VP Finance 2004 Winter Narrative Report
Sloan School, Cambridge MA
February 9, 2004
Summary: One year ago, I issued a “red alert” when the Society posted its largest ever deficit of $85,924 for 2002. For 2003 I would downgrade that to an “orange alert”. Our financial performance is much better for four reasons: (1) The economy has improved; (2) The generous support of sponsors has helped out our position greatly; (3) Hands on management of the conference cost structure returned an overall profit; and (4) Vedat Diker left the home office to take a University post yielding salary savings. In my opinion, the Society’s long term financial outlook is not yet stable because recurring and stable income sources (such as dues) do not meet stable and recurring expenses (such as staff salaries). The Policy Council needs to continue to examine our dues structure, to contain recurring costs whenever possible, and to seek long run stable support for Society operations.
I have posted a set of six (unaudited) reports to the Society’s web site. These are the reports that the policy council is used to seeing at this point in the year. When I look at these reports, here are the key features that stand out:
Six Year Profit and Loss Comparisons (1998-2003). Overall, the scale of our annual operations has grown substantially from around $170,000 per annum in 1998 to around $360,000 per annum in 2003. Over this period we have accumulated a modest balance of net income. However, the annual “bottom line” is unstable swinging from a high of +$74,000 in 2001 to a low of -$86,000 in 2002.
Profit and Loss Previous Year Comparison (2002 vs. 2003). Investment income and sponsorship are both up smartly. More importantly, conference income was up from 2002 while conference expenses came in substantially under those from the previous year. The Society operates on a cash basis, so the bottom line for 2003 does not reflect a modest balance that has accrued in the Society’s account at the University at Albany (about $16,000) nor the pre-payment of conference fees for the Oxford conference. I believe that we would have shown a net gain if reported on an accrual basis.
Budget Comparison Last Fiscal Year (2003). We are having continuing difficulty accurately budgeting conference income and expenditures. We saw a modest decline in product sales and I fear that this trend may continue unless the Society finds new products to support this aspect of our operations. The above-expected rise in professional fees can be attributed to additional outsourcing of home office work made necessary by Vedat’s departure.
Profit and Loss by Cost Centers (2003). This cost center analysis shows that net income from conferences and sales continues to cross-subsidize core operations, publications, and the web. This pattern is the source of my concern that the Society’s finances are not stable in the long run (we do not have recurring income to cover core, publication of the journal, and member service operations). The “unclassified” cost center represents $17,000 worth of funds that were paid to the University at Albany but were not expended. These funds have accumulated in an account earmarked for the Society.
Balance Sheet Previous Year Comparison (2003 unaudited). The balances on a cash basis are essentially stable. These balances do not account for the funds held on behalf of the Society in the University at Albany’s accounts. Our pattern of investments is fairly conservative and has remained essentially unchanged during my tenure as VP for Finance.
What Do I Think About All These Figures?
I think that we can down grade our financial alert from a “red alert” to an “orange alert”. An upturn in the economy coupled with increased sponsorship has helped us out substantially. In addition, more aggressive management of conference cost structures and the resignation of a key staff person have helped to hold down overall costs.
However, I still remain concerned by the fact that the Society continues to be financially viable due primarily to the active entrepreneurial spirit of its home staff. Active sales and sponsorship programs combine with high efforts to run profitable conferences. These staff activities serve to subsidize core operations, publication of the journal, and member services. In my opinion, the Policy Council should address this imbalance by holding down recurring expenditures, examining the Society’s dues structure, and by seeking longer range programs of sponsorship and support for Society operations.