Budgeting for non-profits Peter Lyman IS208 March 20, 2001

Today’s goals learn to analyze organizations through their budgets focus on budgeting for non-profit organizations focus on the University Library as a case study of a nonprofit information management organization.

I. The functions of budgets Budgets are the primary tool for management. Three types of budgets. Operations Capital Strategy The five functions of budgets: Planning Motivation and direction Evaluation of performance Coordination Education/analysis

There is no one model… Therefore, budgets are not all the same, they reflect the mission, goals and objectives of the organization -- and its management style.

II. What are non-profits? There are many kinds of not-for-profit legal entities, but they share certain characteristics: Special tax status requires them not to make a profit, and to serve the public good. Examples: philanthropic, government, education, membership & volunteer organizations, etc.

Civil service non-profits Government and educational organizations are governed by civil service rules that emphasize the procedures for decision making and activity, rather than business style management or leadership Civil service jobs tend to have job security

Volunteer & membership non-profits Motivation tends to be intrinsic, a personal commitment to the mission of the organization Therefore, management tends to be a collaborative project. Budgeting tends to focus on finding material and non-material resources to support projects

Non-profit funding accounting Non-profit budgets tend to use fund accounting, e.g., money has “flavors” that restrict its use to certain defined purposes Fund accounting and auditing is the way trustees keep control over essentially autonomous sub-units = focus on accountability, not initiative. Budgets are financial rather than operational or strategic types.

III. Example: What is the library’s business plan? Business model? Subsidized information resources and services Business strategy? Persuade institutional funder that information should be a public good for members.

Library business plan? Competition? The Web, Bookstores, Online publishers, subscriptions, document delivery Customer? Is it the user? Or the organization that pays the subsidy?

Leadership & Management Style? Librarians = as professionals are self governing; qualification by credentialling As a nonprofit, a civil service organization in which procedural rules guide management more than leadership or strategic vision. Classic fund accounting/audit trail model of responsibility > strategic vision

Are libraries sustainable? Revenue? Prices of for-profit activities are strictly controlled = copy machine contract, document delivery. Dependent upon subsidy, for which all other units compete Costs? High inflation rate for journals, labor costs for services very high, few economies of scale. New value chains! Alternative sources of information may dis-intermediate the Library. What unique value is added by libraries?

Improving the business model? Outputs? How to measure benefits? Prestige? Productivity? Focus on inputs. Improvements to the business model? Works best when users vote for funding, e.g., public library bond issues Fee for service usage?

IV.Reading the Library budget Funds (not revenue, etc) Map the restrictions of various lines Operations vs Collections = 3:1 Recurring (19900) vs One-time money Expenses Note salary = 77% of operations, most of it protected by job security…few management motivational tools.

Non-recurring Strategic budget missing. Note revenue from “accumulated endowment” (Barry) Note how small “new initiatives” are Note only $2M/$34M is discretionary Capital budget missing. Note facilities, equipment and furniture replacement are non-recurring, not built into base. Note some costs (space, maintenance) not budgeted

Collections budget funds 19900 base from UC; endowments not listed in budget (why?) Note growth of collections base = what political support allows this kind of cost rise every year? Note how many collection support activities are included (EAL, travel) Note serials/books = 2:1 Note deficit budget for 2003, 2004 = sustainable?

Library budgets: issues $36M budget includes $34M continuing commitments, $2M management discretion (5%) for strategic change How are quality & performance measured? How would you know if the year had been successful or not by this budget? What would be used to judge the quality of the management and staff, and be the basis of rewards & punishments. (Did you spend the money? Did you spend it wisely?)

Next... For-profit budgeting Analyze the budget of the “New Book Publishing Company.” How does it differ in structure and function from the library budget? Case studies on startup budgets and corporate budgets.