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Like you, we keep reading bad news. State budget deficits balloon; limited federal stimulus money; foundations scramble to resize their staffs and grant-making to fit 25-30% smaller endowments; gala receipts drop. Yet many nonprofits we know talk about planning for growth - what is going on? True, many organizations will remain complacent, struggle, weaken and even close in the next few years. But others are surviving - even thriving -- and are positioning themselves for a healthy future. The latter probably have strong leadership that acted early, thoughtfully, and aggressively. They have evidence-based programs that demonstrate real impact. Rather than trying to eke their way through the tough times, these agencies are balancing budgets and investing in the future. They operate within existing revenue constraints yet remain innovative, delivering vital services to their communities. Every agency took actions that were intentional, foundation-building steps to ensure a healthy organization for the future - approaches you can also use to take charge of your organization’s destiny. Scenario Planning: Cover your Downside, Plan for the Upside Some organizations we know create a two-scenario budget: the first scenario assumes a "baseline" revenue figure derived from activities planned and reflects a restrained economic outlook; the second version is more optimistic. Both budgets are balanced: the first incorporates needed reductions; the second contains investments to be made if and when additional revenue is generated. The board approves both budgets, but it is the first, baseline budget, that serves as the annual operating budget. This two-scenario budget has several advantages: first, it ensures that the organization plans how it will operate with more limited resources during these tough economic times, reducing the strain and freeing leadership to focus on program delivery. Second, it provides a clear plan for when and where the nonprofit will increase expenses later in the year if the opportunity arises -- a considerably better situation than scrambling to cut twelve months worth of costs halfway through the year. Third, it shows funders that the agency has planned responsibly. Finally, it motivates the nonprofit’s leadership and board to seek additional funding to make the second budget a reality. It's a real win-win situation. Using a Trade-Off Matrix to Assess Your Options A trade-off matrix is a tool that helps you consider two equally important factors and balance how much you want of one versus the other. A classic example is how big a mortgage you are willing to accept versus what kind of home you want to have. Facing reduced revenue, one organization we know had a tough choice to make: should it serve the same number of clients or maintain its high service quality? Recognizing it couldn’t do both with its current revenue, it used a trade-off matrix to help the senior leadership team decide what to do. First, it determined the absolute limits to what it could provide with its existing revenue: at the one extreme how many clients the agency could serve; at the other how much could it adjust its program quality. The nonprofit calculated the maximum number of people it could serve based on its average cost/participant (a proxy for program quality). Then it determined what its cost/participant would be if it continued to serve its current number of participants. Armed with this information, senior leadership discussed various options: how much can we reduce our cost/participant but maintain an acceptable quality level and serve more people? If we want to maintain our quality, and therefore reduce the clients served, how do we determine which participants to keep - who benefits most, which population is not served by other similar programs, how closely does this fit within our mission? The discussions surfaced and reinforced the organization’s core values, prompted a thorough examination of what services and quality had the most impact, and ultimately led to a shared decision of the optimal client/program quality mix. You can use a trade-off matrix to compare individual programs or to assess other factors, like program profitability versus impact. Harlem Children's Zone did something similar when it prepared its contingency plan for the economic downturn, helping it decide to focus on the community's younger children where it could have the greatest long-term impact. Difficult as these discussions are - and they should be - a trade-off matrix helps clarify thinking, provides some objectivity, and can help unite leadership around a shared vision for the future. Planting Seeds for Tomorrow Several nonprofits we know are forging new, innovative futures that build on their core capabilities in transformative ways. One organization developed a proven, evidence-based school program that increased participants' higher academic achievement. Facing unpredictable and declining funding for its school-based programs, it is developing a business plan to disseminate its curriculum and train others across the country, a "train the trainer" approach. In this way the nonprofit can spread its program more widely, cost-effectively and faster than if it tried to replicate its model in other schools itself. A health services organization realized that its current health care delivery cost structure is rising to unprofitable and unsustainable levels. Given its community-based focus, the agency is exploring other ways to improve its residents' health, expanding its asthma prevention and harm reduction programs. Its preliminary analysis indicates that these are areas where few programs exist, funder interest is high, and the potential impact can be great. In essence the organization redefined its programmatic focus, yet stayed true to its mission and recognized the longer-term funding potential. Finally, a multi-services agency continued to invest in an initiative it began before the recession: change its name and strengthen its marketing message to raise its profile. The result - a new logo, website, and marketing materials - enables it to compete more effectively for funds to deliver key services to its community. We Want Your Knowledge! Let us know what you have done to survive this recession and position yourself for the future. Your insights can help strengthen the sector. View printable version of this newsletter
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