Sticky Postings
Commentary from Murray Dropkin and Associates
Check back here often for news and views that are vital to your organization's operations and financial health.
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Thursday, August 18. 2011
Economic Cycles and the Nonprofit Sector
During our forty-five years plus working with nonprofit organizations, we have observed that economic changes have affected the nonprofit community slower than the rest of the economy, and also affected the community for a longer period of time than other entities. We guess one of the reasons for this observation is that most of our work has been with organizations largely funded by governments and private clients. Since grants are frequently awarded for at least one year, and sometimes as long as five years or more depending on the funding sources, it can take at least a year or more before an organization loses a revenue stream such as a grant. Then, when the economy gets stronger it can take a year or more after the “recovery” before former revenue source starts funding new grants.
Of course, sometimes grant resources dry up completely. Over the years, when small local banks were being gobbled up by larger ones, we saw a decline in grants from local banks since the larger bank systems sometimes decided to fund larger organizations and not local nonprofits.
Please share with us your views or experiences on this subject.
Friday, April 9. 2010
The Public image is very different from the true facts about the challenges of managing a nonprofit organization.
Frequently a politician or a business person makes a really stupid statement such as “businesses are where the real managers are”. Some people think nonprofit organizations are managed by people who do not know to manage. Whenever a pundit says this type of statement, it makes me really angry. I become angry because the person making the statement is ignorant regarding how difficult it is to properly manage a nonprofit organization. One reason managing a nonprofit organization is so difficult is because a typical nonprofit organization has many more stakeholders or parties delving into the operation of the entity than the typical small business does. Many businesses that are owned by one family or a few individuals don’t really have Board meetings since one person (the principal owner) essentially makes all the decisions. Depending on which state a nonprofit is organized in, a nonprofit organization may have a board of directors ranging from three individuals to twenty five individuals or more. I have seen more than one founder of a nonprofit get voted out of office and Board membership when that individual lost the support of the majority of the Board. As long as one person owns most of a commercial company, they cannot lose their official status in most instances. So a person serving as President or Executive Director of a nonprofit organization really has to know how to keep Board members happy.
Wednesday, April 7. 2010
Want to cut down on your travel time? You can meet with colleagues using web conference software. In a web conference, you can share your desktop, run slideshows, and browse the web with attendees - as well as discuss items with voice connectivity and with public and private chats.
There are several well-known affordable commercial offerings. DimDim ( www.dimdim.com) has a free version that you can experiment with. This is from their web site:
Dimdim Free
Dimdim Free is for people and organizations around the world who wants to meet freely. Dimdim Free lets anyone deliver synchronized live presentations, whiteboards and web pages and share their voice and video over the Internet – with no download required. Dimdim Free boasts a powerful feature set allowing anyone, anywhere to host meetings with up to 20 people on Mac, Windows & Linux.
Features
•VOIP Audio
•Teleconference Audio Bridge
•One way video (for the host)
•Public and Private Chat
•Share Computer Screen
•Document Upload (PPT/PDF)
•Share Web Pages
•Whiteboard
•Meeting Scheduling
•Widget
Web conferencing is good for your budget, and it is an effective way to work with team members. Give it a try.
Thursday, April 1. 2010
It seems like a simple concept. Back in the days when the assembly line was being perfected, manufacturers knew that standardized parts were more efficient and more economical. Making individual nuts and bolts by hand just wouldn't do, because when made by hand, the threads were not standard and you couldn't put just any nut on a given bolt - only the nut hand-crafted for that bolt would work. Make all of your nuts and bolts according to a standard, and everything becomes interchangeable. Simple.
It is surprising to read, then, that a major consumer electronics company is in big trouble because it did not standardize its embedded software's communication capability across product lines. Two devices made by the same company are not able to communicate, because no one (management) made sure that standards were being used. Similar devices from other manufacturers don't have this problem, and the market noticed.
Are you paying attention at your own organization? Could an emphasis on more standardization save you money or increase your efficiency?
Wednesday, March 31. 2010
Here's a great search utility for the Windows operating system: Everything by voidtools.com. This utility is fast, effective, and free. I use it all of the time to locate and do things to files on my desktop computer, and it is so much faster than the Windows Search tool that you have to wonder what Microsoft was thinking.
It sits in your task bar, waiting to go to work.
From the help file:
How is Everything different from other search engines?
- Small installation file.
- Clean and simple user interface.
- Quick file indexing.
- Quick searching.
- Quick startup.
- Minimal resource usage.
- Small database on disk.
- Real-time updating.
Recommended.
Tuesday, March 30. 2010
Here is a PDF document that we prepared as a supplement to Bookkeeping for Nonprofits. It explains the process of accruing payroll to bookkeepers - why make an accrual, how much to accrue, and how (and why) to reverse the accrual in the subsequent period. It's a good place to start for bookkeeping rookies.
Get the document here
Monday, March 29. 2010
Check out the Museum Archive software project ( http://www.musarch.com). The free database software is designed to help museums, schools, historical societies, and nonprofit organizations maintain a database of the artifacts in their archives. More details are available at the web site.
Sunday, March 28. 2010
Jimmy Carter implemented Zero Based Budgeting when he was the governor of Georgia. An engineer by training, he was attracted to the depth of analysis that the process requires. He pledged to bring ZBB to our federal government if he was elected President. Once in office, he tried to keep his campaign promise. He issued a memo entitled Zero-Base Budgeting for the Fiscal Year 1979 Budget Memorandum to the Heads of Executive Departments and Agencies on February 14, 1977. ZBB quickly faded from the federal government’s consciousness. Why?
Normal budget creation is an incremental process. You take a look at the historical data – i.e., how much did it cost us to perform this task last year? By using the historical cost data and the current year’s budget, you are able to estimate the increase required in each budget line item to continue to function. You are coming up with an accurate forecast that will allow your organization to exactly duplicate its current (and prior) efforts in the coming year.
ZBB is an altogether different process. The end product of the ZBB process is a financial forecast, but if the concept is implemented properly, the finances are the easy part. Jimmy Carter was unsuccessful in implementing ZBB for the federal government because ZBB is not just about the money; it is about the culture and the politics of the organization.
Zero Based Budgeting seeks to answer these five questions:
1. Should a given program, activity, or position be continued, or would other activities be more important or appropriate?
2. If the program, activity, or position is justified, should it continue operating in the same manner, or should it be modified?
3. If modified, how will it be modified, when, and by whom?
4. How much should the organization spend on the program, activity, or position being studied?
5. Do we have the “political” backing within the organization to make the proposed change or are we wasting our time?
As you can see, the calculation for the current budget is not even discussed until question number 4. There are other determinations that must be made first, and when the money is finally examined, it is built up from scratch. There is no need to look at last year’s budget; you have to calculate what it will cost you to do the task as if you had never done it before.
ZBB, when done correctly, is a very powerful tool that could greatly benefit any organization. It is also a very challenging tool to implement, because:
o It involves a tremendous amount of work;
o It forces you to think outside the box;
o It encourages you to embrace change;
o It seeks to tear down the status quo.
Government bureaucracies tend to change very slowly, if at all, and they are not particularly noted for being flexible and responsive to changing needs. President Carter bit off more than he could chew with ZBB, because too many people were too heavily invested in the way things currently work. The same would be true, to some extent, in any organization. People tend to fear change, they tend to fear the unknown, and they tend to accept the way things are currently done without questioning if there could be a better way.
Does this mean that there is no place for ZBB? No. It does mean that ZBB must be used sparingly and in carefully selected situations. Most organizations use ZBB on an individual program or department, sometimes as a test case, or sometimes focusing on different parts of the organization on a rotating basis.
The Team
It is important to have some individuals on your budget team that have no vested interest in the status quo. The very first question that you must answer under ZBB is whether or not to continue to do the activity at all. You’ll never get an honest answer to that question if the budget team participants are all affected by the answer.
At the same time, it is a good idea to include individuals with a vested interest on the team. They understand the activity better than anyone, and while their input might be biased in favor of continued operation, they will add insight that the team will need to make a rational decision.
Participation on the ZBB team works best if the organization is able to make a commitment to the participants that the “human cost” of any decisions will be minimized. In many organizations, the elimination of a program or activity does not involve any loss of employment – the staff members are reassigned to other activities or departments. Your first hurdle in getting the ZBB process to work is to get an honest answer to the first question from the people who have spent the last part of their careers working to provide the service in question.
Why question the necessity of the program or activity at all? In other words, why ask question number 1? From the organization’s perspective, resources are always scarce. If the organization is going to focus on fulfilling the mission, it needs to constantly make sure that the limited resources are being devoted to activities that are targeting the same goals. Times change; a valuable program that was established a few years ago might no longer be as valuable or effective today. There might be other agencies that provide the same service more efficiently. The demographics of the client base might have shifted. There are a number of reasons why the first question could lead to a radical change in your organization. Without going through the ZBB process, you might be reluctant to see that the change is needed.
Technology
The second ZBB question is a much more likely candidate to bring about change to a program or activity. Very few things remain the same for long, and there is no clearer example of that than the way that technology has changed the way we work and the way we live. At the same time, it is not uncommon to come across policies, procedures, and processes that are outmoded or no longer necessary. You might hear that “We’ve always done it that way”.
Any activity can be accomplished in a variety of ways. The ZBB team should think outside the box and look at alternative methodologies and technologies. People do resist change, but unless the change is made simply for change’s sake, they come around and embrace the new ways quickly enough. When you modify the existing activity, you are looking to make it more efficient and more cost effective.
Implementation
Question number 3 deals with the implementation. How can you get this done, and who is going to do it? Is there enough time? Many brilliant ideas are crushed by the constraints imposed by reality. With limited resources, can you start a new process? How will the ongoing work get done if everyone is being retrained?
The implementation logistics are another reason why ZBB should tackle a single program or activity. It is possible to phase in the changes, but by limiting the scope of the changes, you are narrowing the pool of potential pitfalls and stumbling blocks. The ZBB team, particularly the individuals with a vested interest in the result, can offer some good advice on how to introduce the change.
Finances
ZBB is budgeting, so the final product from the process will be a detailed line-item budget. As we mentioned, the budget amounts for each line item are calculated from zero. You make no assumptions about the spending levels based on any prior year’s totals. If this is the right activity to perform, and if this is the right way to perform the activity, and if we have the resources to implement it, how much will it cost?
In a sense, a Zero Based Budget is like calculating a one-time project, such as building a house. Your neighbor might have recently built a house, but it was a different house – different plans, different materials, different time frame, and different contractors – so their budget doesn’t help you at all. You calculate all of your costs based on your plan and based on your contractors. You don’t budget for any costs that are not essential, and you do your best to get the most value for the money you will be spending.
Politics
Nothing happens in a vacuum. You can have accurate answers to the first four questions of the ZBB process, and you could have come up with a genuinely unique method of servicing your clientele that exactly matches your strategic goals and gets your organization closer to fulfilling its mission. It is all meaningless if you can’t get the needed support to make it happen. The political climate at most organizations is a complicated mix of the input and preferences of the founders, funders, managers, regulators, and other stakeholders. That’s why Jimmy Carter was stymied in his efforts, and it is why many great ideas are never implemented. In fact, question number 5 must be answered along with each of the other questions if you hope to succeed.
Zero Based Budgeting is a great idea which is seldom used. Using the technique is hard work, it sometimes upsets people, and it is inevitably based on individual perceptions and biases. It is a wonderful exercise that you can use in very specific instances, and if nothing else comes of it, you will have learned a great deal about your organization’s current processes, culture, and politics.
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