Forecasting Operational Costs for New Facilities: Why It Matters for Every School District
by Grant Anderson, Vice President of TEE School Finance Solutions
Every school district faces tough financial decisions, and forecasting operational costs for new facilities is one of the more challenging ones. But this challenge is essential because understanding future costs keeps a district’s finances on solid ground and helps ensure new facilities are both sustainable and beneficial for students. This article will guide you through how districts can approach these forecasts with confidence.
From estimating everyday operational costs to navigating the unique expenses of new, specialized facilities like aquatic centers or fine arts spaces, financial forecasting empowers districts to make informed decisions. And while this task may feel daunting at first, a systematic approach can make it both manageable and surprisingly accurate.
How to Successfully Forecast Operational Costs:
1. Start with Solid Information. Effective forecasting starts with gathering the best possible data on expected equipment, facility usage, and operational details. Talk to experts, explore project documents, and look into similar facilities to create a well-rounded picture of potential costs. The goal is to get enough information to make a strong estimate—not to create a detailed operations manual.
2. Consult Expert Sources. Use external experts to round out your information. Utility companies, architects, facility managers, and project supervisors have valuable insights. Whenever possible, get written records of conversations and cost estimates, as these serve as valuable documentation. Expert input also adds credibility, which can be useful when presenting the forecast.
3. Identify Key Variables. Recognize which variables drive revenue and expenses—things like utilities, staffing, and maintenance. Reviewing financial statements from similar facilities helps you spot important factors and identify fixed versus variable costs, giving a clearer sense of where money will be spent.
4. Develop Assumptions and Acknowledge Risks. Assumptions act as the foundation of your forecast. As you gather more data, refine your assumptions to make them as accurate as possible. For example, if you’re estimating water costs for a new pool, an assumption might be that usage levels will match those of a similar facility. Outline any risks, like possible increases in utility rates or changes in facility usage, to help readers understand potential variances.
5.Use Detailed Calculations. To improve accuracy, calculate expenses using the lowest practical factors. For instance, when estimating water costs, look at water usage data from similar-sized facilities, and then apply your local utility rates. Detailed calculations are the backbone of a reliable forecast.
6. Practice Due Diligence. Due diligence means keeping a record of all documentation, including contracts, cost breakdowns, and expert opinions. This adds depth to your forecast and ensures that every assumption and calculation has a solid foundation.
7. Review and Refine. Submit your forecast for review, and be open to adjusting assumptions as new information emerges. Each review strengthens the forecast, boosting confidence that it reflects real financial needs.
Creating a Forecasting Memorandum
To share your findings, an Operational Forecasting Memorandum is an ideal way to communicate financial research clearly. This document provides an overview of operations and critical financial information used to generate the forecast, broken down into four key sections:
1. Operations. This section describes the facility’s purpose, programs, and operating details. It outlines how the facility will function, who will use it, and what costs will arise, giving readers a solid overview of the facility’s role. Include the due diligence section here.
2. Financial Data. Here, you’ll provide financial projections, including revenue, variable and base costs, and overall financial health. Summarized data and graphs make this section easy to understand at a glance.
3. Assumptions. List every assumption driving the forecast—such as stable water costs for a pool facility—and note any associated risks. The evidence of these assumptions should be found in the due diligence section. Including these helps readers assess the forecast’s reliability.
4. Forecasted Financial Statements. The final section breaks down projected revenue and expenses, detailing fixed and variable costs month by month. These financial statements offer a realistic view of the facility’s financial outlook over time.
For any district planning new facilities, accurate financial forecasting is essential. By gathering solid information, consulting experts, and creating clear, documented assumptions, districts can make informed projections. An organized, reader-friendly forecasting memorandum will help key decision-makers understand expected costs and strengthen the foundation for future district success.
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About Grant Anderson
Grant B. Anderson is a veteran of over 30 years in school finance, accounting, business, and operations management. Currently the Vice President of School Financial Service for Texans for Excellence in Education (TEE), his background in education finance includes owning a consulting business that assists school districts in financial management and operational services and serving as an Associate Superintendent, Budget & Accounting Supervisor, and Chief Financial Officer at multiple North Texas districts. Grant also held the position of CFO in Education Service Center Region 11 for over a decade.