Benchmarking Finance and Business Operations The Finance and Administration Roundtable May 24, 2006

PRESENTERS Bron Prokuski VP, Business Operations National Defense Industrial Association Nat Bartholomew, CPA Principal LarsonAllen

FRAME THE DAY What is Benchmarking? Group Benchmarking Exercise Sources of Benchmarking Data:  Sample Financial Benchmarks  Sample Policy Benchmarks Demonstration on Use of Benchmarking Data

WHAT IS BENCHMARKING? Comparison of like attributes or metrics from similar demographic data samples –People, process, technology, business processes/practices/strategies A baseline for performance improvement Opportunity to gain best practices –Measurement by fact rather than opinion

Benchmarking - When You Want To… Answer “How do I compare?” Determine financial health Obtain a single version of the truth Make better informed decisions

INTERESTED PARTIES A DIFFERENCE IN PERSPECTIVES THE BOARD - Profitability, Reserves, New Business Ventures, Mergers & Acquisitions THE STAFF - Compensation, Benefits, Working Environment THE AUDITOR - Financial Health, Risk Assessment, Management Advisory Services - Best Practices THE MEMBERS - Needs, Service, Value, Measuring Your Industry - Sector Analysis SERVICES AND SUPPLIERS - Quality, Performance, Competitiveness EXPLORE POSSIBILITIES -

STRATEGIC PRIORITIES Financial Health Quality Events for Member/Sponsor Needs Awareness/Action on Advocacy Issues Member & Participant Growth and Activity Knowledge and Information Transfer Broadened Programmatic Coverage Professional, Positive Work Environment

OBJECTIVE / GOAL DETERMINATION Interested Parties BOARD STAFF AUDITOR MEMBERS SERVICES SUPPLIERS Financial Health Quality Events for Member/Sponsor Needs Awareness/Action on Advocacy Issues Member & Participant Growth and Activity Knowledge and Information Transfer Broadened Defense & National Security Sector Coverage Professional, Positive Work Environment

Business/Mission Success Strategic Plan Goal 1Goal 2Goal 3Goal 4

CANDIDATE AREAS Service quality Asset use Staff performance Program performance Operating efficiency Customer satisfaction Return on investment Project time to benefit

GROUP EXERCISE What are you trying to measure? How do your currently measure it? How often do you measure it? Is it helping you to improve performance? If not, how can you fine tune your measurement?

Sources For Benchmarking Data ASAE & The Center’s ORR ASAE & The Center’s P&P Compensation & Benefit Studies GuideStar – More than just 990s Customized Data Collection

USE OF BENCHMARKING TOOLS ASAE’s Operating Ratio Report Twelfth Edition, Vol I & II What’s In There?

What is ASAE’s ORR Compilation of financial data from participating associations First published in 1953 Collected via Federal Forms 990 and survey supplements

What Data is in the 12 th Edition? Approx. 7,000 associations were requested to send in data in April 2003 Reminders sent in May and June By the end of June 628 valid surveys were utilized to compile the statistics enumerated in the 12 th Edition – 9% response rate Therefore 95% certain that results are within +/- 4% (when data is supported by the full sample size)

How Do I Extract Data That Is Relevant to My Association? Data Categories Membership Type IRS Tax Status Total Ass’n Gross Revenue Geographic Scope (Int’l/Nat’l or Regional/State/Local) Metropolitan Area (e.g., DC, NYNY, etc.) Industry Sector/Interest Area

Content Sections – Vol I Revenue and Expense Information IRS Form 990 Information Balance Sheet Information Specialized Sections –Industry Sector –Metropolitan Area –Geographic Scope

Content Sections – Vol II Expense Information 10-Year Trend Analysis –Revenue and Expense –IRS Form 990 Schedule –Balance Sheet Information Reserves and Investment Information

Dues As Percentage of Revenue (Dues Reliance) By membership type (all organizations): Mainly Company/Institutional Members=39.2% Mainly Individual/Professional Members=30.1% By size / by membership type & size: Gross RevenueAll Orgs C/I I/P $500K or less= 62.4%63.5%56.4% $500K - $1M= 30.1%37.0%25.8% $1M - $2M= 35.5%38.2%29.5% $2M - $5M= 35.0%36.1%34.1% $5M - $10M= 29.2%32.2%29.0% $10M+= 30.4%41.4%23.7%

Dues as Percentage of Revenue (Dues Reliance)

Salaries & Benefits Average Salaries - Geographically Average Benefits - By Size ($) Average Salaries and Total Revenue per Staff Member – By Industry Sector

Average Benefits By Size ($)

Trend Analysis - Investment Composition (as a percentage of total assets)

Trend Analysis – Meetings Sponsorship Revenue (Percentage of Total Revenue)

Trend Analysis – Periodical Advertising (Percentage of Total Revenue)

Trend Analysis –Personnel Benefits (Percentage of Total Revenue)

Trend Analysis –Personnel Benefits (Average Benefits per Staff Member)

Trend Analysis – Printing & Photocopying Costs (Percentage of Total Revenue)

Average Reserve Target Reserves defined as total net assets and as a percent of annual operating budget 501(c)(3)76% 501(c)(6)59%

Investment Policies All Assns501(c)(3)501(c)(6) Cash Investments21%24%20% S-T Investments23%19%26% L-T Investments53%58%53% Other Investments3%0%1%

USE OF BENCHMARKING TOOLS ASAE & The Center’s Policies and Procedures in Association Management (A Benchmarking Guide)

P & P 7,403 membership organizations were sent questionnaires in mid-April 2005 Responses were closed on June 30, ,111 associations responded (15% response rate compared to 8% in 2001) Over 600 tables of benchmarking data in seven volumes 95% confidence of 4% margin of error (just like 12 th Edition of ORR)

Respondents 46% Trade Associations / 54% Individual Member Organizations 56% 501(c)(6) / 37% 501(c)(3) 68% budgets <$5M Median annual budget = $1.9M Median FTEs is 10 (actual FTEs 1 – 182)

Best “Average” Measure Median – ½ respondents above; ½ below Mean – sum of all cases / total # of respondents Median is a better measure for average when the upper limit is theoretically infinite (e.g., # members, annual budget), as the mean can be strongly affected by very high values. # Members (Mean = 58,687 / Median = 1,500) Annual Budget (Mean = $6.4M / Median = $1.9M)

International Benchmarking Trends

Related Foundations?

ARE MEMBERS PERMITTED TO PAY DUES IN INSTALLMENTS?

HOW MUCH OF REVENUE IS MADE UP OF DUES? Median percent of total revenue derived from member dues 40%35% Dues as a percentage of total revenue are inversely related to size by number of FTE’s

ACCEPTING ONLINE PAYMENTS

TRADEIMOTOTAL CURRENTLY ACCEPT MULTI-YEAR MEMBERSHIP 19%43%*32% EXPECT TO ACCEPT MULTI-YEAR MEMBERSHIPS OVER THE NEXT TWO YEARS 82%79%81% * Up from 26% in 2001

MEMBERS ARE PERMITTED TO UPDATE THEIR OWN RECORDS MEMBERSHIP RECORDS ARE THE RESPONSIBILITY OF THE MEMBERSHIP DEPARTMENT WHO UPDATES MEMBER RECORDS? 46%51%

MEDIAN I.T. BUDGET

BALLOTS ONLINE FOR DIRECT VOTING

TELECOMMUTING 55%-TELECOMMUTING FROM HOME IS PERMITTED 64%-ORGANIZATIONS WITH MORE THAN 30 FTE’S ALLOW TELECOMMUTING 43%-PROVIDE COMPUTERS AND EQUIPMENT

TECHNOLOGY TRAINING

MEMBER COMMUNICATION

TECHNO-MARKS 68%-USE WINDOWS XP 62%-USE # OF WEBSITE HITS TO EVALUATE EFFECTIVENESS 33%-USE SURVEYS AND ONLINE FEEDBACK TO MEASURE WEBSITE EFFECTIVENESS 44%-UPDATE WEBSITE DAILY 31%-UPDATE WEBSITE WEEKLY

Financial Policy Metrics 56% of the reporting associations have fiscal years coinciding with the calendar year Median liquid reserves are 26% 79% of the reporting associations publish a flagship periodically issued publication 87% report that their organization is subject to an annual independent audit 5% report they have been audited by the IRS in the last three years Median percentage of non-deductible dues is estimated at 11%

Sarbanes Oxley (SOX) Whistleblower Policy –22% have –74% adopted after SOX Audit Committee –52% have –24% in place after SOX Staff Ethics Statement –48% have –18% adopted after SOX

Board of Directors Respondents report a median of 16 voting members 63% report that their chief elected officer serves a term of one year or less Most organization’s boards meet quarterly (27%) or semi-annually (21%) 12% pay elected officers for their service 74% of volunteers receive “on the job” training

ASAE Association Compensation & Benefits Study

Questions?