomalies or errors that could negatively affect forecasts. Further, completing a comparison of initial values and forecasted values should help ensure the reasonableness of forecasted values.
- Recognize that forecasting requires insight and intuition: Some variables or forecasting assumptions will always be a best guess. However, experience provides a basis for this type of estimation
 Miller, L., & McClure, M. (1988). Reliable School Budget Forecasts: Seven Tools That Work. School Business Affairs, 54(11), 16–19.