Planning for Institutional Development and Developing Budgets and Financial Management Systems (Foundation Building Best Practice Study Excerpt)

This section lays out issues related to strategic planning by the Foundation for Community Development (FDC) and illustrates the development of budgets and financial management systems by the Philippine Business for Social Progress (PBSP). Also explored here is the financial reporting system set up by the Esquel Ecuador Foundation (FEE) for their grantees.

Example 1: Strategic Planning Process
Foundation for Community Development (Mozambique)
Example 2: A Financial Planning Package
Philippine Business for Social Progress
Example 3: Financial Guidelines and Procedures for Grantees
Esquel Ecuador Foundation

Why Plan for Institutional Development?

Summary Points

Having an institutional and financial strategic plan can guide the foundation's development over the long-term. The FDC went through a strategic planning session two years after it was founded to focus its programs and overall goals to fit the new political and social needs of the country. Strategic planning helped it to prioritize its institutional vision over the long-term rather than ad hoc programs with only short term considerations.
Preparing a strategic plan can allow for staff and board to be involved in the process of long-term thinking about the foundation. This can create a feeling of ownership of the vision of the organization for the staff and board.
Creating a five year budget plan can help set the parameters for annual budgets. PBSP goes through a strategic planning process every five years which includes the preparation of a five year budget. The plan it develops is flexible and reviewed constantly to account for changes and adjustments. This allows the staff and board to work within set targets.
Having detailed financial reporting guidelines for grantees can help ensure high standards. FEE has a detailed financial reporting system set up for its grantees. The stringent guidelines help ensure high standards of financial reporting. FEE also provides technical assistance to grantees that require assistance in meeting the reporting criteria, which is meant to build their capacity for accountability and transparency.

Guided by its mission, Mozambique's FDC has created strategic plans to facilitate the foundation's work. Within the context of what it plans to accomplish -- economic and social goals as part of their programs -- FDC has taken care to also make plans for its own organizational development so it can better meet its goals. Such planning is an on-going process that should be evaluated as the organization develops and new community needs arise. The strategic plan can help define the foundation's needs in terms of funding, expertise and staffing requirements.

Part of a strategic plan is also developing a financial plan that will enable the foundation to carry out the envisioned program and organizational development plans. The Philippine Business for Social Progress has developed a systematic procedure in creating a financial budgeting structure.

When Should Foundations Plan?

Apart from going through intensive planning sessions when their foundation is created, foundation leaders should constantly be reassessing the needs of the community it serves, the strengths and weaknesses of the staff, the financial sustainability of the foundation and the impact of programs on the community. Foundations may choose to strategically refocus their programs, their staff structure, governance structure, or any other aspect of the organization as they grow, as demands and needs change, or as the political or economic context within which they work alters. In the case of the PBSP, the five year financial plan is flexible and refined annually, semi-annually and quarterly.

What Are the Considerations Foundations Should Be Aware of When Deciding to Go Through a Strategic Planning Exercise?

Usually, when an organization is going through a strategic planning process, the staff and Board members are involved in several discussions sessions over varying periods of time. Some organizations such as the FDC, whose strategic plan is featured in this chapter, decide to hire outside consultants to guide the process and put together the final documentation. Others may choose to carry out the planning internally. The organization may decide to focus only on program planning or institutional building rather than every aspect of the organization. These decisions depend on the specific needs and internal staff and board capacity of each organization.

The example from the FDC outlines the methodology used in the planning sessions as well as the outcomes of the discussions.

What Is the Purpose of Having a Financial Management System?

Just like any other nonprofit organization or business, a foundation should have a comprehensive way to keep accounts of incoming and outgoing funds. The budget should reflect the expected costs for running the foundation and for operating programs. The budget can be altered as situations change such as unexpected increase in costs or unusual success in fundraising.

A budget is necessary in fundraising efforts. Transparency in accounting is also sought and expected from foundations by donors. A foundation that gives grants also needs to have a standard guideline with clear reporting instructions that their grantees can follow when reporting on the grant. It can be expected that after operating over several years, a foundation's budgetary projections will become more accurate.

Who Is Responsible for Designing the Budget and Maintaining the Financial System?

During the early stages of organizational development, the Board and staff will need to draw up a budget estimate of operating costs required to run the foundation. The Board will also have to define the policies of financial management such as compensation for staff, travel advances, petty cash and other items. The Finance Manager or Accountant usually takes the responsibility for day-to-day account keeping. FEE also designed a comprehensive financial reporting system for their grantees to follow.

This section draws on the experience of two foundations with established financial management systems.