what is the financial justification for your gift planning program? richard w. lawrence
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What is the Financial Justification for Your Gift Planning Program? Richard W. Lawrence Executive Vice President & Chief Operating Officer Kristen L. Dugdale Vice President, Gift Planning. Current Environment. Budgets are tight and likely to remain so Pressure to raise current funds - PowerPoint PPT PresentationTRANSCRIPT
What is the Financial Justification for Your
Gift Planning Program?
Richard W. Lawrence
Executive Vice President & Chief Operating Officer
Kristen L. Dugdale
Vice President, Gift Planning
Current Environment
Budgets are tight and likely to remain so
Pressure to raise current funds
Deferred gift activities might be “deferred”
Gift planning directors might have to defend program budget
Gift Planning’s Measurement Problem
Hard to quantify means it is hard to manage Other development efforts are more quantifiable “Dollars in the door” seems more tangible—easier to
measure Yet, significant dollars come from planned gifts,
especially bequests
What Might Leadership Be Thinking?
How do I allocate development resources? How integral is the gift planning staff to the success of
outright and campaign giving? What is the cost/benefit relationship of deferred gifts? If we cut X in annual giving or major gifts, we know the
likely result. If we cut gift planning, there is no immediate loss, right?
Director of Gift Planning Challenges
You might be fortunate to have leadership that strongly supports gift planning
Current environment will bring scrutiny How do you advocate to keep or to augment resources?
Qualitative case Quantitative case
Do you speak your leadership’s “language”?
Case Study
University of Colorado Foundation
A For-Profit Lens On a Non-Profit Activity
What Is Our Cost to Raise a Dollar?
Efficiency of Various Business Units
Simple Formulas Don’t Work for Gift Planning
The Planned Gift Measurement Problem
Most planned gifts have an associated time deferral element
Most planned gifts have undetermined gift value Many planned gifts are revocable
We gain the greatest insight by linking today’s gift planning activities to some measure of the
value that they create
We gain the greatest insight by linking today’s gift planning activities to some measure of the
value that they create
Present Value Formula
1
(1 + r ) n( )P
Present Value of $100,000
Rate of Discount In 5 Years In 25 Years
5% $78,370 $29,533
7% $71,327 $18,426
“Kristen, Why Invest in Gift Planning?”Action Plan
Identify the costs attributable to gift planning fundraising activities
Identify the cash flows that will be associated with today’s activities
Identify the timing of those cash flows
Calculate the present value of those cash flows
Divide the cost of the fundraising activities by the present value
Et voilà! Cost per present value dollar raised
The Process
Set the broad gift planning fundraising goal Divide the goal into gift types For each gift type, determine assumptions for
horizon and investment return Calculate a future value for each type and discount
it to present value Determine the costs associated with raising the gifts
and divide them by the present values Et voilà!
The Numerous Variables
Goal Split of the Gift Types Horizon Assumptions Investment & Payout Assumptions Discount Rate
Set the Goal
Our gift planning goal for Fiscal Year 2008 was $15.6 million in face value terms (revocable and irrevocable gifts)
The goal was based generally on an average of the amounts raised over the previous 10 years
The goal did not include realized bequest expectancies or life income gift maturities
The Goal Categorized by Gift Type
$3.3 million in internally-managed CRTs $3.3 million in gift annuities $1.9 million in externally-managed CRTs $0.9 million in outright gifts where gift planning was
significantly involved $6.2 million in revocable gifts (new bequest intentions,
IRA beneficiary designations, etc.) The gift types were generally based on the split of
deferred gift types in our previous campaign.
Determine Average Horizons
Gift Type Horizon
Internally-managed CRTs 20 years
Externally-managed CRTs 20 years
Gift Annuities 12 years
Specific Bequests 10 years
Residual Bequests 10 years
Horizon assumptions predicated on facts
Trust & Annuity horizon assumptions were determined by averaging the remaining horizons of every trust and/or annuity in our current program (15 years for trusts, 12 years for annuities).
Is the horizon to short, as we did not look at original gift dates? Is the horizon to long, as we did not allow for the possibility of earlier than
expected terminations? Because of these variables, we added 5 years to the assumption for trusts &
3 years to gift annuities Horizons = 20 Years for trusts; 15 years for annuities. In the case of gift annuities, we also considered the ACGA suggested rate
for a 75 year-old.
Horizon assumptions for bequests
Made an assumption that specific & residual bequests would be split 50/50.
Applied an annual total return to residual bequests of 3%.
Compared the gift date of recorded bequests in our system to the realization date (if any), and averaged all for a period of 4 years.
Conservatively added to that term by using 10 years.
Chose not to discount bequests based on their revocability.
NCPG’s Survey of Donors conducted in 1992, and updated in 2000.
92% of donors did not take charity out of the will. 86% did not change the amount to charity. Of those who did change the amount, 1/10 did so to
increase the amount. Only 1/100 decreased the amount & others made
changes for “mechanical reasons”. Results reaffirmed in 2000 survey.
Determine Payout Rates and Projected Investment Returns
Gift Type Payout RateInvestment
Return
Internally-managed CRTs 7% 9%
Externally-managed CRTs 7% 9%
Gift Annuities 7.1% 9%
Specific Bequests n/a n/a
Residual Bequests n/a 3%
Determine a Discount Rate
Should we use the endowment rate of return to discount the value of a future gift to the university?
Or use the Higher Education Price Index?
Or pick a rate in the middle?
We decided to use a 7% discount rateWe decided to use a 7% discount rate
Calculate the Present Value of Gifts
Grow each gift type out to its estimated future value (net of payments and costs)
Apply the discount rate to determine the net present value
Add the net present values across gift types
Costs
PV of Gifts= Cost per PV $ Raised
How Will We Take Costs into Account?
Start with the department budget number Subtract the costs to manage existing life income gifts Subtract out estate administration and “customer
service” costs
Costs
PV of Gifts= Cost per PV $ Raised
Gift Planning Budget Items
Salaries and benefits Promotional activities and events Travel Gift management fees not charged to trusts Legal and compliance Professional development Overhead and other operating costs
The Budget Items Are Allocated to Activities
Et Voilà!
We estimated our cost to raise a present value planned gift dollar to be nine cents
Additionally, we decided to defray costs of administering certain existing and new gifts by charging expenses to the trusts
Costs
PV of Gifts= $0.09
Dollars Raised by Gift Type(Millions of Present Value Dollars)
Fiscal Year ‘07Plan Actual
Fiscal Year ‘08Plan Actual
Fiscal Year ‘09Plan Actual
Fiscal Year ‘10Plan as of 12/31
LIGs(internal)
$2.8 $0.5 $2.8 $14.8 $2.8 $0.1 $2.8 $0.02
LIGs(external)
0.6 0.1 0.6 0.1 0.6 0.8 0.6 0
Outright & IRA
0.9 2.0 0.9 4.9 0.9 7.9 0.9 .98
RevocableIntentions
3.7 7.0 3.7 1.7 3.7 1.3 3.7 7.9
Total $8.0 $9.6 $8.0 $21.4 $8.0 $11.8 $8.0 $9.0
Cost per PV Raised $0.06 $0.03 $0.03 $0.06
Some Observations
Consistently exceeded goals Actual cost to raise a dollar beat estimates Different “winning” category every year Revocable category is understated Some assumptions were inaccurate Looking forward
If we add costs will we add revenue? How can we get more cost-efficient? Should we focus on older donors (higher PV)?
Some Conclusions
Gift planning makes logical sense from a business perspective
“You have to know your business to know your business.”
Don’t expect to reconcile cost per dollar raised data with announced fundraising totals
Be careful of over-interpreting the analysis Think through your “product mix” carefully; focus where
possible on the shortest and surest opportunities
Other ways to measure a program
Evaluate based on the effectiveness or charitable impact the charity makes
Marginal costs/Diminishing Returns?
Discussion
What questions do you have? Has your VP of Development or your CFO asked you to
justify the value of your gift planning program? How have you responded? Have you used other
methods to make the case?
The End