Budgets and forecasts in the municipal sector

Budgets and forecasts in the municipal sector


Mikael Winander explains Effectplan to 130 visitors at Qlear’s Municipal Customer Day in Helsingborg on 1 June

Can you improve your financial planning process?

My background since 1999 as a controller and CFO has given me a perspective on work with financial planning. As I reflect on its importance in the various organisations from which I have experience, I reach the conclusion that it is most important of all in the municipal sector. There are strict demands on managers in a municipality to run their operation within a budgeted limit. This is true not least in administrative areas such as schools or healthcare. The issue here is actually to use neither more nor less than the financial resources allocated. In both of these cases the manager may be questioned.

  • If the actual financial result is worse than budget, the manager needs to explain why the operation could not keep within the budget limit.
  • If the financial result is better than budget, the manager needs instead to explain why these resources have not been used to improve fulfilment of objectives.

An inadequate financial planning process creates uncertainty. It causes many business managers to be cautious. It is considered by many to be a bigger problem to have used more than the resources allocated compared with the opposite. Financial resources that only “might” be available are often not used at all. This means, for example, that teachers or healthcare staff are not recruited. Which in turn means that the children or patients do not benefit to the extent that the politicians had actually decided on.

An effective financial planning process means that a future financial result can be predicted with good accuracy in a quick, efficient way. So what are important factors in achieving this?

  • Good quality in financial bookkeeping. Each error in the actual result of bookkeeping needs to be compensated manually. The more errors, the greater the risk that the forecast will also be incorrect.
  • Local ownership of the financial planning process.Managers close to the operation know it best. They understand how a change in the number of children in school or patients in healthcare can be dealt with. If they also feel ownership of the financial planning process, this means that intended changes are automatically included in the process.
  • Order and clarity in the key indicators. To guarantee proper focus in planning work, order and clarity are crucial when it comes to the key indicators that affect finances. They need to be quality-assured, automatically updated and easily accessible.
  • Level of ambition that allows frequent updates. A frequently updated forecast provides quick feedback. This provides the manager with financial base data that indicates any possible need for action and the scope of this. Delayed changes mean that a financial deficit becomes greater than it needed to be or that children and patients have less access to the resources allocated by politicians. The importance of a level of ambition that allows frequent updates to the financial plan is therefore significant.

Your role as the person with operational responsibility for the financial planning process at a school or in healthcare is presumably more important, more wide-ranging and more challenging than many imagine. A result that deviates by one per cent compared with total net sales is perfectly acceptable in many companies. In a business with net sales of SEK 1,000 million, this represents SEK 10 million. But this small one per cent means about 20 full-time employees in the field of schools or healthcare for one whole year. From both a political and a citizens’ perspective, it is probable that even this level of forecasting accuracy is insufficient. When you succeed in your work on the financial plan, you contribute to increased welfare, which I hope feels good.

If you’re now reflecting about your current planning process… do you feel that it can be improved?

I am grateful for the time I had as finance manager in the municipal sector and would like to pass on my experiences and insights to those of you now sitting in this role, perhaps feeling that the challenge is a big one, but an important one.

Mikael Winander, Effectplan