item 5.1 attachment...board of directors agenda item consent agenda main agenda title: three-year...
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Board of Directors Agenda Item
Consent Agenda Main Agenda
Title: Three-Year Business Plan and FY2017 Budget
Agenda Item Number: 5.1
Issue Statement: The Finance and Budget Committee presents a three-year (FY17-
19) business plan and FY20171 Budget for board approval.
Background: In addition to its standing responsibility to prepare annual
operating and capital budgets that reflect the strategic plan and
board polices, this year the Finance and Budget Committee
charges made the officers responsible for developing a three-year
business plan for the association that aligns budget and finances
with organizational priorities.
The primary objectives of the business plan are:
To develop strategies to identify and achieve growth of
dues and non-dues revenue;
To ensure cohesiveness and continuity in the direction of
NSPE over the three-year period and changing volunteer
leadership;
To ensure the fiscal health of NSPE and the continued
relationships with its State Societies; and
To ensure resources are available and expended to further
the NSPE Statement of Strategic Direction.
Initial development of FY17 budget began in January 2016, once
six months of actual financial results were available for staff
review and analysis. By mid-February the first draft of a
NSPE/NICET FY17 budget was developed, along with forecasts
for FY18 and FY19. In mid-January, an exemplar draft Business
Plan was prepared by President Tim Austin and distributed to
Executive Committee for initial discussion and input from all
directors was actively solicited.
In a series of six conference calls conducted by the officers2 and
senior staff between May 2nd and June 10th, the business plan
(Attachment 1) was finalized and its goals and objectives were
incorporated into a proposed FY17 budget (Attachment 2). The
1 FY2017 runs from July 1, 2016 through June 30, 2017. 2 The full budget and finance committee participated in a June 8th call, and the full board was briefed on the May 25th board conference call.
Item 5.1 Attachment
budget document includes projections for 2018 and 2019. The
out-year projections are only a very rough (and probably overly
conservative/pessimistic) estimation based on current trends,
current direction, and limited available information. It is
anticipated that changes will be undertaken or experienced
(positive and negative) between now when the next year’s budget
is formed.
NSPE Business Plan
The investment of resources and the targeted revenue sources
over the three-years encompassed by the NSPE Business Plan
were driven by the direction set in the NSPE Strategic Plan, the
NSPE Statement of Principles, and the NSPE Statement of
Strategic Direction.
The Business Plan recognizes that NSPE lines of business
activity fall into three major categories:
1. Membership Dues;
2. Mission-driven Activities, such as advocacy efforts, support
to state societies, governance, public relations, etc., which do
not provide any direct financial return to the association3;
and
3. Revenue Generating Activities, which create resources
than can be invested in mission-driven activities. These
include:
a. NSPE Non-Dues Revenue Programs
b. NICET
c. Other (such as building leases, administrative
services, etc.
The business plan articulates the association’s response to a
fundamental reality: while NSPE exists for a higher purpose
than simply creating profit, being not-for-profit is a tax status,
not a business strategy. Without resource generation, NSPE’s
mission will not be accomplished; however, net profitability is a
means to an end, not an end in and of itself.
Membership Dues
Although NSPE has been experiencing declining membership for
3 While not directly generating revenues, mission-driven activities do support membership marketing success.
a number of years, the business plan continues the current
investment in intensified membership marketing activities.
Positive experience with short-term marketing tactics conducted
this past year offers encouraging confirmation of opportunities in
this area. Three such campaigns were launched in early 2017
that have already yielded a positive return on investment (for
national and even more so for our state partners), with additional
future returns anticipated from the “career stages” campaign:
Cost to National
National Dues
Revenue Generated
National Net Cost to State
Societies
State Dues Generated
State Net
NSPE Unite
$15,000.00 $1,322.75 ($13,677.25) $0.00 $1,293.93 $1,293.93
Lapsed Member
$20,000.00 $46,000.00 $26,000.00 $0.00 $46,120.00 $46,120.00
Total Net Revenue to
Date: $12,322.75 $47,413.93
Career Stage
$13,097.00 TBD: Due to the nature of the career stage campaign, it will be a year before its revenue generating impact will be realized.
However, there remain systemic counter-trends that, if not
addressed through fundamental and strategic changes to the
membership business model, pose significant negative drags on
membership revenue potential:
Fully 29.4% of NSPE members are non-dues paying
members (student members who pay no dues; life
members, who no longer pay dues). There may very well
be great mission value in these categories of membership,
however from a membership revenue potential
perspective, looking at gross membership count distorts
the perception of revenue potential.
The average, annual national dues per dues-paying
member (factoring in discounts such as new member
introductory rate, enterprise, state-driven 6-month free,
etc.) is approximately $120.
Approximately 500-600 dues-paying members per year
die or convert to Life Member status, generating an
attrition rate in dues-paying membership of
approximately -2.8% per year. This attrition will
continue or even increase, regardless of new membership
or retention marketing success.
For this reason, a primary objective within the business plan is to
bring to closure the current membership business model dialogue
with national and state leaders and state executives in an effort to
simplify the three-tier, dues-paying structures across and among
the NSPE state societies in a manner that:
Is easy to understand for all members;
Offers a compelling value proposition for integrated
membership; and
Supports the revenue needs of national and its state
societies.
Consistent with the Strategic Plan (adopted by the House of
Delegates in 2014) and the original vision of the organization
from its founding, the focus of the dialogue to date has been on
preserving but making changes that achieve an integrated
membership model that works. Alternative, disaggregated
models remain on the table if consensus cannot be reached and it
is the collective will of the membership to go that direction.
The Business Plan includes specific strategies and performance
metrics for both the short-term membership marketing and long-
term membership business model objectives.
Mission-Driven Activities
Again, these activities create member value, which in turn
supports membership acquisition and membership revenues4, but
are largely not direct revenue generators. Consistent with the
Strategic Plan, NSPE has increased investments in this area,
particularly in the area of direct advocacy to define, promote and
protect the PE license, increased support of state societies in this
area, increased communications and increased opportunities for
member engagement.
4 There is an important caveat to bear in mind. Stakeholder value through activities such as advocacy is enjoyed equally by all members of the profession, regardless of their society membership status. Every individual who values the PE benefits from a legislative or regulatory victory
that strengthens the license even if they did not financially support that accomplishment through dues. (The classic “free rider” dilemma that all
professional societies face.) For this reason, the Business Plan focuses on increased awareness and appreciation of the importance of these activities, undertaken on the profession’s behalf, by national and the states.
Business plan objectives in this area include:
Providing collaboration groups for NSPE members
whereby they can communicate easily with other NSPE
members regarding topics of interest and importance to
the EI or PE; and
Increasing member awareness and appreciation of the
value of membership and level of commitment to
membership.
The Business Plan includes specific strategies and performance
metrics for these objectives.
Revenue-Generating Activities
This area includes non-dues revenue-generating NSPE programs,
NICET and other economic activities of the enterprise (such as
the NSPE building and administrative services offered to
affiliated, but independent groups).
NSPE Programs
The business plan objective in this area is to increase
operating revenues available for investment in mission-
driven activities and includes a 3% increase per year in
the volume of sales/participation in valued programs,
including those bundled with dues to members, those sold
to non-members (at premium pricing), and programs that
generate net revenues.
NICET
The Business Plan incorporates NICET’s ongoing, multi-
year plan to ensure sustained viability and future
profitability by:
Completing conversion of all (continuing)
technician certification programs from the Work
Element model (paper & pencil format) to the
new Standard model (computer-based format);
Divesting or eliminating certification programs
that do not support a large enough stakeholder
population to be financially viable to administer
and maintain;
Improving ease of customer access and overall
service levels for all NICET customers; and
Ensuring rigor, quality and credibility of NICET
Certifications.
Other
Business Plan objectives in this area are focused on:
Developing and maintaining the building as the
core financial asset for NSPE.
Evaluating net profitability of administrative
services arrangements.
The Business Plan includes specific strategies and performance
metrics in each of these areas.
FY2017 Budget
Consistent with the principles, objectives and metrics established
in the Business Plan, the Finance and Budget Committee present
the 2017 Fiscal Year, covering the period of July 1, 2016 through
June 30, 2017 (Attachment 2) for board consideration and
adoption.
The proposed budget incorporates the following, significant
elements and assumptions:
An 8.4% increase in new, dues-paying members;
Reducing dues-paying member attrition from 10% to 8%;
Eliminating the traditional, automatic “cost of living”
adjustment to NSPE dues rates (base dues remains
unchanged at $154);
Continued funding of expert consulting support for both:
o Short-term tactical membership marketing
campaigns; and
o Long-term membership structure and business
model design;
Maintenance of advocacy staffing in the government
relations/professional practice department expanded this
past fiscal year5;
Staffing of educational program development position,
focusing on expanded online education and PE Institute
programming6;
Continued implementation of NSPE online communities,
to support both formal components (committees, task
forces, interest groups) and self-forming member
communities;
Sunset of NICET work element/paper and pencil testing
and conversion of all continuing technician certification
programs to the new testing model;
Necessary upgrades to NICET database and IT systems;
Renovations to the second floor of the NSPE
headquarters building and first year elements of a three-
year plan to consolidate NSPE/NICET occupancy from
four floors to three (freeing approximately 4,000
additional square feet of commercially leasable space);
and
Increased staff benefit costs as a result of:
o Current, full staffing of all approved positions6;
o Increases in staff benefit costs due to
implementation of the Affordable Care Act,
despite significant reductions in the scope of
benefits provided to employees.
The resulting budget projects an operational budget loss of
$146,308 on expenses of $9,316,312, or (1.57%) of operational
expenses7.
Conclusion
Although NSPE’s financial position can easily support the
5 All approved positions are currently filled and no new staff positions are proposed for FY17: the FY17 budget reflects the full, 12-month cost of these positions already filled. 6 The prior year financials showed less expense due to vacancies in several staff positions for significant portions of the year. 7 NSPE Core operations project a loss of $297,974 on expenses of $4,731,998. Most of this operational loss is offset by NICET’s projected surplus of $151,666 on expenses of $4,584,314.
modest operational loss projected for FY17, this is not cause for
complacency. Projecting forward three years8 provides a stark
warning of increasing, operational deficits unless bold action is
taken.
The business plan and first budget year of its implementation
incorporates significant investment in major re-engineering of
NSPE’s two primary sources of revenue: designing a sustainable
dues business model and refreshing the content and technology
of NICET testing services. It also builds on several years of
positive developments in NSPE’s key mission-driven activities,
particularly advocacy in support of the license.
It is the opinion of the Business Plan Task Force that NSPE must
continue to invest in the efforts listed above in order to affect
positive change. Cutting programs, marketing efforts, or staffing
to bring the budget to a zero balance would cause more damage
than good to the organization and accelerate its decline. It is
imperative that NSPE and its state partners seriously engage in
supporting the aggressive pursuit of the Business Plan’s
objectives so that out year projections can be significantly
improved and the organization (at the national and state levels)
can achieve sustainable growth and stability.
“If not us, who? If not now, when?9”
Capital Budget and Depreciation Schedule
Attachment 3 provides a detailed schedule and analysis of
capital investments and depreciation.
These amounts reflect money which has already been spent in
prior years, but are realized (expensed) over time. (The amount
of prior expenditures charged against each year is also reflected
below the line on the budget document itself.) It is important to
recognize that these are expenses already incurred10, and do not
represent additional operational expenses that must be funded
from current activities. They are investments in moving NSPE
8 Reiterating the caveat noted earlier, that out year projections are highly speculative. 9 Hillel the Elder (110 BC – 10AD) 10 For example, the original cost of the NSPE headquarters building, new AMS database system, customization of the system to accommodate
enterprise membership and self-billing states, purchase of the online community platform, routine replacement of office equipment and furniture, etc.
forward and maintaining its viability as an organization.
Budget Elements
Finally, a high level summary of revenues and expenses by line
of business, and analysis of liquid reserves is provided in
Attachment 4.
Nature of Action
Required:
1. MOVED: That the NPSE Board of Directors approves the
Three-Year Business Plan.
2. MOVED: That the NSPE Board of Director approves the
budget for fiscal year 2017 as presented; and
Attachments: 1. NSPE Three-Year Business Plan
2. FY17 Budget
3. Capital Budget, Depreciation Schedule and Analysis
4. Budget Elements