Title: Project Analysis and Decision Making March 2, 2006 Steven W. Peuquet, Ph.D., Presenter Center for Community Research
1Project Analysis and Decision MakingMarch 2,
2006 Steven W. Peuquet, Ph.D., PresenterCenter
for Community Research ServiceUniversity of
Delaware
- Nonprofit Management
- Certificate Course
- 2006
2Need I Say More?
3Topics Well 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
4The Dual Requirements of the Nonprofit
Organization and Their Importance for Decision
Making, Planning and Management
5The Dual Requirements of the Nonprofit
Organization and Their Importance for Decision
Making, Planning Management
- A nonprofit must fulfill its cash flow
responsibilities like any business enterprise. - A nonprofit must pursue its mission.
6The Dual Requirements of the Nonprofit
Organization and Their Importance for Decision
Making, Planning Management
Facts of Nonprofit Life
- No matter how laudable a mission may be, it must
be financed in order to be realized. - If cash flow obligations are not met, the
organization will die and its mission will not be
pursued or accomplished.
7Nonprofits as Legal and Economic Institutions
8Nonprofits as Legal andEconomic Institutions
Nonprofits are economic enterprises in every
sense.
- They must obtain scarce resources (land, labor,
and capital) in the marketplace (via purchase
and/or donation). - They produce and sell goods and services directly
or indirectly through third parties.
9Nonprofits as Legal andEconomic Institutions
Important Point
- NPs are more like businesses than government
(government can tax, NPs businesses cannot, NPs
and businesses can go bankrupt, government
cannot).
10Nonprofits as Legal andEconomic Institutions
NPs must have external sources of support, and
may, but do not have to have, sources of internal
support.
- External funding -- contributions
- Internal funding -- money generated through fees
for goods and/or services produced, or from
investments
11Nonprofits as Legal andEconomic Institutions
Important Point . . .
- 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
12Nonprofits as Legal andEconomic Institutions
Legal Limits on the financial activities of NPs
- A NP does not have the conducting of substantial
commercial activity as its principle purpose or
mission. - 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.
13Nonprofits as Legal andEconomic Institutions
With respect to NPs making a profit
- ". . . 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)
14Nonprofits as Legal andEconomic Institutions
Important Points . . . (from Harrington Bryce)
- ". . . the major limits to financing by
nonprofits is economic and financial
imagination." - ". . . Perhaps the most fundamental change in
perspective that is needed to improve the
financial management of nonprofits is to view
them as economic institutions."
15Nonprofits as Legal andEconomic Institutions
- Phone Call from the Good
- Woman from Appalachia
16Nonprofits as Legal andEconomic Institutions
- The Strategic Planning and
- Management Process Represented as a
- Flow Diagram
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18Nonprofits as Legal andEconomic Institutions
- Strategic Planning and
- Management Requires the Making
- of Choices ! ! !
19Budgeting as aDecision Making, Planning
Management Tool
20Budgeting as a DecisionMaking, Planning
Management Tool
Primary Purpose of Budgets
- A financial plan
- A statement of how an organizations resources
should be allocated among alternative uses - A statement of what resources will be sought in
order to pursue the organizations purpose
21Budgeting as a DecisionMaking, Planning
Management Tool
Primary Purpose of Budgets (continued)
- A tool of management control
- Helps management to monitor how resources are
being spent during the year by providing a
reference point
22Budgeting as a DecisionMaking, Planning
Management Tool
Basic Principles Underlying Budgets
- For establishing policy
- Issues related to the acquisition and allocation
of resources - For efficiency
- To get the most out of each dollar spent
23Budgeting as a DecisionMaking, Planning
Management Tool
Operating versus Capital Budgets
24Budgeting as a DecisionMaking, Planning
Management Tool
- Examples of Different Formats for
- Operating Budgets
25Budgeting as a DecisionMaking, Planning
Management Tool
Program Item Budgets Combined
26Budgeting as a DecisionMaking, Planning
Management Tool
Actual Budgeted Expenditures
27Budgeting as a DecisionMaking, Planning
Management Tool
Variance Between Budgeted Actual Expenditures
28Budgeting as a DecisionMaking, Planning
Management Tool
Important Points . . .
- Budgeting involves the making of choices.
- Hopefully intelligent choices for both
- Policy reasons
- Efficiency reasons
29Useful Decision Making Techniques for Planning
and Management
30Useful Decision MakingTechniques for Planning
Management
Cost Accounting
- The purpose of cost accounting is to provide
information to aid planning and control. - 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.
31Useful Decision MakingTechniques for Planning
Management
Cost Accounting (continued)
- 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
32Useful Decision MakingTechniques for Planning
Management
Cost Accounting (continued)
- 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
33Useful Decision MakingTechniques for Planning
Management
Cost Accounting (continued)
- 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.
34Useful Decision MakingTechniques for Planning
Management
Break Even Analysis An Application of Cost
Accounting
35Useful Decision MakingTechniques for Planning
Management
Break Even Analysis Example
The executive director of a community center
proposes a new program to the centers 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.
36Useful Decision MakingTechniques for Planning
Management
Break Even Analysis Example Some Important
Questions
- Would the proposed program be consistent with the
community centers overall mission? - What specific services would be provided?
- How many people would be served, over what time?
- What resources are needed to start and operate
the program and what will they cost? - Where will revenues come from and how much are
individual clients willing to pay? - How do total program costs and revenues compare?
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38Useful Decision MakingTechniques for Planning
Management
Break Even Analysis Example Some Enhancements to
the Technique
- What if fixed costs change at some point (lumpy
fixed costs)? - How can you incorporate grants into the analysis?
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41Useful Decision MakingTechniques for Planning
Management
- For a specially developed
- MS Excel workbook
- for Break Even Analysis for
- students in this course,
- go HERE!
42Useful Decision MakingTechniques for Planning
Management
Trade-Off Analysis
- Is a technique to select the most feasible or
optimum alternative given that there is more than
one alternative solution to a problem. - 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
43Useful Decision MakingTechniques for Planning
Management
Steps in Doing Trade-Off Analysis
- Identify two or more possible alternative
solutions. - Develop a set of decision criteria.
- Give each criteria a numerical weight that
reflects its relative importance. - Rate each of the possible alternatives against
the weighted decision criteria. - Multiply the rating given for each criteria by
its weight. - Calculate the total score for each alternative
being analyzed.
44Useful Decision MakingTechniques for Planning
Management
Examples of Trade-Off Analysis
45Data and Information forDecision Making,
Planning and Management
46Data and Informationfor Decision Making,
Planning Management
Different Types of Data
- Cross sectional
- Primary
- Secondary
- Time Series (multiple cross sections)
- Primary
- Secondary
- Longitudinal
- Primary
- Secondary
47Data and Informationfor Decision Making,
Planning Management
Primary Data
- Data that you determine you need to answer your
questions, that you go out and collect from its
primary source. - Sources
- Semi-structured and structured interviews
- Checklists
- Mail and telephone surveys
- Etc.
48Data and Informationfor Decision Making,
Planning Management
Secondary Data
- Data that someone else collected previously that
you determine could be useful to you to answer
your questions. - Sources
- U.S. Census
- Other government studies and reports
- Data published by private industry and nonprofits
- The World Wide Web
- Agency administrative records
- Etc.
49Data and Informationfor Decision Making,
Planning Management
Difference Between Data and Information
- Data is the raw material of information
- Information is useful for purposes of answering
specific questions
50THE END