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Project Analysis and Decision Making March 2, 2006 Steven W. Peuquet, Ph.D., Presenter Center for Community Research

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Budgeting as a Decision Making, Planning and Management Tool ... Budgeting involves the making of choices. Hopefully intelligent choices for both: ... – PowerPoint PPT presentation

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Title: Project Analysis and Decision Making March 2, 2006 Steven W. Peuquet, Ph.D., Presenter Center for Community Research


1
Project Analysis and Decision Making March 2,
2006 Steven W. Peuquet, Ph.D., Presenter Center
for Community Research Service University of
Delaware
  • Nonprofit Management
  • Certificate Course
  • 2006

2
Need I Say More?
3
Topics 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

4
The Dual Requirements of the Nonprofit
Organization and Their Importance for Decision
Making, Planning and Management
5
The 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.

6
The 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.

7
Nonprofits as Legal and Economic Institutions
8
Nonprofits as Legal and Economic 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.

9
Nonprofits as Legal and Economic Institutions
Important Point
  • NPs are more like businesses than government
    (government can tax, NPs businesses cannot, NPs
    and businesses can go bankrupt, government
    cannot).

10
Nonprofits as Legal and Economic 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

11
Nonprofits as Legal and Economic 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

12
Nonprofits as Legal and Economic 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.

13
Nonprofits as Legal and Economic 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)

14
Nonprofits as Legal and Economic 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."

15
Nonprofits as Legal and Economic Institutions
  • Phone Call from the Good
  • Woman from Appalachia

16
Nonprofits as Legal and Economic Institutions
  • The Strategic Planning and
  • Management Process Represented as a
  • Flow Diagram

17
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18
Nonprofits as Legal and Economic Institutions
  • Strategic Planning and
  • Management Requires the Making
  • of Choices ! ! !

19
Budgeting as a Decision Making, Planning
Management Tool
20
Budgeting as a Decision Making, 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

21
Budgeting as a Decision Making, 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

22
Budgeting as a Decision Making, 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

23
Budgeting as a Decision Making, Planning
Management Tool
Operating versus Capital Budgets
24
Budgeting as a Decision Making, Planning
Management Tool
  • Examples of Different Formats for
  • Operating Budgets

25
Budgeting as a Decision Making, Planning
Management Tool
Program Item Budgets Combined
26
Budgeting as a Decision Making, Planning
Management Tool
Actual Budgeted Expenditures
27
Budgeting as a Decision Making, Planning
Management Tool
Variance Between Budgeted Actual Expenditures
28
Budgeting as a Decision Making, Planning
Management Tool
Important Points . . .
  • Budgeting involves the making of choices.
  • Hopefully intelligent choices for both
  • Policy reasons
  • Efficiency reasons

29
Useful Decision Making Techniques for Planning
and Management
30
Useful Decision Making Techniques 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.

31
Useful Decision Making Techniques 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

32
Useful Decision Making Techniques 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

33
Useful Decision Making Techniques 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.

34
Useful Decision Making Techniques for Planning
Management
Break Even Analysis An Application of Cost
Accounting
35
Useful Decision Making Techniques 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.
36
Useful Decision Making Techniques 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?

37
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38
Useful Decision Making Techniques 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?

39
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40
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41
Useful Decision Making Techniques for Planning
Management
  • For a specially developed
  • MS Excel workbook
  • for Break Even Analysis for
  • students in this course,
  • go HERE!

42
Useful Decision Making Techniques 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

43
Useful Decision Making Techniques 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.

44
Useful Decision Making Techniques for Planning
Management
Examples of Trade-Off Analysis
45
Data and Information for Decision Making,
Planning and Management
46
Data and Information for Decision Making,
Planning Management
Different Types of Data
  • Cross sectional
  • Primary
  • Secondary
  • Time Series (multiple cross sections)
  • Primary
  • Secondary
  • Longitudinal
  • Primary
  • Secondary

47
Data and Information for 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.

48
Data and Information for 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.

49
Data and Information for 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

50
THE END
  • THANK YOU !
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