Key Actions by:

Standard 13: Effective financial management during project implementation.

Achieve financial consistency, accountability and stewardship through adequate, continuous financial planning, monitoring, controls and reporting.

Prepare annual and quarterly financial projections based on the updated detailed implementation plan.

  • Why

    Preparing regular financial projections of expenses and cash needs helps project and other budget managers to ensure sufficient resources are available for implementation when they are needed. Accurate expense forecasting is fundamental to the ongoing budget comparison and analysis that is at the heart of effective project financial management. Forecasting enables project/budget managers to identify likely under or over-spending that may impact the project’s ability to meet commitments to project participants and donors, and to adjust project plans accordingly.

    Given risks such as currency conversion loss that are inherent in the work of a global agency like CRS, preparing timely and accurate expense and cash projections also helps CRS manage the resources entrusted to the agency in a responsible manner that reflects CRS’ commitment to stewardship.

  • How

    Follow these steps to develop accurate financial projections:

    Annual Budget Projections: Annual Program Plan (APP) (click here to advance to the steps for quarterly forecast projections)

    1. The country program senior management team (SMT) develops an internal plan to coordinate the inputs required for APP preparation. The plan should specify information needed for each DSPN, the person responsible for gathering that information, and the deadline for providing it.

    • Click here for a list of Tips for coordinating APP inputs.
      • Develop a spreadsheet summarizing APP information requirements for each project (see the Example Country Program APP Inputs Spreadsheet).
      • The spreadsheet should include, at minimum: DSPN, project title, FY budget amount or estimate (if known), project implementation period during the FY, and the budget manager responsible for preparing APP inputs.
      • Other useful categories include: number of kilometers estimated to be driven over the implementation period, projected staffing/staff changes, square meters of space occupied by these staff, number of direct and indirect beneficiaries (without double-counting between donor sources), and the program area.

    1. Using exchange rate and inflation projections provided by the FM, the budget manager for each project DSPN begins projecting “direct-direct” expensesDirect-direct costs are costs associated specifically and entirely with a proposed project. These include direct labor, direct materials and supplies, direct sub-awards and consultants, direct travel, and other direct costs. The costs in this tier are entirely dependent on the project design. for the year, by month and account code. The budget manager focuses on project materials, travel, partner expenses, contractual and other relevant direct-direct costs. For more information on cost categories, see CRS Cost Guidance in “Other Resources” below.
    • For externally-funded projects, in most cases, the annual budget projections process involves converting existing and projected award budgets from the project year to the CRS fiscal year (see Questions to Guide Budget Updates and Steps for Converting Donor Budgets to Budgets for CRS’ Financial System). It can also entail projecting follow-on obligations that have not yet been finalized.
    • While the budget manager is not responsible for projecting costs related to project staffing, cost allocation, or indirect cost recovery, collaboration with the FM/HoOps will help the budget manager understand the assumptions for these projections and ensure the budget manager has the full picture of anticipated project expenses. 

    Be sure to forecast expenses in the correct month: Budget managers must forecast expenses under the month in which the cost will be incurred and payment made.Keep in mind that it may take longer for invoice submission and payment processing during widely-observed holiday periods (due to CRS and vendor staff leave) and at the start of the new fiscal year (due to finance’s year-end close commitments).  For example, the project team rents a training venue for a training in late October, but CRS pays the vendor upon receiving the final invoice in November. The training venue rental expense should be forecasted for November. Expenses related to goods for distribution (commodities or other) are an exception: as noted under step 3 below, expenses associated with distributions (including the value of the goods) should always be budgeted in the month(s) CRS expects to distribute the goods.

    1. As needed, the budget manager works with procurement to determine current market rates for key supplies and equipment to be procured, and with supply chain staff to develop accurate projections for distribution-related activities.
    • If purchases planned during the year include fixed assets, check with the FM to ensure proper treatment and inclusion of depreciation if/where applicable.
    • If the project includes distribution of goods to participants, the budget manager works closely with supply chain management staff to develop annual budget projections. Calculate costs and timing for commodities or other goods, freight, other transport, and distribution. Budget expenses associated with the distribution of these goods (including the value of the goods) in the month(s) the goods are expected to be distributed. If there will be multiple distributions, estimate values based on the quantity planned for distribution each month.
    1. Operations staff calculate the remaining project costs to complete the project financial projection (FM for project personnel costs and indirect cost recovery, and HoOps for project cost allocation).   
    2. The HoP and HoOps review the total amounts projected, using the Budget Reviewer Checklist included in the APP guidance.
    3. The CR reviews and approves the final draft APP before regional finance officer review.

    Quarterly Forecast Projections: Cash and Expense Forecasts

    Note: At the start of the fiscal year, the country program’s overall budget and/or individual project plans will have changed from the budgets and plans used for APP preparation. This is often due to donor decisions on proposals submitted, budget amounts carried-over from the previous fiscal year for externally-funded projects, or DIP updates (see Standard 11, key action 4). In such cases, senior management and budget managers follow the process outlined above to forecast fiscal year expenses in eBudget or (for new projects) directly into a budget template form (BTF) (see Standard 8, key action 4). If forecasts are not updated, budget-versus-expense analysis and related project management decision-making will be more difficult.  Note that updates to cash and expense forecasts should be made continuously as proposals are won or lost and award modifications are made.

    Cash forecasts versus expense forecasts: For an overview of the differences between cash and expense forecasts, see What’s the Difference? A Comparison of Cash and Expense Forecasts.

    1. The budget manager reviews expenses to date in the most recent BCR.

    • Click here for a list of Key points to analyze as part of BCR review.
      • Analyze variances, including whether any activities that occurred in the previous period have not yet been expensed as of the end of the quarter; if so, the costs associated with these activities must be included in the new quarterly cash forecast if they are to be paid by the country program.
      • Analyze monthly expenses for project personnel and cost-allocation. Although finance will prepare the final forecast numbers for these cost categories, budget managers must analyze trends to determine the impact of these monthly costs on resources available for programming activities and other direct-direct project expenses. If trends indicate that personnel or cost-allocation expenses will be significantly under or over budget, budget managers must adjust direct-direct spending accordingly to ensure effective management of project resources and scope.
      • Analyze commitments, to ensure that outstanding commitments like purchase orders are considered in expense and cash forecasting and overall budget management.

    1. The budget manager also reviews the most updated detailed implementation plan (DIP) to identify activities planned for the upcoming period, including any supply chain management and staffing-related activities.

    • Click here for additional Tips for using the DIP in cash forecasting.
      • Procurement activities: For any planned purchase of supplies, equipment or other goods, the budget manager or PM/CoP consults with procurement staff to confirm updated unit prices/market rates.
      • Distribution activities: For projects with goods for distribution, the budget manager or PM/CoP and supply chain management staff review the distribution plan, dispatch plan and transport schedules, which guide forecasts for distribution-related expenses (see Standard 12, key action 1 for guidance on supply chain management planning).
      • Human resources activities: If project staffing changes are anticipated, the budget manager or PM/CoP consults with human resources to confirm the changes and timing. For example:
        • The project team needs to recruit staff to fill a vacant or newly-approved project position. The budget manager or PM/CoP consults with human resources to confirm the staffing needs and likely timing for finalizing recruitment.
        • The project is entering the close-out phase and has planned for progressive staffing reductions within the large project team. The PM/CoP confirms these arrangements with human resources.

      Based on these discussions with the budget manager or PM/CoP, human resources staff provide the FM with the necessary information to forecast salary and benefits.

    1. Using the analysis from steps 1 and 2, the budget manager develops updated financial projections for each project DSPN by month and account code for the remainder of the fiscal year (see Steps for Converting Donor Budgets to Budgets for CRS’ Financial System).
    2. The budget manager uses the projections by month and account code to prepare quarterly forecasts. 
    • For the cash forecast, the budget manager subtracts from the projection any costs not paid in-country – i.e. ICR, expatriate staff salaries and fringe benefits, international travel paid through CRS’ travel agency, and payments to be made by CRS HQ or another country program. After making these adjustments, the budget manager submits the total monthly in-country cash requirement for each project DSPN to finance (typically using the Cash Forecast Template), along with the estimated number of kilometers to be driven each month, to facilitate the calculation of vehicle pool costs. 
    • For the expense forecast, the budget manager or other designated individual enters the revised direct-direct project activity costs in eBudget.The budget manager enters this information into either the “Forecast” or “Expense” sheet depending on the level of detail.

    Forecasting cost allocation expenses: For projects entering their final phase, the FM ensures that no cost allocation expenses are forecast beyond the project end date/award expiry. As soon as the project reaches the project end date/award expiry date, the cost allocation tool is automatically turned off to avoid any subsequent cost allocation charges to the project. Finance manually processes any cost allocation adjustment entries that are needed after the project end date/award expiry date.

    1. The HoP, HoOps, and FM review the budget manager’s cash and expense forecasts; the budget manager revises the projections as needed based on feedback.
    2. For quarterly expense forecasts, the FM prepares an analysis of the revised expense forecast against the Board-Approved Budget, using the Financial Analysis, Action, and Communication Tool (FAACT).
    1. The country representative reviews and approves final projections and the FAACT (for the quarterly expense forecasts) before submission to the region or HQ.
  • Partnership
    • The budget manager must include partners’ cash needs and spending projections in all project cash and expense forecasts.
    • CRS should accompany partners to prepare and update their own cash and expense projections, and regularly analyze cash balances and spending plans (see also Standard 13, key action 3).
    • Open and timely communication between CRS and partners about any changes in partners’ DIPs, including the timing of activities is very important, as partner-level changes will impact CRS’ forecasts. While quarterly project review and planning meetings are one opportunity for this communication, emphasize to partners the importance of timely communication about significant changes as they arise.
  • When CRS is a sub-recipient
    • Follow the same process when CRS is a sub-recipient.
  • Emergency projects
    • The fluid nature of emergency responses, particularly for rapid onset emergencies, necessitates frequent revisions to expense forecasts and projections of cash requirements. Although preparing quarterly cash and expense forecasts is still required, monitor and adjust forecasts as frequently as needed in emergency contexts. 
    • For cash forecasts in emergencies, the senior management team may establish a cash buffer amount to include each month or quarter, to ensure sufficient funds in-country for emergency purchases.