Planning and forecasting the financial viability of a new product, service, or project is essential for driving business opportunities. Regardless of a company’s key performance indicators (KPIs), senior leaders must evaluate the financial feasibility of new initiatives to ensure they can operate within budget or secure adequate funding for development and implementation. One effective way to accomplish this goal is by creating a pro forma.
A pro forma is a financial projection that estimates anticipated future performance. This forward-looking tool provides a blueprint for financial expectations, enabling stakeholders to make informed business, investment, and operational decisions.
Scenario
After receiving constructive feedback from the project management consultant on your Business Model Canvas (BMC), it’s clear that you need to focus on developing the financial component as you prepare for an upcoming funding pitch to senior leaders. However, one comment from the PM stood out: “No matter how strong the idea is, senior management will consider it a ‘no-go’ if the new product or service doesn’t demonstrate its potential to generate sales.”
As you prepare for your funding pitch in Module Seven, the PM consultant highlights the importance of including a 24-month pro forma. However, the PM cautions that funding pitches are fast-paced and decisive. Providing too much information can overwhelm senior management, prompt unnecessary questions, and ultimately undermine the purpose of your pitch and decrease your chances of approval.
The PM’s directive at this point is for you to develop a 24-month pro forma that demonstrates the potential profitability of the new product or service you're proposing in an income statement. You will use the Module Six Assignment Template linked in the What to Submit section below to complete this assignment.
To project what can be added to the company’s profitability, you can use the company’s latest income statement, which is available in the 10-K report. To support your projections, analyze other companies in the marketplace with similar products or services. Additionally, you can base your projections on the company’s recent year-end financials and key assumptions based on your market analysis. Remember, these numbers are purely speculative.
Based on your projections, you are also required to provide a budget assumptions summary. This summary should outline the key factors, estimates, and rationale used to develop the budget, providing context for the numbers presented and helping senior management understand the reasoning behind the projections and financial decisions.
Specifically, you must address the following rubric criteria:
Previous Fiscal Year: Identify historical information from the previous fiscal year.
24-Month Projections: Speculate projections for 24 months.
Explanation of Assumptions: Explain your ability to speculate appropriate assumptions.