Program Management and Decision Making April 12, 2007 Steven W. Peuquet, Ph.D., Presenter Center for Community Research & Service University of Delaware Nonprofit Management Certificate Course 2007

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Topics We’ll Be Covering Today:  The Dual Requirements of the Nonprofit Organization and Their Importance for Decision Making, Planning and Management  Nonprofits as Legal and Economic Institutions  Budgeting as a Decision Making, Planning and Management Tool  Useful Decision Making Techniques for Planning and Management  Data and Information for Decision Making, Planning and Management

The Dual Requirements of the Nonprofit Organization and Their Importance for Decision Making, Planning and Management

The Dual Requirements of the Nonprofit Organization and Their Importance for Decision Making, Planning & Management 4 A nonprofit must fulfill its cash flow responsibilities like any business enterprise. 4 A nonprofit must pursue its mission.

The Dual Requirements of the Nonprofit Organization and Their Importance for Decision Making, Planning & Management 4 No matter how laudable a mission may be, it must be financed in order to be realized. 4 If cash flow obligations are not met, the organization will die and its mission will not be pursued or accomplished. Facts of Nonprofit Life

Nonprofits as Legal and Economic Institutions

4 They must obtain scarce resources (land, labor, and capital) in the marketplace (via purchase and/or donation). 4 They produce and sell goods and services directly or indirectly through third parties. Nonprofits are economic enterprises in every sense.

Nonprofits as Legal and Economic Institutions 4 NPs are more like businesses than government (government can tax, NPs & businesses cannot, NPs and businesses can go bankrupt, government cannot). Important Point

Nonprofits as Legal and Economic Institutions 4 External funding -- contributions 4 Internal funding -- money generated through fees for goods and/or services produced, or from investments NPs must have external sources of support, and may, but do not have to have, sources of internal support.

Nonprofits as Legal and Economic Institutions 4 Contrary to common belief, the law does not prohibit NPs from making a profit. In fact, the profit might be sizable! Note: The word “profit” is used here as a surplus of revenues over expenditures without a distribution to shareholders Important Point...

Nonprofits as Legal and Economic Institutions 4 A NP does not have the conducting of substantial commercial activity as its principle purpose or mission. 4 The key difference between the for-profit and the NP organization is that the NP may do business but cannot have profit making as its primary aim. Legal Limits on the financial activities of NPs

Nonprofits as Legal and Economic Institutions 4 "... once the (nonprofit) intent is satisfied, it is the relative amount of revenues that comes from the sale of goods and services and how they are used that matters, rather than the absence of such sales, revenues, or profits or their magnitude." (Harrington Bryce) With respect to NPs making a profit:

Nonprofits as Legal and Economic Institutions 4 "... the major limits to financing by nonprofits is economic and financial imagination." 4 "... Perhaps the most fundamental change in perspective that is needed to improve the financial management of nonprofits is to view them as economic institutions." Important Points... (from Harrington Bryce)

Nonprofits as Legal and Economic Institutions Phone Call from the Good Woman from Appalachia

Nonprofits as Legal and Economic Institutions The Strategic Planning and Management Process Represented as a Flow Diagram

Nonprofits as Legal and Economic Institutions Strategic Planning and Management Requires the Making of Choices ! ! !

Budgeting as a Decision Making, Planning & Management Tool

4 A financial plan: –A statement of how an organization’s resources should be allocated among alternative uses –A statement of what resources will be sought in order to pursue the organization’s purpose Primary Purpose of Budgets Budgeting as a Decision Making, Planning & Management Tool

4 A tool of management control: –Helps management to monitor how resources are being spent during the year by providing a reference point Primary Purpose of Budgets (continued) Budgeting as a Decision Making, Planning & Management Tool

4 For establishing policy –Issues related to the acquisition and allocation of resources 4 For efficiency –To get the most out of each dollar spent Basic Principles Underlying Budgets Budgeting as a Decision Making, Planning & Management Tool

Operating versus Capital Budgets Budgeting as a Decision Making, Planning & Management Tool

Examples of Different Formats for Operating Budgets

Program & Item Budgets Combined Budgeting as a Decision Making, Planning & Management Tool

Actual & Budgeted Expenditures Budgeting as a Decision Making, Planning & Management Tool

Variance Between Budgeted & Actual Expenditures Budgeting as a Decision Making, Planning & Management Tool

4 Budgeting involves the making of choices. 4 Hopefully intelligent choices for both: –Policy reasons –Efficiency reasons Important Points... Budgeting as a Decision Making, Planning & Management Tool

Useful Decision Making Techniques for Planning and Management

Useful Decision Making Techniques for Planning & Management 4 The purpose of cost accounting is to provide information to aid planning and control. 4 Cost accounting is the process of assembling and recording all the elements of expense incurred to attain a purpose, to carry out an activity, program or project. Cost Accounting

Useful Decision Making Techniques for Planning & Management 4 There are five basic cost components in any activity, operation, project or program: –Labor (wages and benefits) –Materials & supplies (land, natural resources, etc.) –Equipment –Contracted services –Overhead Cost Accounting (continued)

Useful Decision Making Techniques for Planning & Management 4 Decisions must be made in cost accounting as to the distribution of direct and indirect costs. –Direct costs -- costs incurred for a specific purpose which is uniquely associated with that purpose –Indirect costs -- costs associated with more than one activity or program that cannot be traced directly to any individual activity Cost Accounting (continued)

Useful Decision Making Techniques for Planning & Management 4 Types of Costs: –Fixed costs -- costs for an activity, project or program that do not vary on the basis of how many units of a product or service are produced. –Variable costs -- costs for an activity, project or program that do vary on the basis of how many units of a product or service are produced. –Total costs -- the sum of fixed and variable costs. Cost Accounting (continued)

Useful Decision Making Techniques for Planning & Management Break Even Analysis: An Application of Cost Accounting

Useful Decision Making Techniques for Planning & Management Break Even Analysis Example The executive director of a community center proposes a new program to the center’s board of directors. She suggests that the community center develop an employment counseling and job search training program for unemployed persons. Those unemployed community residents served by the program would be given individual counseling to help the person determine his or her skills and job qualifications. Additionally, clients would be provided with small group training in how to conduct an effective job search, filling out employment applications, resume writing, and how to make a good impression during a job interview.

Useful Decision Making Techniques for Planning & Management 4 Would the proposed program be consistent with the community center’s overall mission? 4 What specific services would be provided? 4 How many people would be served, over what time? 4 What resources are needed to start and operate the program and what will they cost? 4 Where will revenues come from and how much are individual clients willing to pay? 4 How do total program costs and revenues compare? Break Even Analysis Example: Some Important Questions

Useful Decision Making Techniques for Planning & Management 4 What if fixed costs change at some point (“lumpy fixed costs”)? 4 How can you incorporate grants into the analysis? Break Even Analysis Example: Some Enhancements to the Technique

Useful Decision Making Techniques for Planning & Management For a specially developed MS Excel workbook for Break Even Analysis for students in this course, go HERE!HERE

Useful Decision Making Techniques for Planning & Management 4 Is a technique to select the most feasible or optimum alternative given that there is more than one alternative solution to a problem. 4 Uses of trade-off analysis: –Can be done at the micro or macro level –Can be done qualitative or quantitatively –Can be done casually or rigorously Trade-Off Analysis

Useful Decision Making Techniques for Planning & Management 4 Identify two or more possible alternative solutions. 4 Develop a set of decision criteria. 4 Give each criteria a numerical weight that reflects its relative importance. 4 Rate each of the possible alternatives against the weighted decision criteria. 4 Multiply the rating given for each criteria by its weight. 4 Calculate the total score for each alternative being analyzed. Steps in Doing Trade-Off Analysis

Useful Decision Making Techniques for Planning & Management Examples of Trade-Off Analysis

Data and Information for Decision Making, Planning and Management

Data and Information for Decision Making, Planning & Management 4 Cross sectional –Primary –Secondary 4 Time Series (multiple cross sections) –Primary –Secondary 4 Longitudinal –Primary –Secondary Different Types of Data

Data and Information for Decision Making, Planning & Management 4 Data that you determine you need to answer your questions, that you go out and collect from it’s primary source. 4 Sources: –Semi-structured and structured interviews –Checklists –Mail and telephone surveys –Etc. Primary Data

Data and Information for Decision Making, Planning & Management 4 Data that someone else collected previously that you determine could be useful to you to answer your questions. 4 Sources: –U.S. Census –Other government studies and reports –Data published by private industry and nonprofits –The World Wide Web –Agency administrative records –Etc. Secondary Data

Data and Information for Decision Making, Planning & Management 4 Data is the raw material of information 4 Information is useful for purposes of answering specific questions Difference Between Data and Information

THE END THANK YOU !