Scenario Planning: Preparing Your Budget for Uncertainty

For nonprofits, 2025 has been marked by funding uncertainty. In the first four to six months of 2025, a third of nonprofits reported experiencing at least one type of government funding disruption. Specifically, 21% lost at least some government funding, 27% experienced a delay, pause, or freeze in government funding, and 6% received a stop work order (SWO).

These statistics serve as a stark reminder that you must be prepared for any scenario, especially during these turbulent times. This guide will walk you through the scenario planning process so you can properly manage your finances and keep your organization afloat, no matter the situation.

1. Create different versions of your budget.

As YPTC’s nonprofit budgeting guide explains, “Scenario planning involves creating different versions of your budget based on your nonprofit’s best-case, worst-case, and most likely financial situations. These budget variations allow you to remain realistic and pivot quickly if necessary.”

Here’s what these different budget variations might look like:

Best-case scenario. Realistically, your best-case scenario will likely be anywhere from a 15-30% increase in revenue, depending on your most promising opportunities. For example, you may have cultivated a legacy donor over the years and finally received their bequest, leading to an uptick in revenue.
Worst-case scenario. Conversely, your worst-case scenario may look like a 15-30% decrease in revenue driven by specific outcomes not working out as you had hoped. For instance, you may have increased staff turnover that raises your hiring costs, or lose a fundraising grant that typically makes up 20% of your annual revenue.
Most likely scenario. Your baseline will be your most likely scenario, or your regular annual budget. This version of your budget will include your best estimates for revenue and expenses based on historical data.

Across these three scenarios, use the same chart of accounts so you can compare their impact on specific line items. By creating a spreadsheet with your typical chart of accounts as each row and your three scenarios as each column, you can see each projection side by side and determine where you need to adjust your strategy.

For example, if you see that your worst-case scenario has $10,000 less allocated to program supplies costs than your most likely scenario, you may consider whether you could cut that amount of funding from a less mission-critical area.

2. Identify scenario triggers.

Each scenario should have an associated trigger. In other words, what needs to happen for you to switch course and start using a different version of your budget?

Start by pinpointing the initial warning signs that you need to pivot. These should be non-financial metrics that precede future revenue or expenses, allowing you to act before a crisis hits. For example, let’s say you’re halfway through the year, and donor retention is down 18% from last year. That may be a warning to switch to your worst-case scenario budget soon.

Then, identify financial numbers that will confirm you’re in one of the scenarios you’ve outlined. For instance, once your cash on hand drops below three months’ worth of operating expenses, you may then pivot to your worst-case scenario budget. Alternatively, if you secure two grants you applied for when you only budgeted for one, you might switch to your best-case-scenario budget.

Throughout the year, appropriate staff or board members should monitor trigger metrics and report on their findings. Consider automating this process using a dashboard that automatically tracks these metrics and sends notifications to your team when you approach and reach certain benchmarks.

3. Prioritize expenses.

Having a thorough understanding of your expenses will help you manage them to support your mission in both risk and opportunity scenarios. To get started, first prioritize your core operating costs. Then, sort expenses that are closely tied to your mission.

Consider creating a matrix that compares programs and activities based on mission impact and financial cost. Here’s what each section of your matrix might look like:

High impact, high sustainability. These are your top programs. They’re not only crucial to your mission, but they’re also financially sustainable, meaning they either pay for themselves, break even, or generate a surplus. If you end up in your best-case scenario, you may invest extra funds in these programs.

High impact, low sustainability. These are core mission programs that, unfortunately, drain your financial resources. For example, an advocacy organization may place its public education and awareness campaigns in this category since they are vital to the mission but don’t generate any funds. You may determine that these programs are necessary despite their low sustainability and look for other sources of revenue that can support them.
Low impact, high sustainability. While these programs aren’t central to your cause, they’re either easy to run, make money, or both. For instance, perhaps you run a summer camp and rent out your space during the off-season. Consider whether you can use this revenue to more effectively fund your high-impact, low-sustainability programs.
Low impact, low sustainability. These are programs that are both inconsequential to your core mission and expensive to maintain. Let’s say your political nonprofit runs a door-to-door voter registration drive in a non-competitive district. If this program has significant expenses and doesn’t help you build a meaningful voting base, it might be one you could cut in a worst-case scenario.

To make this a holistic process, your board, finance staff, and program staff should work together. Your board understands your strategic priorities, your finance staff is equipped to make your organization financially viable, and your program staff knows your programming best and can help you prioritize it accordingly.

4. Develop pre-approved action plans.

By planning out exactly what you’ll do in each scenario ahead of time, you can act quickly and rationally when an opportunity or crisis arises. Once again, your finance and program staff should collaborate to ensure both financial viability and program sustainability.

For your best-case scenario, create a tiered list of activities you may pursue using your extra funds. Here’s what this might look like in practice:

Tier 1: Allocate a certain percentage to your financial reserves or to pay off debt.
Tier 2: Next, use the surplus for one-time investments like new technology, staff bonuses, or deferred maintenance.
Tier 3: If you still have funds left, invest in strategic growth by expanding a high-impact, high-sustainability program.

Repeat this process for your worst-case scenario, but with a tiered list of activities you may cut based on your prioritization exercise. For example:

Tier 1: Freeze non-essential spending, such as travel and conferences.
Tier 2: Reduce program budgets, starting with your low-impact, low-sustainability programs. Pause any new hiring.
Tier 3: If necessary, cut salaries or reduce office space.

Once you’ve outlined these plans, submit them for board approval. Then, share them across your team so everyone knows how to proceed in each scenario.

5. Build scenario planning into your regular operations.

Scenario planning shouldn’t be a one-and-done process. In addition to ongoing monitoring of your identified triggers, make sure you update them during your annual budgeting process. You may adjust them based on last year’s financial performance to keep them relevant to your current situation.

Additionally, incorporate scenario planning into your fundraising strategy to enhance your donation appeals. Let’s say you’re meeting with a major donor about the ways they can fund your mission. You may explain that while you’ve already received all funding budgeted for in your most likely scenario, your plan for hitting your best-case scenario is to expand your early education program, allowing you to help even more children build self-confidence and jumpstart a lifelong love of learning.

If you need help with any aspect of the scenario planning process, consider partnering with a nonprofit fractional CFO. These financial experts understand the challenges charitable organizations face and can help you navigate them with careful financial planning.