Getting Started with Portfolio Analysis

Risk and Resilience: The Portfolio Approach to Fiscal Sponsorship, Part #2

[Note: This series was co-written by Josh Clement and Schulman Consulting. For more on Josh, click here or scroll to the end of this post.]

Welcome back. In the first post of this series, we discussed different ways that fiscal sponsors manage their budgeting and planning, especially as it relates to projections for the coming year(s). We left off with some cliffhanger questions that really get at why we do this work in the first place:

• Which projects are likely to grow and why?
• And when they grow, how likely are they to continue growing?
• And how does all of this impact whether or not they are going to stay under fiscal sponsorship at your organization?

Being able to answer these questions will help us confidently answer these two larger questions:

• How can we meaningfully project our revenue for next year?
• And what are the implications of that for our organization?

These are essential questions for a fiscal sponsor’s budgeting and planning process and the answers determine how a fiscal sponsor can staff its own organization to support its fiscally sponsored projects.

Aim too low, and staff may be overwhelmed by the high volume of work and the ability to serve projects well may decrease due to low staffing capacity. Aim too high and you may have to cut staff as revenue fails to meet expectations.

The problem is that these questions are incredibly difficult to answer due to the fiscal sponsorship business model. And to accurately answer them, you’ll need to know:

• Which projects will grow and by how much?
• Will any projects lose revenue and by how much?
• Will any projects leave?
• How much revenue should be expected from new projects?
• How secure is each project’s revenue stream?

Due to the complexity of accurately projecting budgets for a plethora of small projects, most organizations rely upon year-to-year revenue growth to project for the future. However, this can often cause an overestimation of growth projections that can create inflated budgets when revenue does not cover expenses.

As we talked about in the first post in this series, a flat growth projection may work in most years, but fiscal sponsors incur financial risks unless they are able to create more accurate financial projections.

But organizations can more accurately evaluate their past growth and plan for the future by examining their past financial data. This can be accomplished by following this guideline for financial analysis.

Ready to get your hands dirty? Let’s go…

Gathering and Organizing the Data

A) Organize Annual Revenue by Project

You can’t manage what you can’t measure. Like any other enterprise, a financial analysis of your fiscal sponsorship program requires data in order to effectively measure the past to project for the future.

You (hopefully) have most of this data readily available. To get started, you just need yearly revenue totals for each project for the past few years. This is then assembled in one document, so each project’s yearly revenue is tracked year to year. This should look something like this:

Table 1 – Yearly Revenue Tracking Document

Truth be told, once you have a table like this, it’s likely to raise more questions than it answers — and that’s a good thing:

“How did Project A’s revenue jump so much in the last year?”

“What happened to Project B?”

“What caused the turnaround for Project G?”

You and your team likely already know the answers to these questions individually, but you may have not looked at them in the aggregate and seen the trends that may be emerging. That brings us to the next step…

B) Digging Deeper

While this yearly-revenue tracking is a good start, you can go even deeper when you pull in each project’s revenue breakdown. This will allow you to see how certain projects are more reliant on foundation funding, or that “high-growth” projects typically grow due to increased government funding.

When we pull in this kind of data, we can break things down in a few different ways:

Table 2 – Project X Revenue Type by Year

Table 3 – Projects Revenue Type in Year X

Table 2 gives you insight into why a project may be growing or declining, year over year. And Table 3 can be used to find commonalities in revenue types between types of projects, such as in this case with projects with revenue above $1 million.

Are we having fun yet?

At this point, hopefully you’re seeing some patterns among your projects. And in the final post in this series, we’ll get into applying further categorization to your projects and how that can get us closer to our goal of understanding how we can meaningfully project our revenue for next year and what are the implications of that for our organization.

About Josh Clement: Josh Clement is the former Grants and Development Manager at Strong City Baltimore. While at Strong City, he designed a new approach to financial analysis, which he has since brought to others in our sector. He’s partnered with Schulman Consulting to share his expertise and knowledge. He’s also currently earning his Masters in Public Policy at the Humphrey School for Public Affairs at the University of Minnesota.