Board of Directors Agenda Item

Consent Agenda Main Agenda

Title: Three-Year Business Plan and FY2017 Budget

Agenda Item Number: 5.1

Issue Statement: The Finance and Budget Committee presents a three-year (FY17-

19) business plan and FY20171 Budget for board approval.

Background: In addition to its standing responsibility to prepare annual

operating and capital budgets that reflect the strategic plan and

board polices, this year the Finance and Budget Committee

charges made the officers responsible for developing a three-year

business plan for the association that aligns budget and finances

with organizational priorities.

The primary objectives of the business plan are:

To develop strategies to identify and achieve growth of

dues and non-dues revenue;

To ensure cohesiveness and continuity in the direction of

NSPE over the three-year period and changing volunteer

leadership;

To ensure the fiscal health of NSPE and the continued

relationships with its State Societies; and

To ensure resources are available and expended to further

the NSPE Statement of Strategic Direction.

Initial development of FY17 budget began in January 2016, once

six months of actual financial results were available for staff

review and analysis. By mid-February the first draft of a

NSPE/NICET FY17 budget was developed, along with forecasts

for FY18 and FY19. In mid-January, an exemplar draft Business

Plan was prepared by President Tim Austin and distributed to

Executive Committee for initial discussion and input from all

directors was actively solicited.

In a series of six conference calls conducted by the officers2 and

senior staff between May 2nd and June 10th, the business plan

(Attachment 1) was finalized and its goals and objectives were

incorporated into a proposed FY17 budget (Attachment 2). The

1 FY2017 runs from July 1, 2016 through June 30, 2017. 2 The full budget and finance committee participated in a June 8th call, and the full board was briefed on the May 25th board conference call.

Item 5.1 Attachment

budget document includes projections for 2018 and 2019. The

out-year projections are only a very rough (and probably overly

conservative/pessimistic) estimation based on current trends,

current direction, and limited available information. It is

anticipated that changes will be undertaken or experienced

(positive and negative) between now when the next year’s budget

is formed.

NSPE Business Plan

The investment of resources and the targeted revenue sources

over the three-years encompassed by the NSPE Business Plan

were driven by the direction set in the NSPE Strategic Plan, the

NSPE Statement of Principles, and the NSPE Statement of

Strategic Direction.

The Business Plan recognizes that NSPE lines of business

activity fall into three major categories:

1. Membership Dues;

2. Mission-driven Activities, such as advocacy efforts, support

to state societies, governance, public relations, etc., which do

not provide any direct financial return to the association3;

and

3. Revenue Generating Activities, which create resources

than can be invested in mission-driven activities. These

include:

a. NSPE Non-Dues Revenue Programs

b. NICET

c. Other (such as building leases, administrative

services, etc.

The business plan articulates the association’s response to a

fundamental reality: while NSPE exists for a higher purpose

than simply creating profit, being not-for-profit is a tax status,

not a business strategy. Without resource generation, NSPE’s

mission will not be accomplished; however, net profitability is a

means to an end, not an end in and of itself.

Membership Dues

Although NSPE has been experiencing declining membership for

3 While not directly generating revenues, mission-driven activities do support membership marketing success.

a number of years, the business plan continues the current

investment in intensified membership marketing activities.

Positive experience with short-term marketing tactics conducted

this past year offers encouraging confirmation of opportunities in

this area. Three such campaigns were launched in early 2017

that have already yielded a positive return on investment (for

national and even more so for our state partners), with additional

future returns anticipated from the “career stages” campaign:

Cost to National

National Dues

Revenue Generated

National Net Cost to State

Societies

State Dues Generated

State Net

NSPE Unite

$15,000.00 $1,322.75 ($13,677.25) $0.00 $1,293.93 $1,293.93

Lapsed Member

$20,000.00 $46,000.00 $26,000.00 $0.00 $46,120.00 $46,120.00

Total Net Revenue to

Date: $12,322.75 $47,413.93

Career Stage

$13,097.00 TBD: Due to the nature of the career stage campaign, it will be a year before its revenue generating impact will be realized.

However, there remain systemic counter-trends that, if not

addressed through fundamental and strategic changes to the

membership business model, pose significant negative drags on

membership revenue potential:

Fully 29.4% of NSPE members are non-dues paying

members (student members who pay no dues; life

members, who no longer pay dues). There may very well

be great mission value in these categories of membership,

however from a membership revenue potential

perspective, looking at gross membership count distorts

the perception of revenue potential.

The average, annual national dues per dues-paying

member (factoring in discounts such as new member

introductory rate, enterprise, state-driven 6-month free,

etc.) is approximately $120.

Approximately 500-600 dues-paying members per year

die or convert to Life Member status, generating an

attrition rate in dues-paying membership of

approximately -2.8% per year. This attrition will

continue or even increase, regardless of new membership

or retention marketing success.

For this reason, a primary objective within the business plan is to

bring to closure the current membership business model dialogue

with national and state leaders and state executives in an effort to

simplify the three-tier, dues-paying structures across and among

the NSPE state societies in a manner that:

Is easy to understand for all members;

Offers a compelling value proposition for integrated

membership; and

Supports the revenue needs of national and its state

societies.

Consistent with the Strategic Plan (adopted by the House of

Delegates in 2014) and the original vision of the organization

from its founding, the focus of the dialogue to date has been on

preserving but making changes that achieve an integrated

membership model that works. Alternative, disaggregated

models remain on the table if consensus cannot be reached and it

is the collective will of the membership to go that direction.

The Business Plan includes specific strategies and performance

metrics for both the short-term membership marketing and long-

term membership business model objectives.

Mission-Driven Activities

Again, these activities create member value, which in turn

supports membership acquisition and membership revenues4, but

are largely not direct revenue generators. Consistent with the

Strategic Plan, NSPE has increased investments in this area,

particularly in the area of direct advocacy to define, promote and

protect the PE license, increased support of state societies in this

area, increased communications and increased opportunities for

member engagement.

4 There is an important caveat to bear in mind. Stakeholder value through activities such as advocacy is enjoyed equally by all members of the profession, regardless of their society membership status. Every individual who values the PE benefits from a legislative or regulatory victory

that strengthens the license even if they did not financially support that accomplishment through dues. (The classic “free rider” dilemma that all

professional societies face.) For this reason, the Business Plan focuses on increased awareness and appreciation of the importance of these activities, undertaken on the profession’s behalf, by national and the states.

Business plan objectives in this area include:

Providing collaboration groups for NSPE members

whereby they can communicate easily with other NSPE

members regarding topics of interest and importance to

the EI or PE; and

Increasing member awareness and appreciation of the

value of membership and level of commitment to

membership.

The Business Plan includes specific strategies and performance

metrics for these objectives.

Revenue-Generating Activities

This area includes non-dues revenue-generating NSPE programs,

NICET and other economic activities of the enterprise (such as

the NSPE building and administrative services offered to

affiliated, but independent groups).

NSPE Programs

The business plan objective in this area is to increase

operating revenues available for investment in mission-

driven activities and includes a 3% increase per year in

the volume of sales/participation in valued programs,

including those bundled with dues to members, those sold

to non-members (at premium pricing), and programs that

generate net revenues.

NICET

The Business Plan incorporates NICET’s ongoing, multi-

year plan to ensure sustained viability and future

profitability by:

Completing conversion of all (continuing)

technician certification programs from the Work

Element model (paper & pencil format) to the

new Standard model (computer-based format);

Divesting or eliminating certification programs

that do not support a large enough stakeholder

population to be financially viable to administer

and maintain;

Improving ease of customer access and overall

service levels for all NICET customers; and

Ensuring rigor, quality and credibility of NICET

Certifications.

Other

Business Plan objectives in this area are focused on:

Developing and maintaining the building as the

core financial asset for NSPE.

Evaluating net profitability of administrative

services arrangements.

The Business Plan includes specific strategies and performance

metrics in each of these areas.

FY2017 Budget

Consistent with the principles, objectives and metrics established

in the Business Plan, the Finance and Budget Committee present

the 2017 Fiscal Year, covering the period of July 1, 2016 through

June 30, 2017 (Attachment 2) for board consideration and

adoption.

The proposed budget incorporates the following, significant

elements and assumptions:

An 8.4% increase in new, dues-paying members;

Reducing dues-paying member attrition from 10% to 8%;

Eliminating the traditional, automatic “cost of living”

adjustment to NSPE dues rates (base dues remains

unchanged at $154);

Continued funding of expert consulting support for both:

o Short-term tactical membership marketing

campaigns; and

o Long-term membership structure and business

model design;

Maintenance of advocacy staffing in the government

relations/professional practice department expanded this

past fiscal year5;

Staffing of educational program development position,

focusing on expanded online education and PE Institute

programming6;

Continued implementation of NSPE online communities,

to support both formal components (committees, task

forces, interest groups) and self-forming member

communities;

Sunset of NICET work element/paper and pencil testing

and conversion of all continuing technician certification

programs to the new testing model;

Necessary upgrades to NICET database and IT systems;

Renovations to the second floor of the NSPE

headquarters building and first year elements of a three-

year plan to consolidate NSPE/NICET occupancy from

four floors to three (freeing approximately 4,000

additional square feet of commercially leasable space);

and

Increased staff benefit costs as a result of:

o Current, full staffing of all approved positions6;

o Increases in staff benefit costs due to

implementation of the Affordable Care Act,

despite significant reductions in the scope of

benefits provided to employees.

The resulting budget projects an operational budget loss of

$146,308 on expenses of $9,316,312, or (1.57%) of operational

expenses7.

Conclusion

Although NSPE’s financial position can easily support the

5 All approved positions are currently filled and no new staff positions are proposed for FY17: the FY17 budget reflects the full, 12-month cost of these positions already filled. 6 The prior year financials showed less expense due to vacancies in several staff positions for significant portions of the year. 7 NSPE Core operations project a loss of $297,974 on expenses of $4,731,998. Most of this operational loss is offset by NICET’s projected surplus of $151,666 on expenses of $4,584,314.

modest operational loss projected for FY17, this is not cause for

complacency. Projecting forward three years8 provides a stark

warning of increasing, operational deficits unless bold action is

taken.

The business plan and first budget year of its implementation

incorporates significant investment in major re-engineering of

NSPE’s two primary sources of revenue: designing a sustainable

dues business model and refreshing the content and technology

of NICET testing services. It also builds on several years of

positive developments in NSPE’s key mission-driven activities,

particularly advocacy in support of the license.

It is the opinion of the Business Plan Task Force that NSPE must

continue to invest in the efforts listed above in order to affect

positive change. Cutting programs, marketing efforts, or staffing

to bring the budget to a zero balance would cause more damage

than good to the organization and accelerate its decline. It is

imperative that NSPE and its state partners seriously engage in

supporting the aggressive pursuit of the Business Plan’s

objectives so that out year projections can be significantly

improved and the organization (at the national and state levels)

can achieve sustainable growth and stability.

“If not us, who? If not now, when?9”

Capital Budget and Depreciation Schedule

Attachment 3 provides a detailed schedule and analysis of

capital investments and depreciation.

These amounts reflect money which has already been spent in

prior years, but are realized (expensed) over time. (The amount

of prior expenditures charged against each year is also reflected

below the line on the budget document itself.) It is important to

recognize that these are expenses already incurred10, and do not

represent additional operational expenses that must be funded

from current activities. They are investments in moving NSPE

8 Reiterating the caveat noted earlier, that out year projections are highly speculative. 9 Hillel the Elder (110 BC – 10AD) 10 For example, the original cost of the NSPE headquarters building, new AMS database system, customization of the system to accommodate

enterprise membership and self-billing states, purchase of the online community platform, routine replacement of office equipment and furniture, etc.

forward and maintaining its viability as an organization.

Budget Elements

Finally, a high level summary of revenues and expenses by line

of business, and analysis of liquid reserves is provided in

Attachment 4.

Nature of Action

Required:

1. MOVED: That the NPSE Board of Directors approves the

Three-Year Business Plan.

2. MOVED: That the NSPE Board of Director approves the

budget for fiscal year 2017 as presented; and

Attachments: 1. NSPE Three-Year Business Plan

2. FY17 Budget

3. Capital Budget, Depreciation Schedule and Analysis

4. Budget Elements