Strategic financial planning

Municipally owned water utilities must operate and make long-term decisions in an increasingly unpredictable financial environment. Both shortand longrange planning have been undermined by the uncertainty and volatility of capital markets and the pressures of inflation on operating and capital budgets. In today's uncertain environment, long-range financial planning is even more critical, despite its difficulty. An approach to financial planning different from that followed in earlier, more stable, periods is needed. Strategic financial planning is a dynamic process, different from traditional budgeting and planning, which by nature are static analyses that ignore the potential and probability of change. Strategic planning provides a decision-making framework to evaluate financial alternatives in response to new circumstances. Long-range goals are established that incorporate a flexible plan of action aimed at the acquisition and allocation of capital resources to achieve objectives in an unpredictable environment. Events and conditions are analyzed in light of a utility's goals. Although long-term decisions are involved, the utility is able to evaluate short-term opportunities properly in light of overall objectives. Strategic financial planning helps utilities adapt to volatile conditions and to plan for future requirements with confidence and assurance. Although this article is oriented toward publicly owned municipal water utilities or wastewater systems, the techniques discussed can be applied to any public undertaking.