An Overview of Economic Scenario Planning

Transcription

1 SHARING KNOWLEDGE. GROWING IMPACT. An Overview of Economic Scenario Planning May 3, 2016 cfinsights.org

2 Housekeeping All phone lines have been muted. Questions? Please submit them at any time and we will address as many as possible during our Q&A period. Simply enter your question or comment in the Chat panel to the right of your screen, and hit the chat bubble ( ) to send. This webinar is being recorded for self paced learning. A link to the recording will be sent to everyone after the webinar and posted to our website. 2

3 the IDEA BEHIND IS SIMPLE What if EACH community foundation could know what ALL community foundations collectively know? 3

4 Reflecting on over 10 years Center for Financial Insights at IMAGINE & FUND LAUNCH & BUILD EVOLVE & ENHANCE MOVE & EXPAND 4

5 Series Overview Activity-Based Costing March 9 Interactive Strategy Model April 11 Perform a deep dive into your foundation s economics, uncovering which of your products are generating surplus revenue and which require an investment. Recommend specific changes to your community foundation s operations. Take the long view on your foundation s performance, utilizing the same staff time, cost, and revenue information used during the ABC to establish your CF s baseline year. Economic Scenario Planning May 3 All of these toolkits are available at cfinsights.org/tools/overview.aspx Generate and analyze three potential high-level five-year outlooks using your foundation s baseline data. Operating revenues and expenses Information on fees Operating endowment/reserve totals 5

6 An introduction to Economic Scenario Planning Chart three distinct scenarios for your foundation, one of which will act as your expected baseline. Determine what effect market whims may have on your foundation s economics. What other sources of revenue would have to cover gaps in administrative fees? How can absolute grant levels be maintained in the next five years through changes in spending policy? If the market were to see another downturn, will my foundation be able to weather the storm and maintain operations? 6

7 An introduction to Economic Scenario Planning 7

8 Before getting started, you ll need the complete ESP toolkit Detailed step-by-step User Guide ESP Model Excel template including all of the inputs and outputs that will allow you to generate forecasts Presentation template PowerPoint file to be filled with data and findings Pre-populated versions of the Model and presentation template are available The entire toolkit is available as a free download via cfinsights.org/tools/overview.aspx. 8

9 Things to keep in mind when working on the Model Color coding Must Have Optional Units All numbers must be entered in 000 s (e.g., $1,530,000 would be entered as 1,530 and depicted in the model as $1,530K) Hyperlinks II. Assets / Funds Calculation Back to Start Next Step IV. Other Revenues Password The model s sheets are password protected to ensure the integrity of the formulas if you d like to unprotect any of the sheets, use the password of password Gray and blue boxes act as hyperlinks which bring you to the corresponding part of the model Comments Hover your mouse over the triangles found throughout the model ( ) to view important information Featured in the model -> 9

10 Model layout Historical data Scenariobased changes Forecast Up to 5 years worth of: Assets Gifts/grants Operating expenses Revenues Market-based Fund growth Gifts/grants Operating expenses Revenues Five-year outlooks of sustainability 10

11 Historical data input Basic Information Assets/Funds Gifts and Grants Revenues, Operating Expenses, and Funds 11

12 Historical data input Basic Information Fiscal year end date Target years for forecasting Does your foundation use rolling averages? If so, define your time horizon (in years) Your forecast years are selected via a dropdown menu. Indicate whether you use rolling averages and over how many years via dropdown The Model will tell you which fiscal year data is necessary. 12

13 Historical data input Assets/Funds Total asset dollars by fund type Five pre-defined fund types are provided Up to three custom fund types may be used Products are standardized Donor-Advised Funds can be broken down into three sub-products. Three additional Fund Types can be defined. Must have dark yellow shading is based on your rolling average. 13

14 Historical data input Gifts and Grants Total Gifts received for the entire foundation Total Grants approved for the entire foundation Gift and grant totals are only collected on the foundation as a whole 14

15 Historical data input Revenues, Operating Expenses, and Funds Operating endowment ($) Operating reserve ($) Revenues by source ($) Operating expenses (personnel and non-personnel) Up to 5 customized sources of revenue can be defined 15

16 Historical data input Revenues, Operating Expenses, and Funds Operating endowment ($) Operating reserve ($) Revenues by source ($) Operating expenses (personnel and non-personnel) Personnel and non-personnel expense categories are all customizable. 16

17 Forecasting your expected scenario Before you begin to set assumptions, consider your scenarios! 17

18 Defining your assumptions Category Assumption Rationale Market Performance Donor Behavior Spending Policy Other Revenues Operating Expenses Fee for service income grows at 10% for two years, 5% next three Annual growth of 3% Dedicating more resources to consulting will bring in more contracts Inflation/small pay increases 18

19 Forecasting your expected scenarios Short, descriptive name A qualitative description Your first scenario will usually be your Expected scenario, and will act as your baseline. 19

20 Forecasting your expected scenarios Universal Assumptions Market-Based Fund Growth Investment Fee Interest Income 20

21 Forecasting your expected scenarios Product-level assumptions Effective Admin Fee New Gifts Grants Payout 21

22 Forecasting your expected scenarios Operating Endowment Market/Interest Return Net of Investment Fee Use of Market/Interest Return New Gifts Distribution of Principle 22

23 Forecasting your expected scenarios Operating Reserve Market/Interest Return Net of Investment Fee Use of Market/Interest Return 23

24 Forecasting your expected scenarios Admin. fees Fees for service Rental income You will enter your projected changes in revenues as percentages. To what extent will they change year over year? 24

25 Forecasting your expected scenarios You will enter your projected changes expenses as percentages. To what extent will they change year over year? 25

26 Forecasting your expected scenarios Optimistic? Pessimistic? Rinse and Repeat! 26

27 Viewing the forecast results Available for each of the three scenarios 27

28 Viewing the forecast results Available for each of the three scenarios 28

29 Viewing the forecast results Available for each of the five forecast years 29

30 Viewing the forecast results Available for each of the five forecast years 30

31 Viewing the forecast results 31

32 Viewing the forecast outputs Available for each of the three scenarios 32

33 Viewing the forecast outputs Available for each of the three scenarios 33

34 Viewing the forecast assumptions 34

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36 Two presentation templates are available on the CF Insights website Model data, calculations, and related analyses feed a final presentation. 36

37 SAMPLE TEMPLATE SLIDE We Anticipate Operating at a Slight Deficit in 2018 and 2019 Unless Further Budget Action Is Taken Comments Personnel Non-Personnel Assuming operating expenses only grow by 3% / per annum (to account for inflation and modest pay increases), we will be operating at a deficit in 2018 and 2019 Should we take further budget reductions in anticipation of this or are we comfortable with dipping into the reserve? 37

38 SAMPLE TEMPLATE SLIDE We Anticipate Operating at a Slight Deficit in 2018 and 2019 Unless Further Budget Action Is Taken Comments Personnel Non-Personnel Assuming operating expenses only grow by 3% / per annum (to account for inflation and modest pay increases), we will be operating at a deficit in 2018 and 2019 Should we take further budget reductions in anticipation of this or are we comfortable with dipping into the reserve? 38

39 SAMPLE TEMPLATE SLIDE We Anticipate Operating at a Slight Deficit in 2018 and 2019 Unless Further Budget Action Is Taken Comments Personnel Non-Personnel Assuming operating expenses only grow by 3% / per annum (to account for inflation and modest pay increases), we will be operating at a deficit in 2018 and 2019 Should we take further budget reductions in anticipation of this or are we comfortable with dipping into the reserve? 39

40 SAMPLE TEMPLATE SLIDE Based on the Results of the Economic Scenario Planning for Our Foundation, Several Key Discussion Topics Have Emerged Key Finding If we keep our grant pay-out at 5%, grants in 2020 will be 15% lower than in 2015 Discussion Topic Should we increase our grant pay-out rate? Administrative fees will likely cover only 70% of our operating expenses in the coming years Should we make further budget reductions or increase efforts around other revenue sources? Our operating reserve will get down to 4 months of cash by year s end Should we launch a fundraising campaign for general operating support next year? Secondary Finding A deficit may not be avoidable in 2018 and 2019 Discussion Topic Is the board comfortable with this? Total fees for our small DAFs will hover around $20,000 for the next few years Should we create minimum fees to bring the fee level back up to cover ½ FTE? 40

41 Takeaways Five year forecasts. Driven by external variables. Test your operating model s sustainability. The entire toolkit is available as a free download via cfinsights.org/tools/overview.aspx 41

42 Hear from your peer foundations Available for download on the CF Insights website. 42

43 CF Insights is available to help you through any or all of the processes discussed today Members receive 10 hours of technical assistance per year, some or all of which can be used at any point during the study, included as part of their membership fee. CF Insights offers different fee-based levels of consulting. Visit CFInsights.org to download and familiarize yourself with the complete toolkit for any of the three forecasting tools, as well as detailed user guides, all of which are licensed through Creative Commons. 43

44 Questions? SHARING KNOWLEDGE. GROWING IMPACT. The CF Insights Team Aaron Schill, Director (212) David Rosado, Member Services Manager (212) SPECIAL THANKS: