Tom Duerr AIAA Resources Working Group May 2017 Member-Driven Activities Budgeting & Expenditure Management Process Preliminary Results and Way Ahead Council of Directors (CoD) Technical Activities Committee (TAC) Region and Section Activities Committee (RSAC) Aerospace Interest Committee (AIC) Tom Duerr AIAA Resources Working Group May 2017

Recommendations to inform ongoing BoT and CoD strategic planning Executive Summary AIAA has an historic opportunity to review and revise budgeting processes for “Member-Driven Activities” under the Council of Directors – TAC, RSAC, AIC Why fund Member-Driven Activities: Enable grass-roots innovation leading to new products, services, and markets Incentivize volunteer contributions to AIAA products and services Reimburse volunteer costs for generating AIAA products and services How to fund Member-Driven Activities: Plan and execute from the bottom-up Guide and manage from the top-down Re-allocate budgeted funds flexibly during the fiscal year Use the chain of command to preempt and resolve issues Key process features: Frequent feedback and transparent control mechanisms in the process Periodic self-reflection and review about the process Recommendations to inform ongoing BoT and CoD strategic planning

Outline Resources Working Group (RWG) purpose Legacy budget process and outcomes Assessment of alternatives A new process Comparison of legacy and new processes Next steps

RWG Purpose Chartered by James Maser, AIAA President, under Governance Transition efforts Purpose: Design clean-sheet budgeting process for Member-Driven Activities Enable funding of innovative, strategic activities beyond customary expenses Develop a process and guidelines to budget, allocate, and manage expenditures Scope: All Member-Driven Activities Technical Activities Committee (TAC) Region and Section Activities Committee (RSAC) Aerospace Interests Committee (AIC) Output: Recommendations Process and guidelines draft document Summary briefing to BoT Example Customary Expenses TAC Meals A/V support at meetings TC/PC initiatives RSAC Networking events STEM activities Define new, enabling funding process for TAC, RSAC, & AIC

Legacy Budgeting Process and Outcomes (1 of 2) Staff generates the TAC and RSAC budgets based on traditional guidelines and submits it for BoT approval Origins and rationale of allocation guidelines are undocumented RSAC allocation guidelines “Section rebate” based on percentage of dues and membership numbers Further sub-divided by RSAC into Categories I-IV TAC allocation guidelines 1 meal per Technical Committee (TC) and Program Committee (PC) and audio/video support at face-to-face meetings at Forums Comparatively small TAC discretionary fund Allocation guidelines differ between RSAC and TAC, but total dollar amounts are close Historically the total “Member-Driven Activities” budget is about 2.7% of the operating budget, less than $600k

Legacy Budgeting Process and Outcomes (2 of 2) The legacy process had several undesirable outcomes for the volunteers For Technical Committees and Program Committees in TAC: No flexibility in how to spend the funds allocated to cover meals Incentivized search for alternative sources of revenue outside AIAA “Successful” TCs/PCs could accumulate substantial funds that were unused or unreported – ramifications for AIAA non-profit status “Unsuccessful” TCs/PCs could incur liabilities that were passed along to AIAA For Sections and Regions in RSAC: Lack a mechanism to obtain additional funds beyond the rebate Budgetary isolation fosters activity silos and inhibits synergistic planning

Assessment of Alternatives – Overview The RWG adopted an assessment of alternatives approach. The legacy process will serve as a baseline against which alternatives will be assessed. The RWG established a 5-step approach: Review legacy budgeting and monitoring processes Develop statements of objectives – establish criteria for a “good” process Research and generate process alternatives Assess alternatives with respect to objectives Develop recommendations Stakeholder feedback at multiple points in the assessment

Assessment of Alternatives Objectives for the Budget Process Based on President Maser’s initial questions and RWG experience, the RWG drafted a set of 15 objectives RWG surveyed TAC and RSAC leadership for reaction. Average of 48 responses indicates consensus agreement with all draft objectives; “somewhat agree” to “strongly agree” with 14 of 15 The top six objectives, with strong agreement: Minimize legal and ethical issues Minimize conflict of interest Maximize budget sufficiency Maximize strategic value to the Institute Maximize fairness across stakeholder groups Maximize stakeholder control over expenditures Comment adjudication is ongoing

Assessment of Alternatives Process Alternatives The RWG recognized the need for two distinct but linked processes to achieve the objectives: 1) budget planning and 2) expenditure management Budget planning alternatives: identified 54 budget planning features addressing 4 levels of the Member-Driven organization Each feature prescribes a method for allocating funds to a given level of the organization Features are taken in combination to generate budgeting alternatives Whole alternatives and individual features were assessed for support to the objectives Expenditure management alternatives: considered open-loop and closed-loop expenditure management styles Open-loop reflects the legacy process, once allocated there is no review and re-allocation until the end of the fiscal year Closed-loop reflects best practices as followed in industry and government

A New Process – Budget Planning The following were assessed to be the highest-value features of budget planning Management margin. Compensate for shortfalls where actual costs exceed planning estimates. Enable action on unplanned opportunities. Incentive fee. Discretionary funds allocated in recognition of contributions toward AIAA products and services, based on prior year actual performance and “incentive fee table.” May be spent on new value-added activities, committee team-building, or any other allowable expense in accordance with AIAA legal and ethics policies. Proposals. Funds to cover actual costs for new, innovative events, products, or services. Proposals must satisfy acceptance criteria as stipulated by CoD, TAC, RSAC, or AIC. Funding priorities for proposals are established at the TAC/RSAC/AIC level. Cost of business. Funds to cover actual expenses to be incurred to contribute toward AIAA products and services in accordance with an "allowed costs table" and “AIAA products and services inventory.” TCs, PCs, and Sections typically also have external funding sources. TAC and RSAC guidelines may apply. The RWG drafted a detailed budgeting process around these features – further information can be provided in follow-up discussions

A New Process – Expenditure Management Flexibility and accountability require pro-active management of expenditures in a closed-loop review and re-allocation process Key features include: Spending plan at TC/PC/Section level at no less than quarterly granularity Quarterly or triannual reviews to allocate management margin, re-allocate unused funds to areas of shortfalls, and monitor status with respect to plans Issues resolved at lowest possible level in the chain of command End of year sweep-up – unused operating funds transferred to Portfolio to prevent accumulation of AIAA “profit” All unspent cost-of-business and proposal-based funds Portion of unspent incentive fee funds that exceed an annual carry-over limit or a total balance ceiling All unspent donations – may be returned to sender or transferred per donor direction The RWG drafted a detailed expenditure management process around these features – further information can be provided in follow-up discussions

New Process – Principal Roles and Major Milestones Organization Level 1st Quarter 2nd Quarter 3rd Quarter 4th Quarter 1) Budget planning – next year BoT Management* TC/PC/Section Staff 2) Expenditure management – current year Annual Plan Controls Update Plan Approval Budget Approval Support Planning Initial Review Budget Request Initial Plan Quarterly Plan Status Review Audit Sweep-up Monitor Spend i.a.w. plan Support Budget Allocation * Includes Technical and Region Directors; TAC, RSAC and AIC; and Council of Directors

Comparison of Legacy and New Processes Objective Legacy Process New Process Legal & ethical Some anomalies Periodic reviews COI Not observable Sufficient Fixed amounts Vary with justification Strategic value Fixed purpose Annual update of guidance Fair Accepted as tradition Same rules for everybody User-controlled spending Differs for TAC and RSAC User spend plan Accountability User-controlled budget No user input to budget plan Planning and proposals Flexibility Small margin available Margin and re-allocation Support innovation Fixed-purpose allocations Proposals and margin Volunteer value Incentives, proposals, re-allocation Low process effort ”Autopilot” Learning curve Avoid mixing fund types Not monitored Strong oversight Coordination No visibility Published spending plans Minimize expenses 2.7% of budget Start at 2.7% of budget

Future Stakeholder Survey Topics Survey Technical and Region Directors for draft process guidance; three key items AIAA products & services inventory Identify and prioritize AIAA value-added products and services enabled by volunteers A preliminary list for process proof-of-principle – will be revised as strategic planning unfolds New budget planning process includes an annual review and update Allowed costs table Identify volunteer activities essential to delivering the AIAA products and services Need staff support to estimate actual incurred costs of these essentials Annual budget will cover actual costs incurred up to these allowed amounts Incentive fee table Identify amounts of discretionary funds to be provided based on contributions to the AIAA products and services In addition, survey Directors for “challenge” scenarios to support process testing Identify historical and potential future budgeting and expenditure issues RWG will examine how the new process would accommodate the issues

Next Steps Complete comment adjudication on objectives May Survey Technical and Region Directors May-Aug AIAA products and services inventory, and essential volunteer activities May Challenge scenarios Jun Incentive fee table Aug Test the process with respect to the scenarios Jul-Aug Brief BoT Sep RWG recommendations will be incorporated into ongoing strategic plan development in the BoT and CoD

Backup

RWG Members have Diverse Backgrounds Name Employer & Location Region AIAA Experience Andy Amram Associate Fellow Software Engineering Institute Carnegie Mellon University Los Angeles, CA VI TAC Troy Downen Gulfstream Aerospace Corporation Savannah, GA II RSAC, TAC, Student Tom Duerr (RWG Chair) The Aerospace Corporation Chantilly, VA I BoD, TAC David Elrod Jacobs Technology Tullahoma, TN Jeff Laube RSAC, TAC David Levy Sierra Nevada Corporation Centennial, CO V Sandy Magnus AIAA Reston, VA Executive Director Andrew Neely University of New South Wales Australian Defence Force Academy Canberra, Australia VII Shamim Rahman NASA Johnson Space Center Houston, TX IV BoD, RSAC, TAC, Student Jayant Ramakrishnan Bastion Technologies, Inc. BoD, RSAC, TAC Members were selected to represent the diversity of AIAA stakeholder communities Academia, government, industry Technical and Section activities AIAA regions

Assessment of Alternatives Objectives for the Budget Process Based on President Maser’s initial questions and RWG experience, the RWG drafted a set of 15 objectives RWG surveyed TAC and RSAC leadership for reaction. Average of 48 responses indicates stakeholders “somewhat agree” to “strongly agree” with 14 of 15 draft objectives Respondents weakly agreed with minimizing total expenses Comment adjudication is ongoing

The Big Picture Two parallel processes every year: management of current year expenditures and planning for next-year budget Constitution By-laws Strategic plan Controls Inputs / Outputs Organizations Bold outline = further decomposition Generate FY(N+1) budget 1 FY(N) budget FY(N+1) budget Legal requirements BoT, CoD, CC, AC, OU, Staff Manage FY(N) expenditures 2 FY(N) actuals CoD, CC, AC, OU Staff

1.0 Generate FY(N+1) Budget Three-stage budget planning process. Updating budgeting guidelines (1.1) may occur at other than annual periodicity. Other steps are annual. Constitution By-laws Strategic plan Controls Inputs / Outputs Organizations Bold outline = further decomposition Proposal criteria Incentive fee schedule “Listed activities” & costs Update budget guidelines 1.1 Top-line funding guidance FY(N) budget Generate budget request 1.2 FY(N+1) budget request CoD, CC, Staff Negotiate final budget 1.3 CoD, CC, AC, OU, Staff FY(N+1) budget Process feedback BoT, CoD, CC

2.0 Manage FY(N) Expenditures Iterative process for oversight and re-allocation of resources. Expense procedures Controls Inputs / Outputs Organizations Bold outline = further decomposition Expend funds 2.1 Plan variance FY(N) budget End of year plan Variance Margin request Review expenditures 2.2 OU, Staff End-of-year sweep-up 2.3 Allocated margin +/- Re-allocation Sweep-up funds for Portfolio CoD, CC, AC CoD, CC, AC, OU, Staff

A View of TC/PC/Section Funding Sources TC/PC/Section funds Plans Incentive Fee Proposal Director Margin TAC, RSAC Margin CoD Margin External A View of TC/PC/Section Funding Sources Magnitude of funds represented by size of bubble Guaranteed sources solid, optional sources hashed Distance from center indicates primary, secondary, and tertiary