Best Practices in Strategic Financial Forecasting

1. Best Practices in Strategic Financial Forecasting Brett Matteo The PFM Group Kevin Hyatt UNC – Charlotte

2. Session Etiquette • Please turn off all cell phones. • Please keep side conversations to a minimum. • If you must leave during the presentation, please do so as quietly as possible. • Thank you for your cooperation!

3. Framework for Discussion • Overview of the PFM Group • Overview of the proposed engagement • Demonstration • The implementation process • Illustrative pricing • Why strategic financial forecasting?

4. Overview of the PFM Group

5. Public Financial Management, Inc.Financial advisory services • Public Financial Management, Inc.(PFM) provides independent financial advisory services • General government • States • Cities • Counties • Local governments • Utilities • Water • Wastewater • Power • Gas • Transportation • Toll roads • Transit agencies • Airports • Ports • Healthcare institutions • School districts • 501c(3)’s • #1 ranked financial advisor for debt transactions for 15 years

6. PFM Asset Management LLCInvestment management services • Experience • 33 years of asset management experience • $49.9 billion of assets under management • Specialties • Fixed-income strategies • Cash and short-term asset management • Bond proceeds management • Arbitrage rebate management • Derivative products strategies and procurement • Multi-asset class investments • Success • Long record of performance in excess of benchmarks • Successfully navigated the credit crisis • Completely avoided defaulted credits, SIVs,subprime mortgages, CDOs, auction-rate securities

7. Higher education finance • The PFM Group is the #1 advisor to higher education institutions • All types of institutions • Colleges • Universities • University systems • Community colleges • Community college systems • Public/private • Large/small • Our financial advisor provide analysis and advice in a fiduciary capacity • Capital structure development • Financial risk management • Transaction structuring, pricing, and optimization • Credit management

8. Overview of the Proposed Engagement

9. The problem • At most colleges and universities strategic forecasting is often difficult and inefficient • Complex (multi-variable, multi-order) relationships among key variables • Data is often scattered among single-focus models, accounting systems, ERP systems • Difficult to project a Statement of Net Assets • Difficult to track Net Assets • Most institutions are resource constrained • Mission-level questions from key stakeholders (Board, President, investors, rating agencies) take days, weeks, or even months to answer • Answers are not comprehensively determined and are often uni-dimensional • Staff is inefficient in providing the answers because there is no single institutional analytical approach • Stakeholders should be able to get nearly immediate feedback on key strategic questions An institution’s strategic plan should be crossed against a reliable business plan (with supporting sensitivity analysis)

10. The solution • The PFM Group provides strategic forecasting services • Comprehensive • Fully-integrated • Customized • Permits institutional users to quantify the strategic ramifications of changing operating variables, operating initiatives, capital initiatives, and funding alternatives Single institutional point of view

11. The value proposition PFM becomes your financial modeling staff • FuturePerfectis not a software, system,platform, or tool • Future Perfect is an ongoing Consulting Relationship • Primary deliverable is an Excel-based projection model, but the Value Proposition is NOT in the model, it’s in the service • FuturePerfectis a simple but elegant modeling architecture • Permits efficient manipulation of structural elements to mimic client business models and ongoing changes thereto • Efficient customization • Efficient support • Future Perfect is a modeling discipline • Fastidious application of modeling rules mitigates risk • Future Perfect staff add value 3 ways: • Understanding of your business (your vocabulary) • Understanding of your accounting (GASB) • Providing world-class modeling services (fast, smart, efficient  advice)

12. Customized projection logic • Establish relationships among the hundreds of interdependent operating, capital, and financial variables, including: • Student revenues • Enrollment/retention • Pricing • Financial aid • Employees • Salaries • Benefits • Sponsored research • Appropriations • Foundation(s) • Non-personnel expenses • Capital projects • Facilities and deferred maintenance • Debt Future Perfect is offered as an ongoing Consulting Relationship NOTSoftware

13. Customized dashboard and outputs • Projection model mimics the institution’s business model • Customized dashboard-driven variables and assumptions • Customized outputs • GAAP-based financial statements • Statement of Net Assets • SRECNA • Statement of Cash flows • Cash-based budget statements (P&Ls) • Institution • Others (e.g., auxiliaries, research) • Cross-walk to SRECNA • Financial ratios and other metrics • Rating agency ratios (benchmarked) • Moody’s Scorecard • Composite Financial Index (CFI) • Facilities Condition Index (FCI) • Other in-house or mandated metrics

14. No black box • Future Perfect becomes the projection model you would build internally if you had the time, expertise, and resources • Unlimited users (no seat licenses) • Unlimited copies • Conduct rigorous analysis and provide immediate feedback on the short- and long-term impact of strategic choices • Engage stakeholders in quantitatively-supported discussions, brainstorming sessions, and consensus-building exercises Future Perfect resides on your computer(s)

15. Direction Aspirations Strategy Vision Constraints Financial Human Space Ongoing consulting services • PFMstaff supports the institution in the use of your Future Perfect model • You define the questions of the day at your institution • You conduct the analysis needed to answer those questions using the Future Perfect model(s) residing on your computer(s) • Develop the analytical approach • Manipulate assumptions • Change data • Conduct sensitivity analysis • You interpret the results • PFM ensures your Future Perfect model is structurally capable of supporting the analysis you define and answering the questions you pose Possible Future Scenarios PFM becomes your modeling staff

16. Demonstration

17. The Implementation Process

18. Customization process • The Customization Process is well-conceived and quickly results in a fully-integrated view of the institution’s prospective strategic/financial position

19. Approximate timeline Week

20. Why Strategic Financial Forecasting?

21. Why PFM Consulting Services? • Better decision making • Comprehensive and integrated analysis • Prospective analysis (beyond immediate and impending budget year) • Better capital budgeting • Considers timing, cost, funding on integrated multi-year basis • Better assessment of affordability • Better allocation of scarce resources • Better communication • Within the institution • With Trustees • With outside stakeholders (e.g., accreditation bodies, rating agencies, investors) • Better oversight and control • Proactive management • More transparency

22. Questions & Answers

23. Thank You! Brett Matteo The PFM Group matteob@pfm.com (215)557-1491