Basic Overview of Organizational Behavior: Guidelines and Resources

Much of the content of this topic came from this book:

© Copyright Carter McNamara, MBA, PhD, Authenticity Consulting, LLC.

Strongly Suggested Pre-Reading

Organizational Performance Management

Sections of This Topic Include

Types of Practices to Influence and Sustain Desired Behaviors in Organizations

• Description
• What is Organizational Behavior?
• Practices to Influence and Sustain Desired Behaviors
• Cultivating the Right Organizational Culture
• Applying the Right Leadership
• Understanding How to Develop Great Leaders
• Finding the Right People
• Understanding Nature and Needs of Employees
• Sustaining Strong Job Satisfaction
• Developing High-Performing Teams
• Maintaining Strong Performance

Also consider

• Historical Theories in Management
• Driving Forces and New Organizational Paradigm
• Contemporary Theories in Management
• Current Trends in Organizations (a video)

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Description

Be sure to read the description in Organizational Performance Management to understand that organizational behavior and organizational structures are ultimately strategies to help increase the performance of an organization.

In this topic, the Library aims to convey the core practices in guiding organizational behaviors, as well as how the practices might be organized and integrated. You will recognize most of the practices because many of them are commonplace in our lives and work.

Understand that the practices are cyclical and highly integrated in nature. Like any component in a cycle, the learning from implementing the practices should, in turn, improve the other components.

Remember that the nature of how the practices are implemented depends on whether the leaders in the organization choose traditional or progressive approaches to performance management. See
Performance Management: Traditional and Progressive Approaches

The purpose of the information in this topic is to convey the core concepts in organizational behavior. Your proficiency in the concepts would come from applying them over time, especially under the guidance of a person who is highly experienced in applying them, as well.

(Those who naturally prefer to focus on the “human” side of organizations, rather than on the “business” side, might particularly appreciate this topic on organizational behavior.)

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What is Organizational Behavior?

Definitions

Organizational behavior focuses on how humans behave in organizations, including how they interact with each other, as well as how they work within the organizations’ structures to get their work done. Here are some other definitions:

• Organizational behavior is the “the study of human behavior in organizational settings, the interface between human behavior and the organization, and the organization itself.” iEduNote
• “Organizational behavior is directly concerned with the understanding, prediction, and control of human behavior in organizations.” — Fred Luthans

Goals

This description specifies the goals of organizational behavior:

• “The goals of OB [organizational behavior] are to explain, predict, and influence behavior. Managers need to be able to explain why employees engage in some behaviors rather than others, predict how employees will respond to various actions and decisions, and influence how employees behave.” — Open Class

However, organizational behavior holds benefits for employees, as well. The field is rich with research, findings, guidelines and tools for employees to clarify their own goals, understand what motivates them and increase their job satisfaction.

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Practices to Influence and Sustain Desired Behaviors in Organizations

There is a vast array of different types of practices that leaders and managers use to influence their employees toward achieving the organization’s goals. More recently, they use a variety of practices to help employees to achieve their own goals, as well. Thus, it can be a challenge to efficiently categorize and explain the practices in a manner that is comprehensive and yet well organized.

IEduNote‘s listing of the eight objectives of organizational behavior seems a reasonable way to categorize them, as well. The titles of their objectives have been slightly reordered and modified in the following categories. The categories are cyclical and highly integrated with each other.

NOTE: Descriptions of each of the following practices are included in each of their respective topics in this Free Management Library. Thus, the descriptions are not duplicated here.

Cultivating the Right Organizational Culture

Organizational culture can be explained as a combination of the members’ values, beliefs, assumptions and ways that they interact with each other. Basically, an organization’s culture is its personality. A person’s personality influences every aspect of their life.

The same is true of an organization’s culture. That is why experts on strategic planning often assert that “culture eats strategy for breakfast” — that is, culture often determines whether strategies are successful or not. That is why so much of what happens in an organization starts from its culture, especially the behaviors that occur in it. The following topics refer to practices that might influence an organization’s culture, and thus the overall behaviors in it.

Applying the Right Leadership

The culture of the organization, its current life cycle and the nature of its strategic goals all help to suggest the types of leadership needed in an organization.

For example, a start-up organization might want leaders who are visionary and charismatic in attracting more employees to join it. It might also want leaders who have strong expertise in the types of products and services that it delivers. However, as the organization evolves, it might want leaders with expertise in developing internal systems and practices to form a firm foundation for further growth.

A complicating factor about leadership is that different leadership skills are required for leading oneself versus leading another individual versus leading a group versus leading an organization. See Understanding All Aspects of Leadership.

If the organization’s culture is quite traditional, then it might prefer a rather autocratic style of leadership; whereas, a more progressive organization might prefer a more participatory style.

Also, it is important to remember that leaders cannot successfully lead others unless they first can successfully lead themselves.

Understanding How to Develop Great Leaders

The leaders in an organization are the “engines” that drive the activities in organizational performance. Thus, the expertise of the leaders is a critical component in the success of the organization itself. As discussed above, the nature of the leaders must match the models and styles preferred by the organization. That often requires further development of the leaders, including its executives, managers and supervisors.

Finding the Right People

The most important asset in an organization is its people. As important as having the right kind of leaders and managers is having the right kind of employees — employees who can do a great job in doing the necessary work to best achieve the goals of the organization. This is where expertise in human resource management is vital to the success of the organization. However, small- to medium-sized organizations can still do that 20% of effort that generates 80% of the success in finding and equipping the right people.

Understanding Nature and Needs of Employees

Historical approaches to management treated employees like machines. The top priority was on efficiency — on producing more results in less time. However, today’s approaches have changed dramatically. Today’s leaders are realizing that they will get better performance if they treat their employees as individuals, each of whom is unique in their own interests and capabilities — and also in what motivates them. For the new generations in today’s workforce, it is often far more important to find meaning and fulfillment in their work than to make more money.

Sustaining Strong Job Satisfaction

Research shows that the cost of hiring and re-training employees is one of the highest of labor costs in organizations. Research also shows a strong correlation between job satisfaction and employee retention. Fortunately, there are a variety of approaches to support strong job satisfaction for employees.

Developing High-Performing Teams

Most of the significant accomplishments in organizations is done in teams. However, a team is often comprised of a wide diversity of values, perspectives and opinions among its members. So teams must be carefully planned, organized and supported. Also, a team is an organization — just a small one. Thus, team performance management is also critical to the success of a team.

Maintaining Strong Performance

Strong performance is the result of very effectively and efficiently achieving the goals, whether they are for an employee, team or the overall organization. Performance management means establishing the goals, monitoring their achievement and making the necessary corrections in order to achieve them even better.

Suggested Additional Readings

• About The Role of Strategic Evaluation in Nonprofits
• Basic Guide to Program Evaluation
• Designing Assessment and Evaluation Tools
• Organizational Structures and Design
• Organizational Change
• Organizational Evaluations
• Employee Performance Management
• Group Performance Management

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Learn More in the Library’s Blogs Related to Organizational Performance

In addition to the articles on this current page, also see the following blogs that have posts related to organizations. Scan down the blog’s page to see various posts. Also see the section “Recent Blog Posts” in the sidebar of the blog or click on “next” near the bottom of a post in the blog. The blog also links to numerous free related resources.

• Library’s Consulting and Organizational Development Blog
• Library’s Human Resources Blog
• Library’s Leadership Blog
• Library’s Project Management Blog
• Library’s Supervision Blog

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For the Category of Organizational Development:

To round out your knowledge of this Library topic, you may want to review some related topics, available from the link below. Each of the related topics includes free, online resources.

Also, scan the Recommended Books listed below. They have been selected for their relevance and highly practical nature.

• Related Library Topics
• Recommended Books

Overview of Nonprofit
Fundraising Sources and Approaches

© Copyright Carter McNamara, MBA, PhD, Authenticity Consulting, LLC.

Sections in This Topic Include the Following

Basic Guidelines for Fundraising
Typical Funding Sources and Advantages-Disadvantages
of Each
Information for Smaller Nonprofits

Also consider
Related Library Topics

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General Guidelines
for Fundraising

In addition to the guidelines included in the large amount of
other fundraising information referenced from the library:
· Ensure the board is strongly involved in fundraising
planning and implementation
· Develop fundraising goals to be the resources needed
to reach the strategic goals identified during strategic planning
· Identify a variety of funding sources for each goal and
the particular fundraising strategies preferred by each of the
sources (the above-mentioned Web page provides a good overview
of various strategies and where they should be used)
· Ensure your plans specify who will be doing what fundraising,
so you don’t have sources who become overwhelmed or irritated
by repeated solicitations from different people in your organization

“The Complete Guide to Nonprofit Management” by Smith,
Bucklin and Associates suggests:
· The most important aspect of fundraising is excellent
public relations, that is, ensuring that your community has a
strong, positive impression of your organization
· Establish an organizational structure to implement the
fundraising plan, including:

Board Executive Committee – Establishes priorities
and goals and approves the plan

Outreach/Marketing Committee – Identifies potential
donors and coordinates efforts to promote fundraising

Fundraising Committee – Leads development and implementation
of the plan, and approaches donors

Volunteer Coordinator – Coordinates volunteer efforts,
including identifying where volunteers might help, recruiting
volunteers, ensuring they are effective and that they are recognized

Information processing – Assign staff to develop and
maintain the fundraising database

Accounting – Be sure to include moneys raised in your
accounting system

Donation processing – Have staff available to process
donations (cashing checks, sending notes of appreciation, updating
the fundraising database, etc.)

· Most fundraising is done in the fall of the year when
corporations are doing their planning for the following year
· Corporations typically require a written proposal
· Foundations rarely fund operating costs, that is, costs
to support central administration of an organization, rather than
specific programs which directly deliver services
· Consider approaching a local advertising, marketing or
public relations firm for pro bono advice. Regularly send these
companies evidence of the successes of your organization to keep
them up to date on your organization.
· Consider using third-class mailing, which is cheaper
than first-class, but sometimes takes as much as two weeks longer
to arrive. Expedite arrival of third-class mail by using bar codes
and nine-digit zip codes.

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Typical Funding Sources and Advantages/Disadvantages of Each
(Credit to Ellen M. Hatfield of the Twin Cities in Minnesota)

Source	Advantages	Disadvantages
Individuals	· Largest source of giving · Ongoing source one can build · Once a giver, also an advocate · Volunteers are a good source of money	· Costly to develop, small return per individual unit · Hard to generate unless broad-based direct service appeal · Risky for the inexperienced · Need significant assistance from the organization’s board and volunteers
Large-Family Foundations	· Source of large sums of money · Accessible, professional staff · Clear guidelines, process · Most likely to research your request · Board volunteers can help, not always key	· Start-up funds only · Lengthy process · More difficult to access through personal influence · Proposals may be more lengthy
Community Foundations	· Much like large-family foundations · Staff may be sufficient	· Host of foundations within foundations · Most money is earmarked, special funds
Small-Family Foundations	· May fund ongoing operating expenses · Personal influence with board members helps · Guidelines often broad · Not very fussy about grant format	· Hard to access, no professional staff · Often not large sums of money · Without personal influence, may not be possible
Large Corporations / Corporate Foundations	· Can be source of large sums of money · Smaller amounts of money may be ongoing · Often accessible, professional staff · May be tied to volunteer involvement · Business strategy may be clear · Source of cause-related marketing	· Large sums of money aren’t ongoing · Hard to get around staff · Must be within their guidelines · Not likely to contribute if not headquartered locally or have a public consumer base · Often want board representation
Small Corporations	· Very informal approach · Money may be ongoing · Personal connections will suffice · Neighborhood focus will help	· Small amounts of money · Narrow range of interest · Personal contacts are key
Federated Funds (United Ways, United Arts, Combined Health Appeal)	· Steady source of relatively large sums of money · Clear process · Professional staff, can be agency staff driven	· Generally can’t be a start-up organization · Must be social service and fit priority focus · Very lengthy entry process · Very time consuming as must be part of yearly fund raising process, with periodic in-depth review
Government	· Large sums of money possible · Process is set, clear · Political clout helps · May be source of ongoing money	· Application procedures may be long, tedious · May only pay by unit of service, fluctuates · Unspent monies may be returned · Difficult record keeping
Churches and Organizations	· Often looking for group projects	· In-kind services most likely · Need to fit their service focus, neighborhood or religious outlook

Information
for Smaller Nonprofits

For smaller nonprofits (e.g., with budgets under $100,000 or so),
Smith, Bucklin and Associates (in “The Complete Guide to
Nonprofit Management”) recommend:
· Start with internal solicitations to board members, staff
and members of your organization (if you are chartered on a membership
basis).
· Look to the donors who can make the largest contributions.
Write them, call them and arrange a visit. Offer a co-sponsorship
to events.
· Next, prepare a detailed donor list and offer them a
range of options.
· Then go to the smaller donations list.

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For the Category of Fundraising (Nonprofit):

To round out your knowledge of this Library topic, you may want to review some related topics, available from the link below. Each of the related topics includes free, online resources.

Also, scan the Recommended Books listed below. They have been selected for their relevance and highly practical nature.

Related Library Topics

Recommended Books

All About Nonprofit Fundraising – Guidelines and Resources

This topic in the Library will help nonprofit leaders and staff learn to understand the various/varied elements of fundraising, to recognize the importance of the relationship between an organization
and its potential donors, and to construct and implement a strong fundraising plan/program for their nonprofits. In addition, much of the subject matter in this topic will help nonprofit leaders and staff recognize what it is that they don’t know about fundraising, and how to remedy that situation.

Be sure to also see the following blogs and the many posts published in the blogs:
Library’s Fundraising Blog and Nonprofits.

Sections of This Topic Include

• Fundraising Basics – Sources and Responsibilities
• Fundraising Laws and Ethics
• Fundraising Leadership: Committees, Board and Other Volunteers
• Development Staff: Director of Development and Other Staff
  • Method: Direct Appeals
  • Method: Grants: Foundation and Corporate
  • Method: Grants: Government (Public Grants)
  • Method: Special Events
  • Method: Annual Funds
  • Method: Major Gifts and Planned Giving
  • Method: Capital Campaign and Endowment Fundraising
  • Method: Fundraising Online (including social media, online malls, and corporations that accept online proposals)
• Fundraising Software
• Donor Communications, Feedback and Recognition
• Fundraising Planning (Tying It All Together)
• Hiring Fundraisers and Paid Solicitors
• Evaluating Your Fundraising Knowledge and Practices
• Related — But Sometimes Not Necessarily
  Related — Topics (Social Enterprise, Pro Bono, Sponsorships,
  Revenue Streams)
• General Resources
• Library’s Fundraising Blog

Additional Resources

• Free, Online, Self-Paced Program to Completely Build/Strengthen Your Nonprofit
• Basic Guide to Nonprofit Program Design and Marketing
• How do I find grants for my nonprofit?

Also consider
Related Library Topics

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Fundraising Basics – Sources and Responsibilities

Typical Funding Sources and Advantages and Disadvantages of Each

(Credit to Ellen M. Hatfield of the Twin Cities in Minnesota)

Source	Advantages	Disadvantages
Individuals	· Largest source of giving · Ongoing source one can build · Once a giver, also an advocate · Volunteers are a good source of money	· Costly to develop, small return per individual unit · Hard to generate unless broad-based direct service appeal· Risky for the inexperienced · Need significant assistance from the organization’s board and volunteers
Large-Family Foundations	· Source of large sums of money · Accessible, professional staff · Clear guidelines, process · Most likely to research your request · Board volunteers can help, not always key	· Start-up funds only · Lengthy process · More difficult to access through personal influence· Proposals may be more lengthy
Community Foundations	· Much like large-family foundations · Staff may be sufficient	· Host of foundations within foundations · Most money is earmarked, special funds
Small-Family Foundations	· May fund ongoing operating expenses · Personal influence with board members helps · Guidelines often broad · Not very fussy about grant format	· Hard to access, no professional staff · Often not large sums of money · Without personal influence, may not be possible
Large Corporations / Corporate Foundations	· Can be source of large sums of money · Smaller amounts of money may be ongoing · Often accessible, professional staff · May be tied to volunteer involvement · Business strategy may be clear · Source of cause-related marketing	· Large sums of money aren’t ongoing · Hard to get around staff · Must be within their guidelines · Not likely to contribute if not headquartered locally or have a public consumer base · Often want board representation
Small Corporations	· Very informal approach · Money may be ongoing · Personal connections will suffice · Neighborhood focus will help	· Small amounts of money · Narrow range of interest · Personal contacts are key
Federated Funds (United Ways, United Arts, Combined Health Appeal)	· Steady source of relatively large sums of money · Clear process · Professional staff, can be agency staff driven	· Generally can’t be a start-up organization · Must be social service and fit priority focus · Very lengthy entry process · Very time consuming as must be part of yearly fund raising process, with periodic in-depth review
Government	· Large sums of money possible · Process is set, clear · Political clout helps · May be source of ongoing money	· Application procedures may be long, tedious · May only pay by unit of service, fluctuates · Unspent monies may be returned · Difficult record keeping
Churches and Organizations	· Often looking for group projects	· In-kind services most likely · Need to fit their service focus, neighborhood or religious outlook

Who is Responsible for Fundraising in a Nonprofit?

by Hank Lewis

A Reader Wrote: “I have been looking around your web site/blog trying to find information about the role of employees in fundraising for an NPO. I see some information about the role of board members and volunteers, but I seem unable to find anything specific about employees….”.

It’s a “given” in the fundraising world that: “Everyone at a nonprofit has an impact on the organization’s ability to raise money” … even though not everyone is involved in “Asking.”

Although someone else might have the title, the CEO is also the chief development officer. S/he is the chief advocate for the organization and its mission, and should be the most knowledgeable person about how the NPO is pursuing that mission. S/he is the public face of the NPO, with the most credibility.

The CEO is (and should often be) involved in many of the major solicitations, either alone or with someone who is better suited to do the “Ask.”

Board Members, ideally, should all give to the best of their ability and should be involved in the process of identifying, cultivating and soliciting (other) major donors — but, they aren’t always wealthy, and they
don’t always have wealthy friends.

I refer to “Volunteer Leaders” as the people most involved with the identification, cultivation, evaluation and solicitation of major donors. They don’t have to be board members, but they must be committed
to raising (or helping raise) the needed funds.

Staff members fall into three categories: (1) Those who actually work at advancing and supporting the NPO’s development/fundraising efforts; (2) Administrative and support staff; and, (3) The program staffers who design and deliver the NPO’s services.

In the context of this posting, nothing needs be said about group #1.

The group #2 people have occasional contact with (prospective) donors, and how they treat those folks creates an impression that can/will impact the likelihood of giving.

The folks in group #3 have the most experience with advancing the mission. They design and implement the NPO’s programs, and they know the people being served. They are the best people to be describing how the donor’s money has or will impact people’s lives.

These folks don’t have to be involved in “Asking,” but they should be involved in the process of cultivating/educating prospective and current donors … ‘cause nobody can tell the story the way they can.

One more thought: Everybody should pass on to the development staff any (non-confidential) information they have that might help identify, cultivate, evaluate or solicit (potential) donors.

I hope I answered the reader’s question. If not, let me know.

Fundraising for New Nonprofits

by Hank Lewis

An email asked: “What advice is there for new nonprofits without a funding history? So many groups with a lot of potential just don’t know where to begin.”

The biggest mistake most new NPOs make is the assumption/belief that, because they want to do wonderful things, everyone (read: gov’t, corporations, foundations and “rich people”) will want to give them money.

The fact is that an NPO must prove itself — prove it can do what it says it can, prove it can be fiscally responsible, prove it is actually needed — before gov’t, corps and fndns will be willing to invest in it.

Of course (he says with tongue-in-cheek), that leaves rich people, and all new NPOs think that Bill Gates is going to send them a check — all they’ll have to do is write him a letter, then watch the mail.

Hey, don’t hold your breath on that one.

A major factor for getting money from rich people is having access to those people. If you have personal relationships with the wealthy, then it’ll be easy for you to pick up the phone and make an appointment to go see your “friend” and ask for that big check. The same if you know someone who has those connections and can/will do that for you.

Failing all that, it comes down to the hard realization that, if you don’t know someone with an “in,” you must rely on the tried and true methods for obtaining that initial funding.

If you can’t rely on outsiders (the gov’t, corps, fndns and the wealthy), it’s up to the insiders to make it happen.

For each new non-profit, the specifics may be different, but the general circumstances are pretty much the same. There must be an understanding that if the people who created the new organization can’t/won’t give of their own resources (to the extent they can) then why would anyone else want to … why should anyone else?

Once that is understood, the founders of that new NPO must take an inventory — who of the people that they know might come to care (as much as you do) about the reasons why the NPO was created … and eventually want to support that organization.

There must also be an evaluation of how those founders and the people with whom they have relationships can begin to make a difference. This step is often best accomplished with some expert guidance.

Many new NPOs bring in someone to speak with their leadership, to educate them as to the processes and procedures that are, typically, most effective, and to help them determine what might be most effective for them. Founders of many new NPOs also attend seminars/workshops designed to educate new NPO leaders.

Bottom line for a new NPO is — to paraphrase, “Only when you’ve helped yourself will others be willing to help you.” PROVE you’re worthy, and future funding will be a lot more likely.

Numerous Additional Resources About Basics of Fundraising

• Fundraising (Wikipedia)
• A Basic Philosophy
• Types of Fundraising
• Fundraising or Not Fundraising? That is the Question
• Getting the Donor to Want to Give
• Fundraising Fundamentals
• Charity Fundraising Ideas
• “Development” is NOT a synonym for “Fundraising”
• Hank’s Top Ten Fundraising “Musts” 1-5
• Hank’s Top Ten Fundraising “Musts” 6-10
• The Politically Incorrect Guide to Donors
• Research Shows New Dos and Don’ts of Fundraising
• What Is A Mature Fundraising Organization?
• Do’s and Don’t’s of Fundraising
• Fundraising in the Insecure Economy (2008-2010)
• Fundraising: If You Don’t Ask, You Don’t Get
• Five Great Fundraisers
• Is the CFRE Credential Worth the Time and Money?
• Direct Mail, Donor Acquisition and Evaluating A Development Officer
• Fundraising for New Nonprofits
• Designing An Ask Package”
• How To Better Manage Your Grant Program
• “Philanthropy, An Often Misused Term
• Fundraising: If You Don’t Ask, You Don’t Get 2
• Your Grantsmanship Team: Who’s on First?
• You Can’t Just Ask For Money !!
• To Pursue or Not Pursue Funding: That is The Question
• Asking for the Smaller Gifts
• ’Development’ And ‘Fundraising’ Are Not Synonymous
• Using Graphics in Your Proposals (Part 1)
• Using Graphics in Your Proposals (Part 2)

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Fundraising Laws and Ethics

Laws

• Fundraising Compliance Guide: Charitable Solicitation Registration and Compliance
• Unified Registration Statement
• Asking for Donations? Be Sure You’re Properly Registered
• Tax-Exempt Organizations and Gaming
• Recording Year-End Checks/Gifts to Nonprofits

Ethics

• Frequently Asked Questions About Fundraising Ethics
• Where can I learn about ethics in fundraising?
• Test Your Fundraising Ethics
• Fundraising Ethics — Clarifying The Language
• Fundraising Ethics
• Financial Advisers and the Non-Profit Sector
• Fundraising Ethics Revisited

Also consider
Business Ethics

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Fundraising Leadership: Committees, Board and Other Volunteers

Role of the Nonprofit Board Fundraising Committee

One of the biggest misconceptions about the Fundraising Committee is that its members are to do the fundraising for the nonprofit. No, the job of the Fundraising Committee is to ensure that the fundraising is done very well. The actual fundraising should be done by all Board members, with various staff members supporting those Board members.

What’s the Primary Role of Any Board Committee?

The role of any Board Committee is, at a minimum, to ensure “best practices” in the activities, or the function, that the committee is assigned to. Just like people need to do certain things to stay healthy (such as eat, sleep and exercise), organizations need to do certain activities, too. Many people might refer to those activities as “best practices.” (There are many strong feelings about whether “best practices” even exist, but most people would assert that the phrase has more usefulness than not.)

When recurring crises occur, it’s usually because people are attending only to what’s urgent and not to what’s important. Best practices ensure that the most important activities are done. So Board committees should ensure “best practices” are implemented in the major functions in an organization, for example, in Board operations, planning, marketing, staffing, finances and (in the case of nonprofits) fundraising.

What’s the Primary Role of a Fundraising Committee? What Are Its Ongoing Responsibilities?

Notice the nature of the following activities — how they are not focused on very near-term, detailed tasks for Committee members to raise money. The following responsibilities should be included on a work plan for a Fundraising Committee. Notice that the activities are recurring — they should be done on an ongoing basis.

1. Ensure there’s a specific fundraising target

How much money needs to be raised? Usually the amount is the difference between expected revenues and expenses. Usually those revenues and expenses are identified during strategic or program planning.

2. Ensure prospect research occurs to identify how much money might be raised from different types of resources

Good prospect research will look at the nature of the nonprofit’s services and its locale, and identify similar nonprofits and the sources of funding used by them. For example, similar nonprofits might have raised 50% of funds from individuals, 20% from government contracts, 20% from grants and 10% from fees. That profile suggests the mix that the nonprofit might aim for. Good prospect research will go beyond searching a database of foundations to submit proposals to.

3. identify specific, potential sources of funds from a diverse mix of sources

Now the nonprofit is ready to start selecting specific sources of funds from individuals, foundations, government and/or fees. These activities should result in the names of specific sources, for example, names of people, foundations and government agencies, and/or the specific amounts of fees to charge for certain services. (The amounts of fees to charge might be recommended by, for example, a Marketing Committee.)

4. Develop an action plan about who is going to approach what source, how and by when

This responsibility includes identifying which Board members will approach what source, along with what staff members will support those Board members. All Board members should have assignments, not just the members of the Fundraising Committee.

5. Compile the results of items 1, 2, 3 and 4 into a Fundraising Plan that is approved by the Board

The Plan should include more than merely a listing of what foundations to approach. The Plan becomes the roadmap for generating sufficient revenue. It should include realistic expectations from a diversity of sources, and justify how those sources were identified. It should include an action plan (from step 4) that the Fundraising Committee ensures is implemented on a timely basis.

6. Ensure effective administrative systems to track grants and donations

As funding comes into the nonprofit, its various sources and amounts must be closely and accurately documented. Acknowledgements and receipts must be provided back to donors. Grant requirements must be monitored to ensure they are met. In the United States, fundraising information must be included on the IRS Form 990.

Summary — Job of the Fundraising Committee is to Ensure Planful, Strategic Fundraising

So, again, notice that the job of the Committee is NOT to just ask the Executive Director to provide a list of foundations to write grants to. It’s much more strategic than that. And its responsibilities are recurring — Committee members should never say they don’t have anything to do. Members of the Fundraising
Committee should not be picked because they are “big names” or “big pockets.” Popular and rich people rarely want to serve on Fundraising Committees. Many times, they’d rather write a check, than be expected to attend monthly meetings. And foundation officers see right through the “game” of listing big names on a list of Board members. Instead, select members who know how to think strategically, develop a plan and ensure that the plan is implemented.

Numerous Additional Resources About Basics of Fundraising Leadership

• Fundraising: Leadership vs. Management
• Leadership: The Board’s “Mythunderstood” Role in Fundraising
• The Non-Profit Advisory Board/Committee
• Reasons Not to Combine Fundraising and Marketing Committees
• Honorary Board Members: Truth and Consequences
• Planning Advice to Development Officers When Making a Major Gift Call with Board Members and Volunteers
• Role of the Fundraising Committee
• Fundraising and The New Executive Director
• Major Donor on The Board
• Establishing Rewarding Fundraising Partnerships
• The Board … And Fundraising
• Nonprofit Boards: Directors vs Trustees
• A New Nonprofit, A New Board, and The Grants Process
• Praise for the Professional Director of Development
• How Many “Hats” Can A Nonprofit Professional Wear?
• “Give, Get or Get Off” — Revisited

Also consider

• Boards of Directors
• Leadership
  
• Volunteers

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Development Staff: Director of Development and Other Staff

Does Your Organization Need a Director of Development?

by Hank Lewis

I initially wrote this piece with the idea in mind that many NPOs don’t need DODs, but my wife read it and said I was totally wrong. So, the following is sort of a collaboration … actually, I won’t publish anything she doesn’t approve !!

Ideally, from day one, an organization should have someone who knows/understands the NPO, its mission, its leadership and its hopes and aspirations. This person should have the experience and skills to help the NPO plan for next week and next year.

This person should have input at all levels, should be able to guide/train the board members and the CEO, and should be able to bring to staff an awareness and understanding of how they affect the development process.

A large organization, with a large development staff, must have someone to coordinate the various programs and be sure that they support, not conflict with or duplicate each other. Sadly, the vast majority of new/nascent NPOs don’t have the money to hire a person with the requisite experience and capabilities.

Smaller organizations that live on grants, need a grants officer. If much of a NPO’s income is from events, then an event coordinator is needed. If one person can do both, all the better.

To hire a staff person to focus on one or two activities, and give that person the title of Director of Development, is to lie to that person, to that person’s next employer and to the board and staff of the NPO doing the hiring.

Hiring a person and giving them the title doesn’t mean that you’re actually getting all the experience/expertise that comes with a real director of development.

A DOD is a critical hire for an organization. The right person can greatly help ensure an organization’s future….

Numerous Additional Resources About Development Staff

• Does Your Organization Need a Director of Development?
• Does Your Organization Have A Director of Development Who Isn’t….??
• Who Should You Hire to be Your Director of Development?
• Development and Program Refuse to Play in the Same Sandbox
• Fundraising and the NPO Staff – Further Thoughts
• Direct Mail, Donor Acquisition and Evaluating A Development Officer
• Another Director of Development Who Isn’t
• Staffing The Development Office
• The Role of The Development Office
• Contingent-Pay for Development Staff
• A Salary Question – For Someone New to Development
• Follow Eight Core Ideas to be a Great Grants Proposal Manager!

Also consider

• Employee Performance Management Staffing

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Fundraising Method: Direct Appeals

Direct Mail Donor Retention

by Jonathan Howard

You know that the key to net gains and year-to-year growth of your direct mail fundraising lies with your donor retention rate. Helping first time donors become loyal friends can generate as much as an 80 percent return on investment.

That’s a pretty great business model. But few nonprofits get it right. Here are some key reasons why American philanthropy’s donor retention stinks.

Stingy thank-yous. I just sent you money to change kids lives or save the world. Now I want swift assurance that my money is making that important difference. Instead, I get a form letter back, focused on the tax-deductibility of my gift from some mid-level employee in the development office. Often these aren’t even personally signed.

Awkward introductions. I’ve just taken one step into your world. Are you going let me know you’re happy to see me, bring me up to speed on your work and dreams and introduce me to other people I’d find interesting? That’s the job of the friendly welcome package that donors … the “package” they should get within two weeks of their gift. But generally don’t.

News I can’t use. My donation is not a license to bore me with “news” about your meetings and big shots, or just as bad, to give me no news at all. I want to know how you help me be more like the person I want to be: compassionate, effective, wise. Donor communications should be all about the donor, not the
organization. The word “you” should appear in every item.

Ineffective asks. Some nonprofits fail at mail because they don’t ask for repeat contributions soon enough or often enough. Others fail because they treat donors like automatic teller machines. Both groups fail because they don’t offer donors good reasons to give again. It’s not “mail” that donors dislike – it’s the lack of sincere respect and regard for them that turns donors off.

The answer isn’t turning off the mail. The answer is using mail to build an honest relationship of head and heart with your recent donors.

Numerous Additional Resources About Direct Appeals

• Direct Mail Fundraising (Wikipedia)
• How To Write The Perfect Fundraising Letter
• 112 Tips to Help You Raise More Money By Mail
• Deleting Names From Your Mailing/Solicitation List
• QR Codes and When Not to Use Them
• 15 Odd Things That Make Direct Mail Fundraising Appeals Successful
• What Every Non-Profit Ought to Know about Direct Mail Fundraising
• 6 Examples of Effective Fundraising Letters

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Fundraising Method: Grants — Foundation and Corporate

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Is Your Organization Ready to Start a Grants Program … or Even Submit your First Proposal? (Part 1 of 2)

By Lynn deLearie

In my (May 12, 2011) post, Grantsmanship: The Good, the Bad and the Ugly, I quoted from a 2010 WealthEngine white paper stating that the average cost-per-dollar-raised for grants is 20 cents … an ROI of 500%. With such an impressive return on investment, starting a grants program at your NPO might seem like a great idea…

But, as Hank Lewis wrote in his (May 14, 2010) post, Grants: Free Money – Not Quite !! ,“Grants come with a variety of obligations. Corporations, foundations and government agencies don’t just give it away.
It takes more than mailing applications and waiting for the checks to arrive.”

So, what do you need to consider before starting a grants program?

I advise (potential) clients to consider the following four points before launching a grants program at their NPO:

Financial Readiness Hank wrote in his post, “The vast majority of grantors want to see your audited financial reports and your budgets. They want to know where the rest of your funding is from, and you will need to prove that you are fiscally responsible, can be trusted and that you operate in a business-like manner.”

In my experience, all of this is true. You will need to provide detailed financial information with most of your foundation grant applications. The exceptions may be with family foundations that don’t always require this level of detail.

A good example of what will be required can be found in the Missouri Common Grant Application, downloadable here.

The application requires the following financial attachments:

Internally prepared income statement for current fiscal year

AND A complete copy of organization’s audited/reviewed/compiled financial statements for the last fiscal year which includes two (2) years of financial information

OR An organization’s most recently filed Form 990 plus internally prepared financial statements for the past two (2) years.

Along with these organizational financial records, you will also need to provide a project budget, your long-term funding plan for the project, and often a budget justification. The Missouri Common Grant Application and Budget Templates provide good information on what will be required.

See Is Your Organization Ready to Start a Grants Program … or Even Submit your First Proposal? (Part 2).

Numerous Additional Resources About Grants: Foundations and Corporate

• Grant Readiness
• Rating and Evaluating Prospects: Whom Do You Ask For How Much
• Grants: Free Money — Not Quite!! (Part 1)
• Grants: Free Money — Not Quite!! (Part 2)
• Grants Are Not Gifts
• Grant Seeking by the Book (Part 1 of 2)
• Grant Seeking by the Book (Part 2 of 2)
• Impress Funders With Your Grant Proposal
• Constructing An Effective Grant Proposal (First Part of a Series)
• How to write a nonprofit grant proposal
• How to Develop a Grant Proposal Writing Process
• Writing a Case for Support That Inspires
• key considerations when developing a computer system proposal
• 4 Things to Include When Writing a Report to Your Funders
• Impress Funders with Your Grant Proposal: Target Your Outcomes
• Grant Writing for Non-Profits
• Grant Writing Tips for the Unprepared
• Samples and Templates for Nonprofit Organizations
• Funding for Technology Ask for the Right Thing and Connect to Your Mission
• Donor Centric Grantsmanship
• Private, and Corporate, and Family Foundations! Oh, My!
• If You’ve Met One Type of Grant, You’ve Met Them All
• The Combined Federal Campaign: Debunking The Myths
• Prospecting for Foundation Gold
• Top 20 Items For A Successful Grant
• Neither Rain, Nor Sleet, Nor Gloom of Night…
• Don’t Call Us, We’ll Call You
• Going Over The Head Of A Foundation Program Officer
• The Dog Ate My Foundation Report…
• Your Best Foundation Funder is not your Best Funder Forever
• What Is Your Grant Win Rate? What Should It Be?
• Corporate Giving: Foundation Grants vs. Sponsorships
• Is Your Organization Ready to Start a Grants Program … or Even Submit your First Proposal? (Part 1)
• Cultivating The Grantor (Part 1)
• Cultivating The Grantor (Part 2)

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Grants Management

Grants management is about using the grant as the grantor intended, and reporting to the grantor on a periodic basis. The guidelines and procedures for managing specific grants depend very much on the terms of the grantor. The following links give you some idea of what’s generally involved in managing grants.

• Managing Public Grants
• Improving the Grant Management Process (for federal grants)

Designing Evaluation Methodologies to Include in Your Grants

Funders expect nonprofits to say how they will spend the funder’s money and do so in an effective fashion — and be able to prove that they spent the money in an effective fashion. Usually that proof requires an evaluation. Thus, funders often want nonprofits to include in their grant requests, descriptions of how they will evaluate the project being funded by the grants. The reader would benefit from reading:
Basic Guide to Program Evaluation

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Fundraising Method: Grants — Government (Public Grants)

Introduction To Government Grants

By Jayme Sokolow

Every year, government agencies around the country provide over $200 billion in grants … for specific services to local communities. Today, there are approximately 2,000 federal grant programs and over 40,000 state grant programs.

But before you get all excited about all that government money, you must really understand what government grants are and who is eligible to apply for them.

What Is A Government Grant ??

A (federal, state, local) government grant is the money awarded to a nonprofit organization (NPO) consistent with a contract between the government and the NPO – where the latter provides the service for which the former pays. (Grants, of course, do not have to be repaid.)

There is an application process for all government grants, and not all applicants qualify. Then, when you receive a grant, you are agreeing to carry out the activities described in your grant application and to adhere to all the conditions of the award. All such grants include various conditions, one of which is always that the grantee must provide periodic financial and program reports on their “contractual”
activities. There Are Two Kinds of Federal Grants.

For a Direct Grant a you apply directly to federal agency … and there is great competition for these, as you (often) compete with many other nonprofits for funding.

With a Pass-Through Grant, a state government receives federal grant money and then passes on these funds to local nonprofit organizations. There may not be a lot of competition for these, and they are likely to be smaller dollar amounts than direct grants.

Examples of Federal and State Government Grants:

• US Department of Education: grants to help prepare underserved students to graduate high school and attend college.

• US Department of Health and Human Services: grants to provide comprehensive sickle cell disease education, outreach, and medical services.

• North Carolina Department of Environment and Natural Resources: grants to municipalities to prepare for natural disasters such as floods or hurricanes.

Who Is Eligible to Receive Federal and State Grants:

Typically, most grantees fall into the following categories:
• Government organizations: State and Local Governments, Native American Tribal Governments.
• Educational organizations: school districts, private schools, institutions of higher education.
• Public housing organizations: public housing authorities, Indian housing authorities.
• Nonprofit organizations: nonprofit organizations having 501(c)(3) status with the IRS, other kinds of NPOs. 392

To get an idea of the volume of federal grants, visit The Catalog of Federal and Domestic Assistance (www.cfda.gov), which lists every grant program administered by the federal government. For grant opportunities at the state level, visit your state government’s Internet site.

Numerous Additional Resources About Grants: Foundations and Corporate

• Introduction to Government Grants
• Searching for Federal Government Grants
• Acquiring Public Grants
• Understanding Federal Grant Announcements
• Federal Grants: To Apply or Not to Apply….
• Federal Grants: A Pre-Application Financial Checklist
• Start your Federal Grant Proposal Process…
• The Combined Federal Campaign: Debunking The Myths
• What is the CFC and Where to Apply: The Nuts & Bolts
• Start your Gov’t Grant Proposal with a Great Kick-Off Meeting
• The CFC is the Most Donor Friendly Means of Giving
• Developing Strong Win-Themes For Your Gov’t Grants
• The Biggest Mistake that Nonprofits Make…
• In The Combined Federal Campaign, Little Things Mean a Lot
• Tell a Great Story in your Gov’t Grant Proposal!
• Government Grants: Stepping Back from the Keyboard!
• Staying Visible To Your CFC Donors … And To Everyone Else
• Add Zip to your Government Grant Proposals!
• The First Step in Applying for the Combined Federal Campaign:
• A CFC Hint for National and International Charities … and Local NPOs
• Applying for The CFC — National & International Nonprofits
• Applying to The CFC — Local Charities
• Minimize your Government-Grant-Proposal Risks!
• The Importance of Executive Summaries in Government Grant Proposals
• Don’t Let Your Grant Proposal Time Slip Away!
• The CFC: Choosing Your Leadership Development Team
• The CFC: Leadership Development & Charity Fairs
• CFC and Planning for the Fall, Part I
• CFC and Planning for the Fall, Part II
• Managing a Geographically-Dispersed Grant-Proposal-Team
• Plan and Organize Your Proposal before You Write
• The CFC: Leveraging National Volunteer Week – April 15-21, 2012
• Federal Grants — Write and Review !!
• Write a Great Federal Grant Executive Summary!
• The Combined Federal Campaign — 2011 Giving Greater than all but 13 Foundations
• Your Federal Grant Proposals Should Not Be Clichés
• How’d We Do In The Combined Federal Campaign ??
• The Combined Federal Campaign — Let the Games Begin !!
• Tips For a Successful Campaign … From My CFC Playbook
• Why Participate in the Combined Federal Campaign (CFC)

Also consider

• Grants: Foundation and Corporate
• Grants: Government (above)
• Grants Management (above)

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Fundraising Method: Special Events

Special Events: Cost Per Dollar Raised

By Natalie Lewis

A recent email asked: “Do you have an article or statement on what is the standard “special event fundraising equation” used to determine financial success? Obviously, one would set a goal, and if that goal is set, you have been successful. Raising awareness and “making friends” is priceless. But, is there a basic non-profit formula goal such as ‘for every dollar spent to organize, coordinate, market, and produce the event, you would hope to raise two dollars?’”

Sadly, there is no “Special Event Fundraising Equation.”

The cost per dollar raised, or return on investment, is dependent on a number of factors. Since those factors have been addressed in prior postings*, I’ll keep it simple. (See: Special Events)

The first time, or even the first couple of times an organization runs an event, they’d be lucky to break even. Only after an NPO’s community/constituency is familiar with the event can there be any assurance that there will be a sufficient number of people interested in the event and willing to attend.

Over the years, as the event becomes a “tradition.” and the organization knows what works and what doesn’t, do the costs and income become predictable.

As the event “matures,” the gap between costs and “profit” increases. A fully mature event can generate two, three, even four times its cost … but that does not happen overnight.

As to setting a goal for an event, you can only do that after you’ve had a number of years of experience with that event. Setting a goal in the first couple of years would be an exercise in wishful thinking or in self-delusion. And remember, you only set a goal when you KNOW you can reach it. Failure to attain a fundraising goal sends a wrong message to your current and future donors.

Numerous Additional Resources About Special Events

• What Is A Special Event?
• Special Events: So Misunderstood
• How Do I Put Together an Effective Event Committee?
• How Do I Get My Board to Do What They’re Supposed to Do For Our Event?
• Corporate Support of Special Events
• A Change of Pace
• To Auction or Not to Auction
• Celebrity Auctions
• Special Events and the NPO Staff
• Special Events: Cost Per Dollar Raised
• Special Events: Two Perspectives
• Events Are Team Efforts

Also consider

• Facilitation
• Meeting Management

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Fundraising Method: Annual Funds

The Annual Fund Is Obsolete

By Hank Lewis

After thirty years in the non-profit sector, I often find myself questioning, not what we do, but how we label what we do — and how those labels often limit us. The best example of that concept, I believe, is the label “Annual Fund.”

It seems as if, for as long as there have been formal development programs, there have been “Annual Funds.” Each year, goals are set, development staff gears up for another year of activity, constituents get letters and/or phone calls asking for a gift, development staff worries about making/exceeding their goals and they look forward to the end of the fiscal year, when they can put it all to bed and take a deep breath….

While going through this process, however, we are sending the wrong message, not only to our constituents, but also to ourselves. The message is that we should only ask for one gift per donor per year, and that the donor should only give once each year !

Somehow that seems contrary to what fundraising is all about.

By focusing on the (single) annual gift, we and our constituents lose sight of why the giving is important — what and who it supports. People become focused on the process, not on the reason for the process.

Let’s name the process (of raising money on a fiscal year basis) in honor of a founding member of our organization, after the organization itself, or what the funds support, but no more “Annual Fund.”

Let’s not allow what we call an activity to limit what we can accomplish via that activity. And let’s not stifle the creativity that takes us beyond mere process.

Additional Resources About Annual Funds

• The Annual Fund Is Obsolete
• The Annual Fund Is Obsolete: Three Follow-Up Thoughts
• Consulting Agreement For An Annual Fund Campaign

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Fundraising Method: Major Gifts and Planned Giving

What is a Major Gift ??

By Hank Lewis

Many Non-Profit Organizations (NPOs) use the term “Major Gifts” to refer to those that are larger than the usual range of gifts that arrive in the mail. Typically, $1,000 is the magic number.

But, unless an organization’s budget and/or the amount to be raised via the fundraising process is unusually small, gifts of $1,000 won’t significantly aid in pursuing financial goals.

A Major Gift, which could be a planned gift, is not based upon exceeding a specific dollar figure — as above, but requires:

1• Amounts that will significantly help to attain fundraising goals — 1% or more of the goal would be significant. If your goal is $1,000,000, at $1,000 each, you’d need 1,000 gifts; and, unless you have the prospect base with that many donors who have given at that level in the past, that’s not very likely. Realistically, for a goal of that size, gifts of $10,000 and up are necessary. (We will address the concept,
construction and use of a Gift Table in a subsequent posting.

2• That prospects be cultivated and solicited on a face-to-face basis. Consistent with the concept/practice of “development,” in order to get donors to want to make “major” gifts, there must be a relationship between the donor and the person doing the asking. And that person must also be one of the people, in not the person, doing the cultivating and educating of the prospective donor.

3• Ask amounts that are well thought out and well researched. When asking for ANY gift to a non-profit, it should always be for a specific dollar figure. For a major gift, it should be a figure based on the donor’s ability to give … and you should always be able to give the donor a good reason “why that amount” !! (For discussion in a future posting.)

4• The development and implementation of an individual plan, or strategy for getting each potential donor to the point where s/he is ready to make the gift you want him/her to make.

Numerous Additional Resources About Major Gifts and Planned Giving

• What is a Major Gift ?
• What is a Major Gift Prospect?
• We’re Not In Oz, Dorothy: Why Your Donors Give
• Major Gifts — Ensuring The Future
• Evaluating Your Major Gifts Prospects
• Leadership for a Major Gifts Program (Part 1 of 2)
• Leadership for a Major Gifts Program (Part 2 of 2)
• Asking For The Major Gift — Part 1 of 3
• Asking For The Major Gift — Part 2 of 3
• Asking For The Major Gift — Part 3 of 3
• Looking Forward — Major Gifts in the New Year
• So, You Want To Raise The Money To Build A Playground !! #1
• So, You Want To Raise The Money To Build A Playground !! #2
• Using Gift Clubs to Encourage Major Gifts
• Are Major Gifts Annual Gifts ??
• Major Gifts Committee Member Job Description
• Not All Large Gifts Are Major Gifts: Part One – How Not To Go About It
• Not All Large Gifts Are Major Gifts: Part Two – Go-Away Money
• Looking Forward: Major Gifts In The New Year
• Major Gift Fundraising – A Three-Legged Stool
• Who Moved My Funder?

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Fundraising Method: Capital Campaign and Endowment Fundraising

Capital Campaigns – Part #1 of 14: What They Are

By Hank Lewis

This series of postings (don’t know yet how many will be in the series) is to help you understand and prepare for a capital campaign, so that, when you hire a staff campaign director or engage counsel, their time (and your money) will be used most effectively.

To start, a definition: A Capital Campaign is an intense effort to acquire sufficient commitments to add up to a specific large sum, for a specific valid/urgent purpose.

The word “Capital” refers to the money needed to erect/expand/renovate a building; it includes funding needed for the purchase/installation/overhaul of (major) equipment; and, has come to include funding to create/expand an endowment. (Endowment campaigns will be addressed in greater depth in a future posting.)

The term “campaign” has it’s origin in a military context — although it’s rarely used that way today. It referred to the actual period of time that the troops were in the field, engaged with the enemy. It was/is a period of action/activity that, ideally, had been planned very carefully. In this context, it is the period of time in which most of the needed dollars are solicited/pledged.

The “intensity” of the effort refers to having board members, staff and other volunteers commit the (additional) time and energy necessary to achieve the dollar goal in a specific (relatively short) timeframe. The typical campaign was designed to take 12 months – but it’s gotten a lot shorter. (More on that, later.)

Typically, a capital campaign solicits pledges – significant dollar commitments to be paid over an extended period. Fifteen/twenty years ago, the period was five years, but considering the societal changes and people’s reluctance to commit to that long an obligation, three years is now typical.

The “specific sum,” the goal of a campaign, is an amount that will allow the organization to pay for the (building/equipment) “project” that is outside its normal/ongoing budget requirements. This cannot be an arbitrarily chosen dollar figure voted on by a board or committee; it must be one that has been determined through a very careful/detailed process.

“Valid” means that it the nonprofit organization was asked to justify why the project was needed, the NPO could clearly explain/demonstrate that a real need exists in the community and that the project would address that need.

“Urgent” excludes any project for which the NPO could accumulate the funding over an extended period of time without the need for a special fundraising effort. It would also exclude any project for which there is not a demonstrable need for the service(s) that will be made available because of the project.

Numerous Additional Resources About Capital Campaigns

• Capital Campaigns Part 1: What They Are
• Capital Campaigns Part 2: What They’re Not
• Capital Campaigns Part 3: Are You Ready For A Capital Campaign??… A Quick Checklist
• Capital Campaigns Part 4: More Than Raising Money
• Capital Campaigns Part 5: Choosing Your Campaign Objectives
• Capital Campaigns Part 6: Structuring The “Basic” Campaign
• Capital Campaigns Part 7: Beginning the Extended Campaign
• Capital Campaigns Part 8: Beyond The Organizational Family
• Capital Campaigns Part 9: Leadership
• Capital Campaigns Part 10: Structuring the Solicitation Process
• Capital Campaigns Part 11: The Lower-Rated Prospects
• Capital Campaigns Part 12: Soliciting the Lowest-Rated Prospects
• Capital Campaigns Part 13: Campaign Publicity
• Capital Campaigns Part 14: Recognizing Your Leaders and Donors
• The Role of Grants in the Capital Campaign
• Hiring a Consultant for a Campaign Planning Study
• Capital Campaign Cost Accounting
• After The Campaign Is Over…
• A Future Capital Campaign: A Reader’s Questions
• Endowment “Campaigns”

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Fundraising Online Using the Internet/Web

Mobile Fundraising: Practical Advice

By Rick Christ

After some $40 million was raised in $10 gifts through cell phones for the Haiti earthquake response in January, 2010, every nonprofit had dreams of cell phones as mobile donation machines. Even for the Red Cross, those dreams seem to have evaporated.

However, mobile use among Americans has increased dramatically. It’s probably true that among the most passionate, most connected, most generous and successful Americans, smartphone use is even more ubiquitous. What are the implications for nonprofits, most of whom haven’t mastered the internet
yet? Here are some thoughts gathered at the Direct Marketing Association’s recent Mobile Marketing Day:

• Text-to-give is NOT a significant part of fundraising.
• Most smartphone users view much of their email on their phones, so make sure your email messages will render nicely on Apple and Android devices.
• Every page on your website should be optimized for mobile browsers; otherwise, if donors click once and get garbage, they’re not likely to click again from their cell phones.
• Mobile is ideal for getting special event attendees to connect with you in a way that will let you continue the conversation after the event.
• QR codes let mobile users connect with you after seeing something in print, either at an event, in a publication, or on outdoor or transit media, even your direct mail letter.
• Ask for mobile numbers (but don’t require it) on your donation form and newsletter signup form. If you can associate numbers with donors, you can track the impact of mobile communications, and you can reach out to donors via phone when their mail and email start bouncing.
• Mobile users can give via their credit cards on a mobile-optimized donation form. Those gifts tend to be as much as 30% smaller than web page gifts sent from a laptop or desktop computer (but that means they’re 70% larger than the gift you wouldn’t get without such a page)
• One organization indicated that up to ten percent of cell phone area codes do not match up with the supporter’s zip code, meaning that many people keep their old cell number even when they move.
• If you believe in the future of mobile communications, get your own short code — the 5-digit numbers to which you can send a text message instead of having to enter a full 10-digit phone number. Don’t settle for a shared short code.
• Apps are expensive and generally not productive unless you have killer content (think National Geographic).

Since the future of mobile is growing, it pays to recognize its potential for your organization, choose one area where you think mobile can be effective for your organization and get started. Your learning curve can match up with the growth of this channel.

Numerous Additional Resources About Fundraising Online

This topics has exploded! It would be extremely difficult to list most of the articles and sites in regard to this topic. Thanks to Jayne Cravens for suggesting many of the following sites!)

• Online Fundraising: A Startup Guide
• Charity Begins Online
• A New Way to Give Sites let people donate to charity while surfing, shopping online
• Fundraiser Ideas
• How Much Money Should You Be Raising Online?
• Online Tools for Web 2.0 Fundraising
• Online Giving: Audit Your Own Website (Part 1)
• Online Giving: Audit Your Own Website (Part 2)
• Web Gifts – Getting the Whole Pie
• Thanking Your Online Donors
• FaceBooking Your Organization
• A Strategy for Online Fundraising Auctions
• Google Changed the Search Engine Rules
• Demonstrating Board Leadership with Social Media
• Mobile Fundraising: Practical Advice

Also consider

• Computers, Internet and Web
• Netiquette

Using Email and Social Media in Fundraising

• Fundraising Via Email — Truth or Hype
• Testing Email Campaigns
• Send Money from Crowdsourcing
• Crowdsourced Fundraising: Empowering the Multitudes and Raising Big Bucks For Charity!
• Fundraising Platforms: Is Three a Crowd?
• The Best Week Of The Year
• How Good Email Helps Direct Mail Results
• Measuring Your Email Success: Part 1 – Individual Email Results
• Measuring Your Email Success: Part 2 – Your Overall Program
• Social Media Enhance Email Success
• Email Quality Matters – and Each Mistake Costs $40 … or more !!

Also consider
Social Networking

Fundraising Resources On the Net

• Fundsnet
• Web-based grant applications

Online Donation Services, eg, Credit Card services and Matching Programs

• Online Donation Engine Providers (fee comparison table)
• Weighing Your Options for Processing Donations Online

Online Shopping Malls that Donate to Nonprofits

• 90 companies that provide means for on-line donations

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General Resources About Online Fundraising

• Online Fundraising: The Beginner’s Guide for Nonprofits
• Is Online Fundraising a Bad Idea?

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Fundraising Software

• Fundraising Software Products
• Fundraising Software – Comprehensive Directory
• Comprehensive Nonprofit Software Listing

Donor Communications and Recognition

A Variety of Thoughts on Donor Recognition

By Hank Lewis

There are many different types of recognition programs, the most effective of which are often the face-to-face variety. Sometimes, the best form of recognition is a handshake offered by the appropriate person.

Another form of recognition that can touch a donor is a personal note from someone who has been impacted by the donor’s gift.

Recognition programs should be tailored to the needs of the programs being supported, the needs of the donors and the circumstances. The potential for these kinds of recognition programs is limited only by the limits of your creativity.

Speaking of Creativity, your website could be a great place to provide donor recognition. I don’t mean a page with lists of names. I’m thinking of the same kind of articles that’d go in your newsletter … about how a donor’s gift made a difference; a photo of a donor being thanked/congratulated by a highly recognizable, highly regarded person; a photo of a donor being inducted into your “honor society.” Again, the potential is limited only by the limits of your creativity.

Caution is urged for the creation of a permanent, wall-mounted, visual display. Use your wall space judiciously. It’s not infinite.

Typically, wall-mounted recognition is reserved for major gifts for capital campaigns, estate gifts, etc.

Many of the wall-mounted, permanent, recognition modules are impressive and well worth the money. But…. only under the right circumstances.

Using impressive wall-mounted displays for everything detracts from their significance.

When getting advice as to the type of recognition you might want to use for a program, don’t rely on vendors. Their advice must, by its very nature, be self-serving…. Not that they’d be dishonest — just that
there’s a built-in bias.

Many institutions divide their gifts along arbitrary lines for recognition purposes:
$1-$100=Friend; $101-$500=Good Friend; $501-$1,000=Very Good Friend;
$1,001-$5,000=Bosom Buddy; $5,001-$10,000=Blood Brother/Sister; etc.; etc.

The problem with that system is that it assumes every donor wants/needs to see his/her name on a list and/or wants/needs everyone else to see his/her name on a list. Some donors might even object to having their names list ed.

Numerous Additional Resources About Donor Recognition

• Donor Recognition vs. Donor Privacy
• Donor Recognition (to Boost Capital Campaign Results)
• Donor Recognition
• Donor Recognition: Balancing Modesty and Smart Fundraising Seven Ways
• Listening to Donors
• Donor Thank You Letters: Ten Tips for Thanking Donors
• Gift Clubs: What They Are And Aren’t
• How to Write the Perfect Thank You Letter
• Making a Scene: The Recipe for a Great Fundraising Letter
• Can A Donor Demand That She Get Her Donation Back?
• Donor (And Solicitor) Burn-Out
• Separation of Church and Nonprofit
• Saying “Thanks… And…” via Email
• What Do They Do With My Contributions??
• A Low-Cost Way to Thank Supporters
• 6 Ways to Thank Your Donors
• Creating the “Perfect Donor Experience”
• Winning Back Those Lapsed Donors – Part One
• Winning Back Those Lapsed Donors – Part Two

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Fundraising Planning (Tying It All Together)

The Planning Study: (Part #1 of 3 — Almost Always The First Step)

By Hank Lewis

Want to create a Major Gifts Program, a Bequest Program, a Special Event, a Recognition Program, a Capital Campaign ??

The most important information you’d want to have is whether your (prospective) constituents/donors will agree with what you want to do, and what would motivate those folks to want to support and/or participate in your activity.

The best way to get the best answers to those questions would be to ask. And, the best way to ask would be by means of a “Planning Study.”

That the “Study” is for “Planning” purposes suggests that you’ve not committed to taking a particular action and/or to creating a specific kind of program – even though you may have!!

When you ask someone to participate in this kind of “Study,” you are asking for their advice and saying that what you do (or don’t do) will be impacted by what they say (or don’t say).

Unlike the obsolete “feasibility study,” with all its “baggage,” a “Planning Study” asks in-depth questions about a broad range of subjects. Then, based on the study’s findings, an NPO will be able to proceed with programs/activities it knows will be supported by its constituents.

And, by the way, the reason the “Planning Study” is “almost always the first step” is because it is a strong means of cultivating the folks you hope will be your leaders and donors … when you do whatever it is that you’d like to do.

When you ask someone’s advice, they’re more likely to look upon you favorably … because you were smart enough to know to ask them ?

To quote an old fundraising saying: “If you want advice, ask for money; if you want money, ask for advice.” And a “Planning Study” is a great way to ask for advice.

• The Planning Study: (Part #2 of 3 — Preparation)
• The Planning Study: (Part #3 of 3 — Implementation)

Numerous Additional Resources About Planning Your Fundraising

• Constructing The Gift Table
• How to Use The Gift Table
• The Feasibility Study is Obsolete
• Another Reason Why I Object To Feasibility Studies (Part #1 of 2)
• Another Reason Why I Object To Feasibility Studies (Part #2 of 2)
• What Is A Development Plan
• Creating Your Sustainability Plan
• Planning For Organizational Survival (Part 1 of 2)
• Planning For Organizational Survival (Part 2 of 2)
• Improving/Expanding Your Fundraising Program
• We Want To Do The Study Ourselves !!

Also consider
Planning (Basics)

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Hiring Fundraisers and Paid Solicitors

Who/What Is A Fundraising Consultant??

By Hank Lewis

In the group of attendees for a recent class in Major Gifts Fundraising was a person identifying herself as a consultant, a member of a fundraising-consulting firm, who was shortly to be working with a client organization in the creation of a major gifts program.

This started me thinking. Who/what is a fundraising/development consultant??

My old dictionary defines a consultant as an expert who is called on for professional or technical advice or opinions.

In this context, I should think there’d be heavy emphasis on the “expert” part of the definition. The problem is that I “hear” many people describing themselves as development consultants that clearly don’t have the education/training and experience it takes to be an expert.

Folks that come from various areas “somewhat related” to development
—
i.e., marketing, public relations, special events, etc, even those from totally unrelated fields, feel comfortable hanging out their (fundraising) consultant shingle.

At various luncheons, workshops and seminars, I’ve met people who have worked as volunteers and think they now know enough that non-profits should risk their financial futures on them. And I’ve met folks from other fields, and those out of work, who think that “fundraising might be good to try,” and they want to start as consultants.

So, considering the above, I get the feeling that, to protect the non-profit sector from a “bad rap” and consultants (in general) from having a negative label hung on them/us, there needs to be established some set of criteria for who can/should be a fundraising consultant.

It has been suggested that one must have some sort of “credential” to be a fundraising consultant – that the CFRE (as an example) should be required and should be proof enough that the holder is qualified to be a consultant.

Realistically, however, having the CFRE attests only to the fact that the individual has demonstrated knowledge of the basics of fundraising. That’s not the equivalent of “expert“ !!

Like trusting the health of your loved ones to a physician with an on-line degree; there are many practitioners out there in fundraising-consulting-land to whom you’d not want to trust the financial health of your nonprofit organization.

Should You Hire a Fundraiser?

• Do’s and Don’ts of Hiring a Grantwriter
• How to Hire Your First Development Director
• Are Fundraising Professionals Stupid?
• Who/What Is A Fundraising Consultant?
• Hiring a Consultant for a Campaign Planning Study
• We’re Heading Into a Major Campaign
• Outsourcing Prospect Research
• Is the CFRE Credential Worth the Time and Money?
• Fundraising Consultants & Credibility: Some Thoughts
• Professional Fund Raiser vs. Fundraising Professional
• Professional Fund Raisers & Up Front Fees
• Corporate-Fundraising Consultants

Also consider
Consultants (Hiring)

If So, How Much Should They Be Paid?

• The Argument Against Paying Development Professionals Based Upon The Amount Of Funds Raised
• How Do You Pay A Fundraiser???

If You’re Asked to Be a Fundraiser

• To Consult, Or Not To Consult – That Is The Question …
• Beginning A Career In Non-Profit Fund-Raising
  How Fertile Is The Fundraising Hiring “Field” For You?

Potential Pitfalls with the IRS

You should carefully consider whether you should hire an outside fundraiser, or hire your own employee. The IRS pays increasing attention to the hiring of independent contractors.
Potential Issues in Hiring Consultants (general information and IRS-related issues)

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Evaluating Your Fundraising Knowledge and Practices

To conduct a general audit of your fundraising practices, see

• Fundraising Indicators.
• The Fallacy Of Financial Ratios: Why Outcome Evaluation Is The Better Gauge Of Grant Worthiness
• Campaign Assessment And Review: What Was Accomplished And What Was Learned
• Hiding Major Donors’ Names From Funders

Also consider
Evaluations (all kinds)

Related — But Sometimes Not Necessarily Related — Topics
(Social Enterprise, Pro Bono, Sponsorship, Revenue Streams)

Social Enterprise

• Social Enterprise
• Should Your Organization Sell Products And Services To Raise Money?
• Philanthropy as a Business Model?
• Do Foundations Support Social Enterprise?

Gifts of Other Than Money

• Pro Bono Services for Your Organization
• In-Kind Gifts: How to Acknowledge and Recognize Them

Cause-Marketing

• How to Start a Cause-Marketing Campaign

Corporate Sponsorships

• Sponsorships and Underwriting Campaigns
• How Can I Find Corporate Sponsorships?
• Corporate Support of Special Events

Building Multiple Revenue Sources (Diversifying Revenue Streams)

• Building Multiple Revenue Sources
• An Overview of Revenue Streams for Nonprofit Arts Organizations

General Resources

Variety of Information for Beginners

• Learning Institute for Nonprofit Organizations
• Creating An Advisory Council
• When I Forgot the Meaning of Philanthropy
• High Net Worth Individual Philanthropy – Especially Women
• The Fire-Belly, Mountain-Climbing, Social Media-Using Next Generation Donor
• Naming Opportunities and Bequests
• The Shipley Proposal Guide 4.0 – A Book Review
• Lessons To Be Learned From the For-Profit Sector
• Naming Opportunities – The Basics
• Organizing/Reorganizing an All-Volunteer Nonprofit

Variety of Information for More Experienced Practitioners

• Grantsmanship Center
• Chronicle of Philanthropy
• Online Fundraising Training Center
• Cause-Related Marketing (aspect of Social Entrepreneurship)
• Grantsmanship: The Good, the Bad and the Ugly
• A Four-step Process for Effective Grantsmanship
• Accounting for Fundraising: Recording the Gift/Expense
• Strategic & Development Planning: Love and Marriage
• Polish Your Communication and Fundraising Skills with Your Strategic Plan

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For the Category of Fundraising (Nonprofit):

To round out your knowledge of this Library topic, you may want to review some related topics, available from the link below. Each of the related topics includes free, online resources.

Also, scan the Recommended Books listed below. They have been selected for their relevance and highly practical nature.

• Related Library Topics
• Recommended Books

Nonprofit Fundraising e-books:

The Fundraising Series of eBooks

The authors of the below listed eBooks, writing in their areas of expertise,
have a combined tenure in service to the nonprofit community of over
60 years.

The Fundraising Series — Book 1: The Basics: Perceptions
& Realities

The Fundraising Series — Book 2: Special Events

The Fundraising Series — Book 3: Guidance for the New Nonprofit

The Fundraising Series — Book 4 : Major Gifts: Planning and
Implementation

The Fundraising Series — Book 5: Capital Campaigns

The Fundraising Series — Book 6: Grants & Grantsmanship

The Fundraising Series — Book 7: Finding & Getting Federal
Government Grants

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The Fundraising Series – Book 1 – The Basics:
Perceptions & Realities

This book is about the acquiring of donated gifts/contributions for nonprofit organizations. It is not about “fundraisers”– ticket or product sales. The intent of this book is not to provide a “how to” for raising money, but to help you develop the mindset necessary to be successful at “legitimate” fundraising. Order your book here.

The Fundraising Series – Book 2 – Special Events

Everyone loves a good event, but not everyone will have the ingredients to make it happen. This book is designed to help you determine whether special events are right for your nonprofit; and, how to be sure that your event is unique/memorable, not just another dinner, luncheon or auction. Order your book here.

The Fundraising Series – Book 3 – Guidance
For The New Nonprofit

This book – this entire series – is written and intended for nonprofit board members, staff and volunteers to help them understand what real nonprofit fundraising is all about … and what it’s not. It is the author’s intention to address some of the most common questions raised by board members, staff and volunteers. Order your book here.

The Fundraising Series – Book 4 – Major Gifts:
Planning and Implementation

This collection of essays and blog postings is intended to give nonprofit leaders and staff an overview of Major Gifts Fundraising that will help you develop an understanding of what it takes to ensure your organization’s future. Order your book here.

The Fundraising Series – Book 5 – Capital Campaigns

This collection of essays and blog postings is intended to help you understand the elements of and prepare for a capital campaign; so that, when you hire a staff campaign director or engage counsel, their time (and your money) will be used most effectively. Order your book here.

The Fundraising Series – Book 6 – Grants &
Grantsmanship

This book is written and intended for nonprofit staff, board members and volunteers to help them understand what the Grantsmanship process is all about, and what it’s not. A realistic (although dramatic) definition of “grantsmanship” would be, “The cradle to grave process for ‘conceiving’, ‘birthing’, and ‘raising’ grants. here.

The Fundraising Series – Book 7 – Finding &
Getting Federal Government Grants

Book Seven in The Fundraising Series, titled “Finding & Getting Federal Government Grants and written by Jayme Sokolow, Ph.D. This book is intended for nonprofit staff, board members, and volunteers to help them research and become successful applicants for federal grants. here.

 

 

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Supply Chain Management: Guidelines and Resources

Copyright, Carter McNamara, MBA, PhD

This topic in the Library is written especially for those new to SCM. It also aims to include nonprofits and small businesses in its scope. As you read this topic, think about the activities of a certain product or service that you know about, or are even involved in developing or providing to customers. Before reading this topic, you might read about the Relationship Between Managing Supply Chain, Operations, Quality, Customer Relationships and Customer Service.

Sections of This Topic Include

What is Supply Chain Management?

• You Are Probably Part of a Supply Chain
• What is Supply Chain Management (SCM)?
• SCM Is Best Managed as a System
• SCM is for Any Type of Organization
• Problems With Ineffectively Managed Supply Chains
• Many Benefits of High-Quality SCM

Planning Your SCM

• Characteristics of High-Quality SCM
• Develop Your SCM Team Now
• Use SCOR© Model to Plan Your SCM?
• Establish SCM System Goals
• Decide Any Organizational Changes
• Use Push or Pull Drivers to Manage Your Supply Chain?
• Partner With Others to Operate Your SCM?
• Select the Best SCM Software

Developing Your SCM

• Redesign Your Organization As Needed for SCM
• Delegate QMS Goals to Teams and Employees
• Train Your Employees About SCM Systems and Management

Managing Your SCM

• Three Levels of Managing in SCM
• Chain of Management Processes in SCM
  • Strategic Planning Process
  • Demand Planning Process
  • Supply Planning Process
  • Procurement Process
  • Manufacturing Process
  • Warehousing Process
  • Order Fulfillment Process
  • Distribution Process
  • Customer Service Management
  • Customer Relationship Management
    
• Manage These Flows Through Your Supply Chain
• Managing Risk Management in Your SCM
• Managing Safety and Security in Your SCM
• Managing Ethically and Social Responsibility in Your SCM
• Evaluating Your SCM Performance

General Resources

• Additional Overviews
• Certifications
• Glossaries
• Organizations

Also consider

• Customer Relationship Management
• Customer Service Management
• Operations Management
• Product and Service Development
• Related Library Topics

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WHAT IS SUPPLY CHAIN MANAGEMENT?

You Are Probably Part of a Supply Chain

What is a Supply Chain?

If you work in an organization that produces tangible offerings (products) and/or intangible offerings (services) to customers, and if you are involved in any the following organizational activities, then you are part of a supply chain:

1. Strategic planning about what market, products and services are provided by the organization
2. Estimating what the consumer needs (forecasting demand) will be for those products and services
3. Making sure there will be sufficient resources (materials planning) to meet that demand
4. Identifying who will supply those resources (who will be the suppliers)
5. How you will buy (or procure) them
6. How you will get the resources into your organization (these are matters of inbound logistics)
7. How you will build (or manufacture) them
8. How you will store (or warehouse) all of them (that is, how you will inventory them)
9. How you will get the products or services delivered to the customer, for example, sold directly or through a retailer (these are matters of distribution and outbound logistics)
10. How you will ensure the product or service meets or exceeds the customer’s expectations (matters of customer service and customer relationship management)

NOTE: All of the activities and terms in the above parentheses are the typical sequential components in a supply chain.

Other Definitions of a Supply Chain

This is sometimes where readers start to get overwhelmed and confused when reading about supply chains and SCM. If they have heard of the more common topic of logistics, then descriptions of supply chains can seem even more confusing.
However, Intek Freight and Logistics, Inc provides a very useful description of a supply chain, as well as how it differs from logistics:

“To sum up logistics and supply chains, think of a football game where logistics is the game on the field of play and the supply chain is the stadium where the game is played.

From the game perspective of the analogy, the movement of the ball up and down the field of play to deliver a score is logistics.

The stadium, on the other hand, represents all the physical and communication components. Think of the massive amounts of money put into a professional football stadium to deliver the best experience for the buying customers (the fans). There is the stadium itself, plus the communication points between coaches in the box to coaches and players on the field. The communication network allows calls, still pictures and replay videos to execute to the highest levels to score points and have the customers standing on their feet cheering for more.

The feedback mechanism of scoreboards, referees, replay screens, and for those really into the game, radio commentators (providing play-by-play and overall game analysis), give feedback all along the way through a scoring drive to assist in delivering the very best results.”

Here is another perspective: “The supply chain is probably one of the more complex systems that all managers have to be knowledgeable about. Its broad coverage, which includes entire organizations, people, information, various activities and all other resources that play a role in the flow of products or services from producers to suppliers to customers to end users. This complexity, coupled with its dynamic nature, calls for a way to keep that flow going in such a way that facilitates and does not, in any way, hinder the operations of the business. This discipline is called supply chain management.” Anastasia in Cleverism

What is Supply Chain Management (SCM)?

Definitions of SCM

SCM involves numerous management activities and components in the supply chain. Therefore, it is useful to consider a couple of careful definitions of SCM.

• The Council of Supply Chain Management Professionals (CSCMP) defines SCM: “Supply chain management encompasses the planning and management of all activities involved in sourcing and procurement, conversion, and all logistics management activities. Importantly, it also includes coordination and collaboration with channel partners, which can be suppliers, intermediaries, third party service providers, and customers. In essence, supply chain management integrates supply and demand management within and across companies.”
• “Supply chain management (SCM) is the discipline that manages supplies and processes through all of the stages of a project, product or business deliverable. Business material has a journey as it moves from one state to the next until it’s ready to be delivered to the customer or stakeholder. Then there’s the logistics of taking the finished product from one place to another. Getting through these various stages efficiently requires control—that’s where supply chain management comes in.” ProjectManager

How SCM Compares to Logistics, Operations Management and ERP

Now you have read the various definitions of SCM. If you have any acquaintance with logistics, operations management and enterprise resource planning, then the four practices might seem so similar as to be confusing. However, they are actually different from each other.

SCM Compared to Logistics?

Logistics is often considered to be the storage and transportation of goods and services. The flow of those resources can be from their input to the organization to the customer, and backwards from those end points, for example, in the case of customer returns. Thus, logistics is a component of the supply chain.

SCM Compared to Operations Management

Operations management is concerned with ensuring high-quality effectiveness and efficiency of a broader range of operations throughout the organization than SCM. For example, operations management puts more focus on meeting strategic goals, coordination of various departments and personnel across the organization, and typically on management of more facilities than those directly involved in SCM.

SCM Compared to ERP

Note that SCM is also different than Enterprise Resource Planning (ERP). The activities of SCM include ensuring timely and cost-effective transportation of goods and materials into the organization, as well as outside of the organization and ultimately to the customer. (These are matters of logistics.)

Thus, SCM often collaborates with a variety of external organizations, for example, suppliers, manufacturers and transporters. As a result, SCM also focuses on the quality of relationships with those types of organizations. In contrast, ERP focuses exclusively on activities within the organization. Its focus is also much more on detailed activities, than on broad relationships.

• Operations Management and Supply Chain Management: Understanding the Nuances
• Supply Chain Management vs. Operations Management
• The Differences Between Logistics, Operations and Supply Chain Management

Also see

• Operations Management
• Product and Service Development

SCM Is Best Managed as a System

A system is a recurring cycle of activities, including:

1. Planning to determine goals and how they can be achieved, and
2. Then developing and managing resources and activities to achieve those goals, and
3. Then evaluating whether the goals have been achieved or not, and
4. Then using the learning from the evaluation to improve the quality of the next round of planning.

Thus, a system is a recurring loop of components (the supply chain) — in a continuous cycle of improvement. SCM is best planned and managed as a system; otherwise, the management tends to be highly reactive and sporadic, often resulting in a patchwork of disconnected and ineffective activities.

SCM is for Any Type of Organization

Service Organizations

The sequence of activities listed in the previous section, You Are Probably Part of a Supply Chain, is referred to as the “supply chain”. Many of the articles about SCM refer to the manufacturing products in larger organizations. However, if you work in a service industry, think about how each of the listed activities applies to your own organization.

For example, if your organization offers consulting services, then your organization still needs strategic planning and demands planning to clarify what types of services will be provided to whom, and what the demand for those services might be.

It still needs to be sure there are sufficient personnel (resources) with certain expertise who can be hired (procured) and provided (supplied) to your organization, as well as what it will cost to get those resources (transported) to your organization. It still needs to plan how to organize and train (develop) them, as well as how to maintain (store) them until they are put into use (delivered) to the clients.

Small Organizations

The managing of the activities through the supply chain — the supply chain management (SCM) — applies to small organizations, as well. The supply chain and the management of the supply chain are likely to be more complex than in a large organization.

However, it could be argued that SCM is just as important to the health of the small organization because, for example, the poor development and delivery of products and services to customers could pose a significant threat to the life of the organization.

In small organizations, there are often far fewer resources to rapidly identify and solve organizational problems, while also attending to customer needs. There is often far less money to hire expertise to help, as well. Problems in the supply chain often result in more dissatisfied customers and less revenue — another problem that small organizations cannot afford.

Nonprofit Organizations

A common misconception is that nonprofits are very small organizations that primarily offer services, and that they are seldom the types of large manufacturing organizations so often written about in the SCM literature.

However, the primary difference between a nonprofit and a for-profit is just that the nonprofit dedicates its financial resources exclusively toward meeting some social need, while a for-profit aims to accomplish a profit that can be allocated back to the owners or shareholders.

Otherwise, many nonprofits provide products to their clients, much as for-profits do. Actually, a small nonprofit is much more like a small for-profit in nature than a large nonprofit. Similarly, a large nonprofit is much more like a large for-profit in nature than a small nonprofit. See
How Nonprofits Differ From For-Profits – and How They Are the Same

Problems With Ineffectively Managed Supply Chains

Many organizations reactively evolve some version of a supply chain over time. They piece together the necessary parts of the supply chain as they need them. They might even evolve to a fairly complete supply chain, but still not manage it as a tightly integrated and aligned system of components that needs to continually be managed and adjusted for maximum efficiency to meet customer demands, while reducing unnecessary costs and overhead. As a result, these organizations expose themselves to experiencing:

• Insufficient resources (inventory) to meet customer needs
• Excess, costly inventory of unused resources
• Increasing stress and conflicts among personnel trying to do more with less
• Poor quality products and services
• Products and services for which there is little customer demand
• Decreasing amounts of customers
• High turnover among employees
• Decreasing sales and profits

Many Benefits of High-Quality SCM

The overall benefits of proactively, systematically managing SCMs are numerous and can include:

• More efficiency in operations, resulting in decreased operational costs
• Improved understanding of customers’ needs, resulting in more demand for products and services
• Increased focus on the customer, rather than on the organization itself, resulting in improved customer service
• Faster product development and production, resulting in increased volume of products and services for customers
• Increased sales and decreased expenses, resulting in more profitability for businesses and more community impact for nonprofits
  • Top 5 Benefits of Supply Chain Management Software That will Double Your Business
  • Benefits of Responsible Supply Chain Management
  • Key 7 Advantages and Benefits of Supply Chain Management
  • Primary Business Benefits of Supply Chain Management
  • The Benefits of Integrated Supply Chain Management

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PLANNING YOUR SCM

Characteristics of High-Quality SCM

Before you progress in planning your SCM, it might be useful to get an idea of what high-quality SCM’s look like and operate like. We turn to Intek Freight and Logistics, Inc, this time for a listing of the characteristics of a high-quality SCM.

1. Consistency – be great all the time
2. Horizontal and vertical integration – it should be difficult to see where one component of the chain stops and other begins
3. Technology – continually invest in best technologies
4. Value network design – inbound and outbound activities all focused on the end customer
5. Data-driven – the amount of available and useful data is substantial — use it
6. Proactive use of data – always think about how you can use the data
7. Customization and flexibility – especially with communications and delivery to customer
8. Prepare for unexpected – regularly think of potential disruptions to the supply chain and what to do about it
9. Sustainability – increasingly, stakeholders want to see this value in their providers of goods and services
10. Compliance – stay up to date and comply with relevant laws and regulations
11. Transparency – nothing goes unnoticed and everything is communicated
12. Integrity – governance and executives should ensure ethical activities throughout the supply chain

• Global Logistics / Supply Chain Best Practices
• 10 Best Practices You Should Be Doing Now
• Best Practices for Optimizing Supply Chain Management
• Supply Chain Best Practices from 10 Leading Companies
• The Essential Guide to Supply Chain Management Best Practices

Develop Your SCM Team Now

The planning and implementation of an SCM system requires sufficient time, energy and expertise, as well as a variety of different perspectives. That means a well-qualified and designed SCM Team of the most suitable members from your organization. The SCM Team would make recommendations to management about, for example:

• Goals for the SCM system
• Metrics to measure progress toward the goals
• The best approaches to train employees about SCM
• Criteria to select the best SCM system
• The best SCM system that meets the criteria

It is best to draft a job description for the SCM Team to be used when explaining the SCM Team’s role to upper management and suggesting who should be on it. The description also gives guidance and direction to the SCM Team as its doing its job. It is often best, as well, to train the members of the SCM Team about quality management. That might suggest hiring an expert to do that training, as well as to being a resource to the SCM Team as it does its job.

Also see

• Hiring Consultants
• Team Building
• Team Performance Management

Use SCOR© Model to Plan Your SCM?

The SCOR model is widely used in planning SCM systems. Your SCM Team choose this approach. The approach includes five overall stages, including:

1. Planning – includes, for example, decisions about aligning the supply chain with strategic goals, building versus buying, outsourcing, and activities across the supply chain.
2. Sourcing – includes, for example, decisions about cost-effectively procuring needed materials from the right suppliers, and always getting the materials in good condition
3. Making – includes, for example, decisions about facilities, activities and scheduling to effectively produce goods and services
4. Delivering – includes, for example, activities to store goods and services, fulfill orders, and distribute goods and services to the customer
5. Returning – includes, for example, authorizing returns, transporting defective products, and replacing products or refunding fees

• 5 Essential Stages in Developing a Successful Supply Chain
• The SCOR Model for Supply Chain Strategic Decisions
• Basics of Supply Chain Management

Establish SCM System Goals

Identify Relevant Organizational Goals

Your organization should have done strategic planning to clarify its overall purpose and priorities for the coming years. Ideally, the planning was done proactively and explicitly. The priorities are usually specified in terms of strategic goals.

Strategic goals related to the SCM might be, for example, regarding what products and services will be offered, as well as when and where. Planning might have also specified the value proposition of the organization, which specifies the value that customers get from using the organization’s products and services. Planning might have also specified certain financial goals to achieve, such as reducing expenses by a certain amount or raising revenues by a certain amount.

• Supply Chain Strategy: Back to Basics
• Supply Chain Strategy and Business Strategy

Also see

• Strategic Planning
• How to Do to Planning
• Goals and Objectives Should Be SMARTER

Identify SCM Goals and Align with Organizational Goals

Here is an example of an SCM strategic plan that gives examples of SCM goals, including as derived from a strategic SWOT analysis. The article Defining the Supply Chain gives a useful overview of examples of SCM goals and associated objectives. The article mentions goals, including to achieve efficient fulfillment, drive customer value, enhance organizational responsiveness, build network efficiency and facilitate financial success.

The above are examples to help you with your thinking. However, your SCM goals should be derived from your own organization’s strategic priorities. For each SCM goal, associate various milestones, or key performance indicators, of progress that you are making progress toward achieving the goal. (For ideas of goals, consider various metrics for evaluating your SCM.)

• Align Your Supply Chain With Your Business Goals
• Six Steps to Align Supply Chain with Corporate Strategy
• Supply Chain Metrics: Make Sure They Are Aligned with Your Strategy!

Also see

• Action Planning and Operational Planning
• Strategic Action Plans & Alignment

Be Realistic In Your Planning

Especially if yours is a small to medium-sized organization, or if this is your first time in being focused and intentional about quality management, then be very realistic about what you can accomplish. Develop a plan with various phases to be implemented over a realistic period of time. Build in some quick accomplishments in order to sustain excitement and motivation to implement the plan. Be willing to change the plan while implementing your quality management during its first year.

Also see
How to Do to Planning

Decide Any Organizational Changes

A conventional rule in deciding the structure of something is “form follows function.” In other words, the structure of the organization (its design and roles) should be to what is most useful in implementing the organization’s functions (its goals and methods to achieve those goals).

So what departments, teams and employees are now — and should be — involved in SCM, including to use the SCM software? What goals should each department, team and various employees have in SCM? What SMART objectives should be associated with each goal?

• Organizational Structures and Design
• Work Design and Job Design
• How to Know What Positions and Jobs Are Needed

Use Push or Pull Drivers to Manage Your Supply Chain?

Push and pull are two different approaches to managing supply chains. It is important early on when planning and designing a supply chain to decide which of the two approaches is best for the organization and its customers.

In the push approach, goods and services are “pushed” through the supply chain to the customer. The push approach starts by forecasting the demand for the goods and services, and then making sure the supply chain effectively operates to meet that expected demand. So the effectiveness of the approach depends very much on the accuracy of the forecasts.

The pull approach starts from relying on actual customer demands in order to forecast the necessary supplies and any changes needed in the supply chain in order to promptly meet those demands. So the effectiveness of this approach depends very much on the supply chain promptly learning and meeting the demands of the customers.

• What is Push and Pull Strategy in Supply Chain Management?
• Push-Pull Strategy
• Push vs. Pull in Your Supply Chain…What’s the Difference?

Partner With Others to Operate Your SCM?

There can be numerous types of other organizations that can work with your organization to help operate your supply chain. So your organization must closely manage its relationship with each of those other organizations. This includes clarifying the roles and responsibilities of each, establishing complete and accurate contracts and agreements, monitoring the performance of each, and evaluating the usefulness of each relationship.

RedStag Fulfillment lists some types of partners in this order:

• Vendors – that produce and provide raw materials
• Producers – that organize, assemble and/or manufacture products and services
• Warehouses – that store, monitor and organize products and materials
• Distribution centers – that collect, manage and provide products and services
• Retailers – that sell products and services to customers via various different methods
  • Partnerships to Improve Supply Chains
  • Supply Chain Partnerships Or Supply Chain Management?
  • Establishing Supply Chain Partnerships
  • Supply Chain Collaboration
  • Managing Relationships in the Supply Chain

Also see

• Team Building
• US Business Contracts

Select the Best SCM Software

What Type of Software Platform is Best?

On-premises

In this type, you install the SCM software on your computer system, as well as maintaining, troubleshooting and updating the software. You would either use one of the free SCM tools or buy or license a tool from a vendor.

This type of software installation works best if you have available ongoing technical skills for installation, troubleshooting and upgrades. You also will need considerably more time to install the software as you climb the often steep learning curve to understand the software and its installation. You are likely to face occasional periods of downtime of the software as problems are solved and upgrades are installed.

Cloud-based

In this type, you subscribe or license the software from a vendor that makes the software available to one or more people in your organization, depending on the licensing agreement. The vendor manages all aspects of the software, including installation, testing, training, troubleshooting and upgrades. This works if you have a suitable budget. Fortunately, the price of SCM software has continued to decrease over the years.

How to Select the Right SCM Software

Questions to Consider When Specifying Your Software Requirements

Itarian lists a variety of questions to consider, including:

1. Is it suitable for your size of organization?
2. Are there any limitations to the number of users?
3. Is it easy to use?
4. Can it be integrated with your other computer systems?
5. Is it easy to integrate with other supply chain management solutions that you already use?
6. What are its security features against hackers’ attacks?
7. Is the software affordable and fits in your budget?

You should also consider:

1. What type of SCM software do you need?
2. What type of technical support does the vendor provide? How reliable is it?
3. Does the vendor provide training?
4. Does the vendor include a careful manual for implementing the software?
5. Does the vendor provide demonstrations that your employees can experience?
6. What are some of its customers saying about the software?

Specify the Requirements for the Software

Now you are ready to specify what you want the SCM software to accomplish for you. It is best to write a software requirements specification (SRS), while focusing now on the needs of your organization, and not on the particular software tool that you might already prefer. Later on, you will take your SRS to the various SCM software vendors for you to carefully decide if their software will indeed meet your organization’s needs.

• Requirements & Features of Supply Chain Management
• Sample SCM Software Requirements Specification (scroll down the page)

Lists of Some SCM Software and Costs to Consider

• Supply Chain Management Software
• 13 Essential Types of Supply Chain Management Tools
• Types of Supply Chain Management Software
• Top 15 Supply Chain Management Software
• Top 10: Supply Chain Management Software Companies

Free SCM Software

5 Open Source Software Tools for Supply Chain Management

For Small Organizations

Supply Chain Management Software for Small Businesses

For Nonprofits

Nonprofit organizations have supply chains, especially those focused on providing services. There seems to be an increasing number of for-profits organizations providing services. Thus, SCM software for businesses might also accommodate nonprofit organizations, so it certainly is worth contacting software vendors to ask if their software works for nonprofits.

Supply Chain Solutions for Disaster Relief Organizations

Now Select the Best Software For Your Needs

You are in a great position now to begin working with various vendors to get the best software to meet your needs, as specified in your SRS. You might include your specification in an overall Request for Proposal (RFP). You also might bring the members of SCM Team with you when talking to the vendors.

• 5 Tips for Choosing Supply Chain Management Software
• How to Choose Supply Chain Management Software
• How to Select the Best Supply Chain Management Software For Your Business
• Supply Chain Management Software Selection
• Selecting A Supply Chain Management System

Also see

• 4 Reasons Business Contracts Fall Apart
• US Business Contracts

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DEVELOPING YOUR SCM SYSTEM

Redesign Your Organization As Needed for SCM

Consider the goals and objectives that you established during the SCM planning for each department, team and employee associated with customer relationship management. What teams and roles should exist? How should they be integrated with each other? For example, which departments, teams and employees should be collaborating with each other and how? What organizational design would best facilitate that type of involvement and collaboration?

• Requirements for Successful Organizational Change
• Understanding Organizational Structures and Design
• Organizing or Reorganizing an Organization and Its Employees

All of the activities within an organization occur within the context of organizational performance management. Thus, having a basic understanding of that overall process will also give you an understanding of the major recurring activities in an organization and the general order in which they occur.
Organizational Performance Management

Delegate SCM Goals to Teams and Employees

Consider the SCM goals and associated objectives that you decided during the planning. Which goals should be delegated to which teams and employees? Make sure that you make the assignments according to the team performance management and employee performance management practices that are formally established in your personnel policies.

• Goal Setting with Employees — What Should Employees Work On?
• Team Performance Management: Performance Planning Phase (Assigning Goals)

Also see
Personnel Policies

Train Your Employees About SCM Systems and Management

Operating a high-quality SCM system requires well developed knowledge and expertise among employees. Depending on the employees role in the system, required skills can planning, organizing, leading and coordinating resources. It can include supervising, communicating and evaluating. It can include planning, monitoring, measuring and analyzing. Therefore, arrange highly practical trainings for your employees — trainings that match their busy schedules and trainings that include practice sessions.

• Supply Chain Education: What Skills Do Your Staff Need?
• The Importance of Supply Chain Training to Improve Your Business’ Bottom Line
• Skills for the New Era of Supply Chain Management – A Look to the Future

Also see
About Training and Development

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MANAGING YOUR SCM

Three Levels of Managing in SCM

It helps to get clearer perspective on managing SCM if you look at it as having the following three general levels that must continually get attention when managing a supply chain.

Strategic Level

Strategic planning involves clarifying the organization’s overall purpose and long-term priorities. Specific to a supply chain, strategic decisions answer, for example, what is our unique value to our customers, what sets us apart from our competitors and what are our values in serving our customers. It also answers what are our strategic priorities for the next few years, for example, to expand marketshare, increase profits, expand community impact or improve quality?

Also see
Strategic Planning

Operational Level

Where the management activities in the strategic level answer “What will we be doing?”, management activities at this level show how we will be doing it. Examples include designing and structuring the organization, getting and organizing the best people to address the strategic priorities. It also includes managing each of the components in the supply chain, as well as the important flows of information, finances, products, values and risk management across the supply chain.

Also see
Operations Management

Tactical Level

This level includes the many recurring day-to-day tasks necessary to operate the components in the supply chain. There are many examples, such as following policies and procedures to work with suppliers, doing timely and cost-effective procurements, transporting goods and supplies to and from the organization, tracking and monitoring resources in warehouses and communicating with personnel across the supply chain.

Also see

• Three Levels of Supply Chain Management
• 3 Step Beginner Guide to Supply Chain Planning
• The Ultimate Guide to Supply Chain Management

Chain of Management Processes in SCM

It is clear that SCM spans different management processes. Predictive Analytics Today suggested items 1-8, below, as being the “building blocks” of SCM.

1. Strategic Planning Process

This involves planning and specifying the strategic supply chain design. This might be done as part of the overall strategic planning process, which would also specify which products and services are provided and to which groups of customers.

• Strategic Planning
• Introduction to Strategic Supply Chain Management
• How To Do Strategic Supply-Chain Planning

2. Demand Planning Process

This involves planning how customer needs (demands) will be accurately and usefully forecasted, and how those forecasts will be communicated especially to the supply planning process.

• What’s the True Definition of Demand Management?
• Demand-Chain Management
• Lessons in Demand Management

3. Supply Planning Process

This involves planning how to ensure sufficient resources (raw materials, components, expertise, etc.) to develop into needed products and services. This also includes managing for effective supplier relationship management.

• Supply Planning: Processes, Options & Analytics, Oh My
• 5 Steps to Connected Supply Chain Planning
• Who Loves Ya?? Demand Planning or Supply Planning? (Part 1)

4. Procurement Process

This involves ensuring timely and cost-effective purchases of sufficiently needed resources, including finding (or sourcing) the resources, coordinating the most cost-effectiveness purchases, and accurately administrating the purchases.

• Procurement Processes in Supply Chain Management
• Driving Procurement Process Benefits in 4 Different Ways
• Procurement

5. Manufacturing Process

This involves regularly manufacturing goods by combining, integrating and aligning the supplies in a timely and cost-effective manner. It means accurately scheduling these production activities in close coordination with the forecasted rate of sales to customers. It means always conducting careful quality control to ensure products will always meet or exceed expectations of customers. In the case of service organizations, this process would include equipping personnel and materials to deliver services when needed.

• How Does Supply Chain Management Affect Manufacturing Companies?
• Manufacturing and Supply Chain Management Solutions
• Manufacturing Supply Chains

Also see
Quality Control
Quality Control Techniques

6. Warehousing Process

This involves transporting, organizing, storing, tracking and monitoring raw materials needed for products. (This in-bound transporting to the organization is sometimes considered to be part of the procurement process.) This can also include doing the same activities for produced products and services. This all must be done in timely, cost-effective and reliable manner.

• About Warehousing
• Warehousing Efficiency and Effectiveness in the Supply Chain Process
• 11 Warehouse Operations Best Practices

Also see
What is Inventory Management?
What is Inventory Management?

7. Order Fulfillment Process

This involves ensuring accurate sales order pricing, processing and billing, as well as orderly and efficient packaging — or provision — of products and services to customers. Depending on the nature of the products and services, this can include highly customized and expensive packaging or provisioning. It can also include arranging necessary warranty and optional customer service agreements.

• Secrets to Successful Order Fulfillment
• Order Fulfillment, Logistics and Supply Chain Management
• Order Fulfillment

8. Distribution Process

This involves planning and ensuring timely and cost-effective distribution of products and services to the customers (that is, outbound logistics), including the same activities in reverse order if products are returned by the customers or if customers are not satisfied with the quality of services.

• The Role of Distribution in the Supply Chain
• Distribution Channels and Supply Chain Management in High-Tech Markets
• Logistics and Distribution Models

9. Customer Service Management

This includes ensuring high-quality service and support to customers before, during and after your customers buy from you. It includes answering customers’ questions about products and services, and can include handling customers’ complaints.

• Customer Service
• What is Customer Service?
• 10 Types Of Customers Services – Customer Service Channels

10. Customer Relationship Management

This involves the ongoing activities to ensure high-quality relationships between the organization and its customers. Thus, this also includes the activities to ensure great customer service management.

• Customer Relationship Management
• The Three Phases of CRM

Manage These Flows Through Your Supply Chain

When trying to grasp the nature of activities through the supply chain, it helps to see them as different types of flows through the supply chain. That type of perspective can make it much easier in recognizing what needs to be managed and how. The direction of the flows depends on whether you had selected a push or pull approach to your management activities. When reading the following, you might think of the major processes in a supply chain, including:

1. Strategic processes
2. Demand processes
3. Supply processes
4. Procurement processes
5. Transportation to organizations
6. Manufacturing processes
7. Inventory management
8. Transportation/distribution to customers

Product Flow

This includes the development and movement of goods and services all the way from suppliers to customers. Thus, the timing of those activities in a particular supply chain component affects the timing of activities in the chain’s upcoming components, as well. The flow and affects are in reverse order in the case of returns from the customer.

Financial Flow

The costs of the supply chain tend to increase as activities proceed through the supply chain. Thus, the cost of a particular supply chain activity affects the available funds for the upcoming activities in the supply chain, as well.

Information Flow

There should be a constant flow of useful and timely information throughout the supply chain. Thus, the accuracy and timeliness of information in a particular supply chain activity affects the quality of information in the upcoming activities in the supply chain, as well.

Value Flow

The value of products and services increases through the supply chain. Thus, the value produced by a particular supply chain activity affects the value in the upcoming activities in the supply chain, as well.

Risk Flow

Risk can be any kind of disruption to activities in the supply chain, for example, breakdowns of machinery, suddenly unavailable materials, poor quality materials, or poor performance of personnel. A sudden disruption in an activity at any point in the supply chain becomes a disruption to the upcoming activities in the supply chain, as well.

• The Five Major Flows in Supply Chain
• Managing Supply Chain Flows
• Supply Chain Management – Process Flow

Managing Risk Management in Your SCM

Risk management is attempting to identify and then manage threats that could severely impact or stop the supply chain. Generally, this involves reviewing the supply chain, identifying potential threats and the likelihood of their occurrence, and then taking appropriate actions to address the most likely threats.

With the recent increase in rules and regulations, employee-related lawsuits and reliance on key resources, risk management is becoming a management practice that is every bit as important as financial or facilities management.

As written above, risks to the supply chain can include, for example, sudden breakdowns of machinery, unavailability materials, poor quality of materials and poor performance of personnel. Risk management should be applied to all components in the supply chain. Disruption at any point in the chain should be planned for and contingencies should be planned accordingly.

• Supply Chain Risk Management
• Supply Chain Risk Management (SCM)
• Five Techniques to Manage Supply Chain Risk

Also see
Risk Management

Managing Safety and Security in Your SCM

Safety and security are major concerns of today’s supply chain managers. The supply chain is comprised of numerous moving parts, ranging in size from unpacking containers, driving transport vehicles to constructing production facilities.

Often, the faster that a supply chain operates, the more products and services that it can provide. However, the faster it operates, the more likely that accidents and major disruptions can occur.

Concerns for safety are increasing as organizations outsource operations around the world, sometimes resulting in facilities and activities that are not as carefully designed and managed as those in the industrialized countries. This results in even more concerns about safety.

Security concerns are increasing, as well. Unfortunately, various terrorist attacks have included bombs and shootings in and around organizations with products and services that have been perceived as somehow being destructive to society. Computer hackers are growing more sophisticated in their abilities to attack and adversely affect computers and their networking. This poses a substantial risk to the operations of organizations and their supply chains around the world.

• Safety and Supply Chain Management Go Hand in Hand
• Focusing on Supply-Chain Management – Better Safety, Monitoring and Quality
• Supply Chain Risk Management

Managing Ethically and Social Responsibility in Your SCM

The social responsibility movement arose particularly during the 1960s with increased public consciousness about the role of business in helping to cultivate and maintain highly ethical practices in society and particularly in the natural environment.

Increasingly, organizations are being held publicly responsible for how their products and services are developed and provided. The public expects safe and secure working conditions. It expects workers to get livable wages. It expects products and services to be environmentally friendly.

Major public relations problems have occurred with organizations found to be collecting and selling customers’ private data without getting the customers’ permission to do so.

Consequently, the topics of social responsibility and business ethics are increasingly mentioned in publications and conversations about supply chain management.

• 5 Steps to a More Ethical Supply Chain
• The Ethical Supply Chain
• Corporate Social Responsibility in Supply Chains
• Six Steps to a More Ethical and Sustainable Supply Chain

Also see
Social Responsibility

Evaluating Your SCM Performance

Back in the Preparation paragraphs, you were encouraged to prepare for developing your SCM system by establishing goals for its performance. Goals could include desired results at the organizational level for SCM and for the SCM system itself.

Evaluations of the SCM should include assessing the extent of achievement of the SCM’s goals, as well as the quality of its ongoing operations to achieve those goals.

Evaluations of the SCM system should be done at regular intervals, not just at the end of the year. The more complex the products and services and also the falser that the supply chain operates, the more frequently that the evaluations should occur.

Here are several useful articles with metrics and guidelines to regularly evaluate the performance of your SCM system.

How to Evaluate SCM

• Evaluating Your Supply Chain Management Process
• Evaluation of Supply Chain Management
• ROI: How to Evaluate Your Supply Chain Performance

Metrics to Monitor During Evaluations

• 10 Supply Chain Metrics & KPIs You Need For A Successful Business
• 12 Key Metrics for Supply Chain Management
• All 17 Key Metrics For Supply Chain Management That You Ever Need

Also see
Evaluations
How to Design Successful Evaluation and Assessment Plans

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General Resources

Additional Overviews

• 3 Step Beginner Guide to Supply Chain Planning (excellent for beginners)
• The Ultimate Guide to Supply Chain Management
• Supply Chain Management
• What is Supply Chain Management? Definition, Example & Objectives!
• Logistics and Supply Chain Management – Comprehensive Guide
• Ultimate Guide to Supply Chain Management
• Supply Chain Management Tutorial
• Supply Chain Management – Complete Resource Guide

Certifications

• Top 8 SCM Certifications
• The 5 Best Supply Chain Management Certifications

Glossaries

• Supply Chain Definitions and Glossary (download it)
• Supply Chain Glossary of Terms

Organizations

• Association for Supply Chain Management
• Council of Supply Chain Management Professionals
• Chartered Institute of Procurement & Supply
• Supply Chain Council

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For the Category of Operations Management:

To round out your knowledge of this Library topic, you may want to review some related topics, available from the link below. Each of the related topics includes free, online resources.

Also, scan the Recommended Books listed below. They have been selected for their relevance and highly practical nature.

• Related Library Topics
• Recommended Books

Introduction to Operations Management of Products and Services: Overview and Resources

Copyright, Carter McNamara, MBA, PhD

Before reading this topic, you might read about the Relationship Between Managing Supply Chain, Operations, Quality, Customer Relationships and Customer Service.

Sections of This Topic Include

Introduction to Operations Management (OM)

• What is Operations Management (OM)?
• Various Definitions
• What Are Goods and Services?

Roles in Operations Management

• Operations Management Specific Roles
• Chief Operations Officer
• Operations Manager

What is an Operating System?

• What Are Operations Systems?
• What is a System?
• What is an Operations System?
• Align With Strategic Planning

Planning Operations Systems

• Phase 1: Planning Operations Systems
• Product/Service Planning
• Capacity Planning
• Facilities and Layout Planning
• Job and Work Design
• Work Flow Management

Planning Operations, Inventory and Quality Control

• Phase 2: Planning Operations, Inventory and Quality Control
• Production and Scheduling
• Supply Chain Management and Inventory Management
• Service Design
• Quality Control

Managing Productivity

• Phase 3: Managing Productivity
• What is Productivity?
• Methods to Measure and Improve Productivity

General Resources

Also consider

• Product and Service Development
• All About Customer Service
• Related Library Topics

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What is Operations Management (OM)?

Various Definitions

Operations management focuses on carefully managing the processes to produce and distribute products and services. A great deal of focus is on efficiency and effectiveness of processes. Therefore, operations management often includes substantial measurement and analysis of internal processes.

Ultimately, the nature of how operations management is carried out in an organization depends very much on the nature of the products or services in the organization, for example, agriculture, mining, construction or general services. Here are some additional perspectives on the field.

• “Operations management is chiefly concerned with planning, organizing and supervising in the contexts of production, manufacturing or the provision of services.” — TOPMBA
• “Operations management is an area of management concerned with designing and controlling the process of production and redesigning business operations in the production of goods or services.” — Wikipedia:

What Are Goods and Services?

Basically, a product is a tangible offering to a customer, whereas a service is an intangible offering. The former is usually a one-time exchange for value. In contrast, a service usually involves a longer period of time.

The value of a product is inherent in the tangible offering itself, for example, in the can of paint or pair of pants. In contrast, the value of a service often comes from the eventual benefit that the customer perceives from the time while using the service.

In addition, the customer often judges the value of a service based on the quality of the relationship between the provider and the customer while using the service.

Wikipedia mentions that there are certain differences between manufactured goods and services, including that services can have simultaneous (in the moment) production and consumption, are perishable (there is no inventory management), ownership (ownership of the service is not owned by the customer) and tangibility (it is difficult to evaluate). These features make operations management more of a challenge in services.

• Difference Between Product and Service
• 6 Key Differences Between Services and Products

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Operations Management Specific Roles

Chief Operating Officer

“The chief operating officer (COO), also called the chief operations officer, is one of the highest-ranking executive positions in an organization, comprising part of the “C-Suite”. The COO is responsible for the daily operation of the company,[1] and routinely reports to the highest-ranking executive, usually the chief executive officer (CEO)… The COO is usually the second in command at the firm, especially if the highest-ranking executive is the Chairman and CEO. ”

• Wikipedia
• Chief Operating Officer (COO)
• All About COOs (Chief Operating Officers)
• The Misunderstood Role of the Chief Operating Officer

Operations Manager

A useful definition of the role of an operations manager comes from Investopedia:

• “Operations management is the administration of business practices to create the highest level of efficiency possible within an organization.
• Operations management is concerned with converting materials and labor into goods and services as efficiently as possible.
• Corporate operations management professionals try to balance costs with revenue to maximize net operating profit.”

They oversee product development and delivery, inventory and supply chain management, operations staffing and job design, and production. They oversee an organization’s key operations and, thus, they usually have a wide and strategic view of the organization. The specific duties of the role depend on the nature of the product and service that the company produces and provides, for example, in agriculture, industry or construction.

• Operations Management
• The Role of the Operations Manager
• Operations Manager Job Description
• Operations Manager Job Description
• What Are Operations Manager Job Responsibilities?

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What Are Operations Systems?

It can seem overwhelming to read about the numerous activities involved in operations management. One wonders where they fit into an organization? How are they connected? This is where a systems view is very helpful.

What is a System?

Simply put, a system is an organized collection of parts that are highly integrated to accomplish an overall goal. The system has various inputs, which go through certain processes to produce certain outputs, which together, accomplish the overall desired goal for the system.

For example, an automobile is a system. Its inputs are gasoline, a driver, a steering mechanism, tires, as well as various tubes, pipes and electrical cords. The system’s processes are when they work together to burn the gasoline, resulting in the systems outputs of the tires moving and the car steering as the driver prefers. The overall system’s desired goal is a very useful automobile.

What is an Operations System?

The primary activities in operations management is a system — they are all integrated and aligned with each other. The operations manager’s job is to ensure they are all effectively and efficiently working together in order to produce the desired goal of useful goods and services for customers.

Look at this diagram of a system of an overall organizations. Notice the various inputs that are processed to produce certain outputs and outcomes (desired goals).

An operations system includes, for example:

1. Inputs — such as expertise, best practices, funding, equipment, facilities and technologies, as well as the customer’s feedback and the overall organization’s strategic priorities
2. Processes — such as planning (capacity, product and service design, production, facilities, jobs, inventory, quality control, etc.) and managing productivity to produce high-quality products and services
3. Outputs — high-quality products and services
4. Outcomes — very satisfied customers

Feedback from customers should be continually collected and considered as an input to the processes of the planning the development and production of goods and services. In that way, the operations system is really a recurring loop of outcomes which, in turn, influence the inputs to the next round of the system.

Align Operations Systems With Strategic Planning

Notice that one of the inputs to the operations system is the strategic priorities of the organization. It is critical that the operations system be closely integrated and aligned with the purpose (the mission) and priorities (strategic goals) of the organization.

Otherwise, the system will not be operating as effectively as it should be. For the system to be operating as efficiently as it should be, there should be closely integrated and aligned parts within the system.

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Phase 1: Planning Operations Systems

Product/Service Planning

The planning of products and services (the outputs from the system) includes market research to:

• Clarify the needs and wants of potential groups (market niches) of customers, as well as how those needs and wants might be met with certain products and services.
• Clarify how the new products and services should best be provided to those target markets.
• Identify competitors, as well as potential collaborators.
• Suggest the best terms in pricing for the products and services.
• Suggest how best to advertise and promote to those groups of customers.

The results of that research produce a specification of the product or service. Various feasibility studies and perhaps a prototype might be done, as well, to refine the description of the product or service. See
Product and Service Development

The specification could be further enhanced by adding information about costs to develop and produce the product or service, including employees, facilities and management. This information is often included in a business plan. (This information is also sometimes referred to as the business strategy.)
All About Business Planning

Capacity Planning

Capacity planning includes specifying how many of the outcomes (products or how much service) will be produced and how often. That includes predicting, or forecasting, the demand for those outcomes. The previous market research will be very useful here. There are a variety of other tools that could be useful,
as well.

• Four Steps to Forecast Total Market Demand
• How to Choose the Right Forecast Technique
• What is Demand Forecasting and How Can It Help Your Business?
• What Are the Best Demand Planning Software Tools for 2019?

A useful planning technique to ensure consideration of many possible influences is scenario planning, including to consider various external driving forces that could have a strong influence.
Driving Force Impacts for Environmental Scanning in Strategic Planning

It also might be useful to hire an expert with knowledge about developing the particular product or service.
How to Successfully Hire and Work With an Excellent Consultant

The results of the planning should produce estimates of the needed inputs to produce the product or service, including types of expertise needed, amounts of certain kinds of materials, what technologies to use, etc.

Facilities and Layout Planning

This is one of the most critical activities in operations management, not just because they underlie and facilitate the activities to very effectively and efficiently produce products and services, but also because facilities and their maintenance are one of the most expensive, as well. Fortunately, there is a variety of helpful articles about how to do this acclivity in operations management.

• Relationship Between Plant Layout and Material Handling
• Plant Layout and Material Handling
• Introduction to Manufacturing Facilities Design And Material Handling
• The Ultimate Facility Manager Checklist

Job and Work Design

The Business Dictionary defines work design as:

• “An arrangement in the workplace that has the objective of overcoming employee alienation and job dissatisfaction that comes about from mechanical and repetitive tasks in the workplace. Work design is used by organizations to boost productivity by offering employees non- monetary rewards such as satisfaction from a greater sense of personal achievement. Also called job design.”

From Wikipedia:

“Job design (also referred to as work design or task design) is a core function of human resource management and it is related to the specification of contents, methods and relationship of jobs in order to satisfy technological and organizational requirements as well as the social and personal requirements of the job holder or the employee.”

• Work Design (Wikipedia)
• Work Design in an Organizational Context
• Principles of Good Work Design

Work Flow Management

“Workflow management is creating and optimizing the paths for data in order to complete items in a given process. Workflow management includes mapping out the workflow in an ideal state, finding redundant tasks, automating the process, and identifying bottlenecks or areas for improvement.”
kissflow

The map depicts the flow of activities through the system, including its input, processes, outputs and outcomes. These are sometimes also referred to as operations management process maps. (This technique is at the heart of the Business Process Re-Engineering approach.)

• Workflow
• What Should You Include in Your Operations Management Process Map?
• 9 Powerful Workflow Examples For Smart Teams in 2019

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Phase 2: Planning Operations, Inventory and Quality Control

Production and Scheduling

Production Planning

This is the processes part in the operations system where the inputs are transformed into the desired product or service. Considerations include, for example:

• Are there technologies currently or soon available that could expedite the production?
• Are there best practices suggested by various experts about the product or service?
• Can components of the product be purchased as-is or off-the-shelf?
• What components are needed, in total, to produce the product or service?
• What are the costs associated with developing and producing the product or service?
• What are the estimated demands of customers for the next six months? 12 months? 18 months? These estimates drive the scheduling of the production activities.

This activity also includes developing a detailed map of the activities required to obtain, assemble, integrate and test the product or service before it is provided to customers.

• What Makes a Good Production Plan?
• What Must Be Considered for Production Planning?
• Production Planning
• Production Planning

Scheduling

A critical activity in ensuring that the operations system is highly effective and efficient is coordinating (scheduling) the timing of activities to organize, monitor and optimize the equipment, people and production activities. Scheduling has a major impact on the productivity of the system.

• Scheduling (production processes)
• Production Scheduling Approaches for Operations Management
• Scheduling (in operations management)

Supply Chain Management and Inventory Management

Supply Chain Management

“In business and finance, supply chain is a system of organizations, people, activities, information, and resources involved in moving a product or service from supplier to customer.” Wikipedia

” Supply chain management (SCM) is the active management of supply chain activities to maximize customer value and achieve a sustainable competitive advantage. It represents a conscious effort by the supply chain firms to develop and run supply chains in the most effective & efficient ways possible. Supply chain activities cover everything from product development, sourcing, production, and logistics, as well as the information systems needed to coordinate these activities.”

• Supply Chain Resource Cooperative
• Guide to Supply Chain Management for any Organization: Overview and Resources
• What is Supply Chain Management (SCM)
• CSCMP Supply Chain Management Definitions and Glossary
• The Death of Supply Chain Management
• What Are the Main Supply Chain Challenges?
• The Seven Deadly Supply Chain Sins

Inventory Management

Inventory includes unprocessed materials, finished products, supplies and works-in-progress. Inventory management is a part of supply chain management that oversees the inventory items from manufacturers to storage to where they are sold. There must be a very careful balance between the size of the inventory of items compared to the actual rate of their sales.

Too many items in inventory means their costs are not recovered in a timely manner from their sales. It also might mean high costs of storage. Insufficient numbers of items means the organization cannot meet the customer demand, resulting in lost revenue.

• What is Inventory Management?
  What is Inventory Management?
• Your Essential Guide to Effective Inventory Management + 18 Techniques You Need to Know
• 3 Inventory Management Problems and How To Avoid Them
• 5 Common Inventory Mistakes and How to Avoid Them

Service Design

In the past, an organization was expected to provide a product or service to the customer, and then that transaction was done — the activity was done to the customer. The customer was more or less at the mercy of the organization.

Today, that is changing dramatically. Customers have a much wider range of organizations, products and services to choose from, and they can access them instantly. Customers can also access numerous sources of useful opinions or reviews about the product or service even before they buy them.

Thus, it is more important than ever that organizations remain very good at attracting, satisfying and retaining customers. That requires a carefully designed and implemented customer services plan.

Service design “is the activity of planning and organizing people, infrastructure, communication and material components of a service in order to improve its quality and the interaction between the service provider and its customers. Service design may function as a way to inform changes to an existing service or create a new service entirely.”

• Wikipedia
• Customer Service Business Plan Template
• Why Your Business Needs a Customer Service Plan
• 8 Steps to Creating a Superior Customer Service Plan
• How to Create a Customer Service Plan
• How to Create a Customer Service Plan

Quality Control

Quality management, including quality control, is crucial to effective operations management, particularly continuous improvement. More recent advancements in quality, such as benchmarking and Total Quality Management, have resulted in advancements to operations management as well.
Quality Management

Quality control can be defined “part of quality management focused on fulfilling quality requirements.” While quality assurance relates to how a process is performed or how a product is made, quality control is more the inspection aspect of quality management. An alternate definition is “the operational techniques and activities used to fulfill requirements for quality.”

• American Society for Quality
• Quality Control
• Quality Control (QC): Definition, Importance and Tools of Quality Control
• Quality Control Techniques

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Phase 3: Managing Productivity

What is Productivity?

In the context of operations systems, productivity is defined as the ratio of the output to the input of the system. The higher the ratio, the more productive the system. One of the most common measures of productivity is output per hour. This is important especially in manufacturing industries.

• The Concept of Productivity
• 5 Steps to Achieving Better Results through Productivity Management
• How to Create a Successful Productivity Management System
• Productivity and Operations Management

Methods to Measure and Improve Productivity

Where many guidelines are in regard to increasing employee productivity, Productivity: A Practical Handbook distinguishes between three factors that drive productivity, not all of them around employee productivity, including:

1. Job-related
2. Resource-related
3. Environment-related

The above Handbook is a very useful overview of the many different methods to improve productivity.

Here are various measures, or indicators, to help monitor and assess the levels of productivity.

• Measuring Productivity Levels
• Operations Management (scroll down to “Metrics: efficiency and effectiveness”)

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General Resources

Software / Tools

• How to Use Operations Management Tools in Business
• Operations Management Software
• Operations Management Software (reviews)

Organizations and Journals

• Organizations
• Journals

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For the Category of Operations Management:

To round out your knowledge of this Library topic, you may want to review some related topics, available from the link below. Each of the related topics includes free, online resources.

Also, scan the Recommended Books listed below. They have been selected for their relevance and highly practical nature.

• Related Library Topics
• Recommended Books

All About Financial Management in Nonprofits

Guidelines for nonprofit financial management are included in the book Bookkeeping Basics: What Every Nonprofit Bookkeeper Needs to Know .

© Copyright
Carter McNamara, MBA, PhD, Authenticity Consulting, LLC.
Applies to nonprofits unless otherwise noted.

New nonprofit leaders and managers have to develop at least basic skills in financial management. Expecting others in the organization to manage finances is clearly asking for trouble. Basic skills in financial management start in the critical areas of cash management and bookkeeping, which should be done according to certain financial controls to ensure integrity in the bookkeeping process.

New leaders and managers should soon go on to learn how to generate financial statements (from bookkeeping journals) and analyze those statements to really understand the financial condition of the business. Financial analysis shows the “reality” of the situation of a business — seen as such, financial management is one of the most important practices in management. This topic will help you understand basic practices in financial management, and build the basic systems and practices needed in a healthy business.

Sections in This Topic Include

The following links are to sections included further below in this Web page.

Basics and Getting Started

• Basics of Financial Management
  • Reviewing the Basics of Nonprofit Financial Management
  • Use Fiscal Sponsorship?
  • What Type of Bookkeeping System Should You Use?
  • Your Board Treasurer and Board Finance Committee — Critical Resources to Help You Get Started
  • Getting an Accountant, If Needed
  • Buy a Software Package to Automate Your Financial Management?
  • Getting a Bank and Banker
• Understanding and Setting Up Your Nonprofit Bookkeeping and Accounting
• Addressing Financial Controls and Risk Management

Activities in the Yearly Accounting Cycle

Planning and Cash Management

• Financial Planning
• Budgeting and Managing Budgets
• Managing Program Finances
• Managing Cash Flow
• Credit and Collections
• Budget Deviation Analysis

Financial Statements, Analysis and Reporting

• Financial Statements
  • Statement of Activities (Income Statement)
  • Statement of Financial Position (Balance Sheet)
• Financial Analysis
  • General Information
  • Ratios
• Financial Reporting
  • Overviews
  • Annual Reports

Special Topics

• Cutting Costs
• Lease Versus Buy
• Assessments and Audits of Nonprofit Financial Management Practices
  • Various Assessments to Check the Financial Health of Your Nonprofit
  • Financial Audits
• General Resources (assistance, banking, software, accounting, etc.)

Also consider
Related Library Topics

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BASICS AND GETTING STARTED

Basics of Financial Management

Reviewing the Basics of Nonprofit Financial Management

To manage your finances as effectively as possible, you should at least have an understanding of the basic accounting process. To get an overall sense for the recurring financial activities in the typical nonprofit, carefully read the following article.
Basic Overview of U.S. Nonprofit Financial Management

Other sites that you might benefit from are:

• Bookkeeping 101: A Beginning Tutorial
• Online Learning Center’s tutorial
  
• An Executive Director’s Guide to Financial Leadership

Use Fiscal Sponsorship?

In some cases, you might want to pursue finding a fiscal sponsor. For example, if you’re not sure you want to start a nonprofit, or if your nonprofit may not need to exist for long, then a fiscal sponsor may be useful for you. A fiscal sponsor might oversee your financial management activities until your organization is more developed or terminated. See Fiscal Sponsorship — Is it For You?

What Type of Bookkeeping System Should You Use?

Small organizations might use a single-entry bookkeeping system, although some might choose to use a double-entry.
What Type of Bookkeeping System Should You Use?

Also, see the cash-basis or accrual-basis in Basic Overview of U.S. Nonprofit Financial Management

Your Board Treasurer and Board Finance Committee — Critical Resources to Help You Get Started

An active board treasurer can be the most important resource in the long-term financial health of your nonprofit. As a new nonprofit organization, you must get accounting expertise somehow, if you don’t have strong skills in this area yourself. You (or, ideally your board chair) should get someone on your board with accounting skills to be your treasurer. See

• Role of Your Board Treasurer
• Makes a Good Board Treasurer
• Board Finance Committee

Getting an Accountant, If Needed

You might choose to do the basic bookkeeping activities yourself. You should get an accountant initially to help you set up your bookkeeping system, generate financial statements and do some basic financial analysis.

• Getting and Using Accounting Services
• How to Hire an Accountant
• Nonprofit Bookkeeping Test
• What to Look for When Hiring an Accountant

Buy a Software Package to Automate Your Financial Management?

There are a number of very useful software packages that will help you automate bookkeeping, generation of financial statement and their analysis. See

• Buy Accounting Software to Help You?
• How to Automate Payroll

Getting a Bank and Banker

You’ll need to start a checking account. Probably the best way to find a good bank is to ask for advice and references from other nonprofits, especially other nonprofits that are of the size and nature of yours. If you’re just starting out, you probably don’t have much money. You may be able to get buy with a non-interest-bearing checking out that has no, or minimal, fees. The following link may be useful
Getting and Using a Banker

Understanding and Setting Up Your Nonprofit Bookkeeping and
Accounting

Now that you have a sense for the overall, recurring activities in nonprofit financial management. Let’s take a closer look at what happens in nonprofit accounting. Accounting is identifying, organizing and reporting financial transactions. It’s useful to understand the basics of accounting before reading the next major section on financial planning — that planning requires some understanding of the accounting process. One of the biggest challenges is knowing how to enter each type of transaction in the journal and ledger. The following links are very useful for this challenge. Before reading them, do read Basics of Nonprofit Financial Management.

Quick Overviews of Bookkeeping / Accounting

Bookkeeping and accounting is all about identifying, organizing and reporting your financial transactions. Scan this information to further clarify your understanding of bookkeeping and accounting.

Critical Issues in Financial Accounting Regulation for Nonprofit Organizations

Setting Up Your Chart of Accounts

How to Design a Scalable Chart of Accounts

Deciding to Use Cash Basis or Accrual Basis for Accounting

• What is the difference between the cash basis and the accrual basis of accounting?
• What is petty cash?

Deciding Which Expenses Are Direct and Indirect (Overhead)

• Can a cost be both a direct cost and an indirect cost?
• Nonprofit Overhead Costs: Breaking the Vicious Cycle of Misleading Reporting, Unrealistic Expectations, and Pressure to Conform

Cost Analysis to Determine Costs of Activities

The following series gives you a well-structured overview of how to analyze the financial data, especially to associate costs with the activities in your organization. That information is extremely important if you ever need to cut costs.

• Nonprofit Cost Analysis: Introduction
• Nonprofit Cost Analysis – Step #1: Determine Purpose and Scope of Analysis
• Nonprofit Cost Analysis – Step #2: Gather Financial Data
• Nonprofit Cost Analysis – Step #3: Allocate Direct Costs
• Nonprofit Cost Analysis – Step #4: Allocate Indirect Costs
• Nonprofit Cost Analysis – Step #5: Check Your Data
• Nonprofit Cost Analysis – Step #6: Apply This Knowledge

Deciding How Much to Allocate to Fringe Benefits in Payroll Expenses

What is a fringe benefit rate? | AccountingCoach.com Q&A

Deciding How Much to Document as Depreciation

Addressing Financial Controls and Risk Management

There are certain practices that you should consistently follow to ensure that financial transactions are consistently recorded in an accurate fashion. These controls also help to minimize risk, including employee theft.

• 6 Strategies to Ensure the Security of Your NGO’s Financial Resources
• Minimizing Financial Fraud
• Avoid Common Accounting Missteps

Also consider

• Assessments and Audits of Nonprofit Financial Management Practices
• Insurance Information for Nonprofits
• Risk Management Information for Nonprofits
• Risk Management on Boards of Directors

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ACTIVITIES IN YEARLY ACCOUNTING CYCLE: Budgeting (Financial
Forecasting) and Cash Management

Financial Planning

Financial planning works from the strategic and business plans to identify what financial resources are needed to obtain and develop the resources to achieve the goals in the two types of plans. Typically, financial planning results in very relevant and realistic budgets — budgets are addressed later on in this topic. So be sure to consider business planning for each of your products and services.

• Nonprofit Accounting Basics — Reporting and Operations
• Examples of Financial Plans for Not-for-Profit Organizations
• The Ultimate Guide to Setting SMART Financial Goals
• Strategic Planning
• Business Planning

Budgeting and Managing Budgets

A budget depicts what you expect to spend (expenses) and earn (revenue) over a time period . They are useful for projecting how much money you’ll need for a major initiative, for example, buying a facility, hiring a new employee, etc. They also help track whether you’re on plan or not. There are yearly (or annual or operating) budgets, cash budgets, capital budgets (for major assets, such as equipment, buildings, etc.) and proposal budgets (for fundraising), etc. The following links are about annual budgets.

Meaningful Budget Work by the Board

Managing Program Finances

Usually, there are two major types of costs to consider: indirect costs and direct costs. Indirect costs are what we sometimes call “administrative” or “overhead” costs, for example, costs to run the central facility. Direct costs are those that fund resources which directly produce services to clients, for example, supplies and materials for books provided to clients.

Usually, the lower your administrative costs, the more it looks like your resources are going directly to services to clients. In addition, you may have restricted grants (that is, grants that are dedicated for certain programs), which require you to report monies spent on overhead and directly on the program. Therefore, it’s wise to track carefully how much money each of your programs requires to operate and how much revenue it generates, as well. A major challenge is to analyze how much of the indirect costs are associated with each program.

• Allocate Direct Costs
• Allocate Indirect Costs

Also see Basic Guidelines for Nonprofit Program Design and Marketing.

Managing Cash Flow

As a new or small nonprofit, your biggest challenge is likely to be managing your cash flow — probably the most important financial statement for a new business is the cash flow statement. The overall purpose of managing your cash flow is to make sure that you have enough cash to pay current bills. Nonprofits can manage cash flow by examining a cash flow statement and cash flow projection.

Basically, the cash flow statement includes total cash received minus total cash spent. Cash management looks primarily at actual cash transactions. (Note that nonprofits must file a financial statement called Cash Flow Statements or Statements of Cash Flow — this statement is not the same as a cash flow budget.)

Basics of Cash Flow Management — article specific to nonprofits

How to Make Cash Flow Projections

More Basics of Cash Management

Note that cash management activities, whether nonprofit or for-profits, are essentially the same.

Basics of Cash Management

• The Importance of Cash Management
• Techniques for Improving Cash Flow
• Cash Management Basics Resources

Preparing a Cash Flow Statement

• Preparing Your Cash Flow Statement
• Cash Flow Worksheet

Preparing Cash Flow Projections and Forecasts

• More information on doing cash flow forecast
• How to Make Cash Flow Projections
• Short-Term Cash Flow Projections

Managing Your Bank Account

For a new nonprofit, your check register very likely will be your primary means to record and track cash. Whether yours is a new nonprofit or an established nonprofit, you’ll need to know how to manage your bank account. See

• Reconciling Accounts
• Managing Your Bank Account Resource Centre

Credit and Collections

Matters of credit and collections are similar between for-profit and nonprofit organizations, other than that nonprofits obviously grant free services much more than for-profit organizations. Consequently,
nonprofits are not nearly as likely to utilize credit and collections procedures.

• Debt Collection-Know Your Rights
• Credit Granting Authority
• Nonprofits and Electronic Payments

Budget Deviation Analysis

You learned above that a budget depicts what you expect to spend (expenses) and earn (revenue) over a time period. Budget deviation analysis regularly compares what you expected, or planned, to earn and spend with what you actually spent and earned. The budget deviation analysis can help greatly when detecting how well you’re tracking your plans, how much to accurately budget in the future, where there may be upcoming problems in spending, etc. A budget deviation analysis report might include columns with titles:

Planned for Month

Actual for Month

Difference (planned minus actual)

% Deviation (Difference x 100)

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ACTIVITIES IN YEARLY ACCOUNTING CYCLE: Financial Statements
and Analysis

Financial Statements

In order to know how your nonprofit is doing, you’ll do some ongoing financial planning and analysis. In this planning and analysis, you’ll likely use your bookkeeping information to produce various financial statements, including a cash flow statement, statement of activities and a statement of financial position.

• Financial Statements of Nonprofit Organizations
• Financial Statements of Nonprofits
• How to Understand a Nonprofit Financial Statement

Statement of Activities (Income Statements)

These statements include much money you’ve earned (your revenue) and subtracts how much you’ve spent (your expenses), resulting in the total of your unrestricted net assets. The statement of activities includes how much money you’ve earned (your revenue) and subtracts how much you’ve spent (your expenses), resulting in how much you’ve made money (your profits) or lost money (your deficits). Basically, the statement includes total sales minus total expenses. It presents the nature of your overall profit and loss over a period of time. Therefore, the Income Statement gives you a sense for how well the nonprofit is operating.

• Statement of Activities
• A Sample Income Statement
• What is the statement of activities?

Statement of Financial Position (Balance Sheets)

Whereas the statement of activities depicts the overall status of your profits (or deficits) by looking at income and expenses over a period of time, the balance sheet depicts the overall status of your finances at a fixed point in time. It totals your all your assets and subtracts all your liabilities to compute your overall net worth (or net loss). This statement are referenced particularly when applying for funding.

• Statement of Financial Position
• Sample Balance Sheets
• Statement of Financial Position (Purpose, Key Numbers, Assets, Liabilities, & Stockholders’ equity)
• What is the difference between a balance sheet of a nonprofit organization and a for-profit business?

Financial Analysis (individual statements, ratios, break-even analysis, etc.)

Financial analysis can tell you a lot about how your nonprofit is doing. Without this analysis, you may end up staring at a bunch of numbers on budgets, cash flow projections and financial statements. You should set aside at least a few hours every month to do financial analysis. Analysis includes cash flow analysis and budget deviation analysis mentioned above. Analysis also includes balance sheet analysis and state of activities analysis. There are some techniques and tools to help in financial analysis, for example, profit analysis (yes, these can be used even in nonprofits), break-even analysis and ratios analysis that can substantially help to simplify and streamline financial analysis. How you carry out the analysis depends on the nature and needs of you and your business. The following links will help you get a sense for the “territory” of financial analysis.

General Information

• Financial Statement Example
• Beginner’s Guide to Financial Statements
• How Financial Sustainability is So Misunderstood
• 5 Strategies for Non-profits to Use to Get Rid of a Deficit

Financial Planning and Analysis — Ratios

There are a variety of ratios that can be used to help determine the current and future condition of a nonprofit. The following links provide explanation and procedures for using those ratios. The ratios are produced from numbers on the financial statements. Note that the usefulness of ratios often are from comparing ratios from different time periods in the same nonprofit or from standards for a type of nonprofit, eg, social services, associations, civic organizations, etc.

• Nonprofit FAQ’s questions about ratios (find them in this section)
• Financial Ratio Analysis (Definition)
• Financial Ratios (different types)

The following articles are in reference to for-profits, but the principles behind the ratios also apply to nonprofit organizations.

Overview of major types of ratios and how they’re computed

Financial Planning and Analysis — Break-Even Analysis

The break-even analysis uses information from the statement of activities and cash flow statements to compute how much sales or revenue much be accomplished in order to pay for all of your fixed and variable expenses. Fixed expenses are expenses that you’d have regardless of the level of sales of products or services (eg, sales, rent, insurance, maintenance, etc.). Variable expenses are incurred according to the level of sales of products or services (eg, sales commissions, sales tax, freight to ship products, etc.). Break-even analysis can help you when deciding how much to charge for a service, how much to ask for from donors, etc.

• How to Do a Breakeven Analysis
• Break-Even Analysis Definition
• Break-Even Analysis

Financial Reporting

The types and frequency of reports depend on the nature of the nonprofit and its situation. Banks might want reports to verify financial strength to pay back loans. Foundations, individuals, or other donors may want reports to verify that donations are being spent as expected by the foundation or donor. The Internal Revenue Service will want certain reports when filing yearly tax forms.

Overview

Basics of Nonprofit Financial Management

Annual Reports

• Tips for Creating a Good Annual Report
• Tips for Reading an Annual Report
• The Annual Reports Library
• How to Write a Nonprofit Annual Report
• What a Great Idea! – The Nonprofit Annual Report

General

• Nonprofit Resource Center
• Have You: Met Your Financial Reporting Obligations?
• (also see “General Information” in Nonprofit Taxation)

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SPECIAL TOPICS

Cost Cutting

• Nonprofit Survival Tips
• Cost Cutting (these are suggestions for for-profits, but most apply to nonprofits, too)

Also consider
Organizational Sustainability

Lease Versus Buy

• The Basics of Leasing
• Cost of Lease vs. Purchase
• Leasing Versus Buying Cars
• Leasing Office Space

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Assessments and Audits of Nonprofit Financial Management Practices

Various Assessments and Indicators

• Financial Indicators
• Minnesota Council of Nonprofits “Principles and Practices”, section about finances
• Seven characteristics of financially healthy nonprofits
  
• Evaluating Your Nonprofit Financial Management

Audits

• Nonprofit Audit Checklist
• Nonprofit Audit Guide
• Does your nonprofit need to have an independent audit?

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GENERAL RESOURCES

Sources of Online Assistance and Information

Resources for Nonprofits

Software to Help Manage Your Finances

Software for Nonprofits

Getting and Using Banking Services

• Banking Rules for Non-Profit Organizations
• Closing a Bank Account Without Going to the Bank
• How to Open a Bank Account for a Non-Profit Association

Getting and Using Accounting Services

• How to Hire Accounting Services for Your Small Business
• Business Contracts (this will be useful if you sign any contracts with the accountant)
• Facing Changing Paradigms — A Nonprofit Accountant in the Catbird Seat

You should carefully consider whether you should hire an outside accountant, or hire your own employee. The IRS pays increasing attention to the hiring of independent contractors.
Potential Issues in Hiring Consultants (general information and IRS-related issues)

Have a Treasurer to Help You?

• Role of Board Treasurer
• Duties of the Treasurer of a Nonprofit Corporation

Fiscal Sponsorship — To Help Get Your Finances Started …

• Fiscal Sponsorship (Wikipedia)
• How Fiscal Sponsorship Nurtures Nonprofits
• Fiscal Sponsorship: A Balanced Overview
• More Than the Money: Fiscal Sponsorship’s Unrealized Potential
• Fiscal Sponsorship is Maturing as a Field

Miscellaneous Other Resources

• Financial Calculators (many kinds)
• More Financial Calculators
• Financial Resources on the Internet

Major Sites of Online Information

• Financial resources for nonprofit financial management
• Nonprofit Resource Center
• Nonprofits Assistance Fund – Various tools for financial management
• Free, Online, Self-Paced Program to Completely Build/Strengthen Your Nonprofit
• Basic Guide to Nonprofit Program Design and Marketing
• Various Types of Resources
• Various Major Sites of Online Information

Also consider
Supersites

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Learn More in the Library’s Blogs Related to Nonprofit Financial Management

In addition to the articles on this current page, also see the following blogs that have posts related to Nonprofit Financial Management. Scan down the blog’s page to see various posts. Also see the section “Recent Blog Posts” in the sidebar of the blog or click on “next” near the bottom of a post in the blog. The blog also links to numerous free related resources.

• Library’s Nonprofit Capacity Building Blog
• Library’s Social Enterprise Blog
• Library’s Strategic Planning Blog

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For the Category of Financial Management (Nonprofit):

To round out your knowledge of this Library topic, you may want to review some related topics, available from the link below. Each of the related topics includes free, online resources.

Also, scan the Recommended Books listed below. They have been selected for their relevance and highly practical nature.

• Related Library Topics
• Recommended Books

Basic Overview of U.S. Nonprofit
Financial Management

© Copyright Carter
McNamara, MBA, PhD, Authenticity Consulting, LLC.
Applies to nonprofits unless otherwise noted.

Sections of This Topic Include

Description
Basic Bookkeeping Activities
Financial Statements
Financial Analysis
Financial Reporting

Also consider
Related Library Topics

(This information is referenced from the page Basic
Guide to U.S. Non-Profit Financial Management)

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Description

The following basic overview will give you some overall perspective
on the basic processes involved in nonprofit financial management.
Key terms to learn are bolded . You’ll learn more about the key
terms later in subsequent sections when you return to Basic Guide to U.S. Non-Profit Financial Management

The following activities described on this page occur regularly
as part of the yearly accounting cycle. The accounting
cycle includes bookkeeping, generating financial statements and
analyzing information from the statements.

Basic Bookkeeping Activities

Bookkeeping is basically recording various financial
transactions. Bookkeeping activities can often by done by someone
who’s doing basic clerical work in the organization. Often, the
board treasurer can help you develop and carry out your bookkeeping
system.

Fiscal Policies and Procedures Manual (or Accounting
Procedures Manual)

The board develops and authorizes a set of procedures
for how the organization manages its finances, including how the
following activities are carried out by your organization. The
board treasurer usually coordinates the board’s responsibility
for the manual, including its regular review and update. The board
and chief executive should make every effort to ensure compliance
to the procedures in the manual.

Type of Accounting System and Recording of Financial
Transactions

Accounting starts with basic record keeping (or bookkeeping).
When your organization is just getting started, your bookkeeping
system will probably be based on what’s called a cash-basis
accounting system, rather than accrual-basis system.
Many organizations, when starting out, use the cash-basis system
and a checkbook to track transactions. In the “memo”
portion of the checkbook, they note if the amount depicted on
the check is an expense or revenue, and where the amount came
from or is going to. As your organization grows, you’ll begin
using ledgers to track transactions, for example, you’ll post
cash receipts to a cash receipts journal and checks you
write to a cash disbursements journal.

As your nonprofit grows and as you begin using the accrual
method, you’ll likely need more types of journals, for example,
a Cash Receipts Journal, Cash Disbursements Journal, Payroll Journal,
Accounts Receivable Ledger, Accounts Payable Ledger, Sales Journal,
Purchases Journal and General Ledger.

(In an accrual-basis system, you post entries when you earn
the money and when you owe it. Small organizations usually do
not have the resources to use an accrual-based system. However,
financial statements are prepared on an accrual basis. As a compromise,
many organizations use the cash-based basis to record entries
in journals, but get help to convert to an accrual-based basis
to generate financial statements.)

You can do postings using a single-entry or double-entry
method. Double-entry works from a basic accounting equation
“assets = liabilities + capital”. The double-entry method
makes sure that your books are always in balance. Every transaction
has two journals entries, a debit and a credit.
Each transaction effects both sides of the equation.

Each posting might refer to accompanying documents that you
keep in a file somewhere. For example, postings about cash receipts
might refer to invoices that you sent to a clients which prompted
them to write checks to your organization (checks which you posted
as cash receipts). For example, postings about cash disbursements
might refer to invoices that were sent to your organization which
prompted you to write checks (checks which you posted as cash
disbursements.) When you make a deposit to the bank, you’ll file
the bank’s deposit receipt in a file.

Manual or Automated Accounting System

Your record keeping system will be based on a manual system (where
you make entries and total them by hand) or a computer system.
You might even choose to outsource your record keeping system
to another business that manages your bookkeeping activities (along
with other financial management activities) for you.

Soon you may evolve to using a computer-based system, which
greatly automates entry of transactions, updating of ledgers,
generation of financial statements and financial analysis (more
on these later), and generation of reports needed for filing taxes,
etc. The only drawback to using a computer is that you might underestimate
the importance of knowing how your accounting processes really
work — that’s an advantage of doing the bookkeeping yourself,
if only for a few months. You should also generate your own financial
statements and financial analysis at least for a couple of months.
Having this knowledge and experience helps you develop an instinct
for getting the most out of your financial resources.

(We’ll talk more about that back in the topic Basic Guide to U.S. Non-Profit Financial Management, after
we’ve reviewed the rest of the information on this page.)

Accounts and Chart of Accounts

You’ll post each entry according to the category, or account,
of the transaction. Each account will be associated with an account
number. These numbers are referenced when developing your
financial statements (more on those later). You’ll refer to a
chart of accounts which will tell you what account
number to use when you post an entry. You can design your own
chart of accounts, including coming up with your own account numbers.
The chart usually have five areas, including assets, liabilities,
net assets (or fund balances), revenues, and expenses. The account
numbers you come up with should depend on the particular kinds
of revenues and expenses you expect to have most frequently.

However, nonprofits have to report account activity according
to the classifications functional (or programs)
and natural (or supporting). Program transactions are those
directly related to providing services to clients, members, etc.
Supporting transactions are those in common to all programs, for
example, general management costs, etc. It’s not always easy to
know which transactions belong to which category! We’ll also talk
more about managing program budgets back in the topic Basic Guide to U.S. Non-Profit Financial Management, after
we’ve reviewed the rest of the information on this page.

Budgets (Financial Forecasting)

You’ll have an operating budget (or annual
budget), which shows planned revenue and expenses,
usually for the coming year. Budget amounts are usually divided
into major categories, for example, salaries, benefits, computer
equipment, office supplies, etc. You might also have cash budgets,
which depicts the cash you expect to receive and pay over the
near term, for example a month. You also might have capital
budgets, which depict expenses to obtain or develop, and operate
or maintain major pieces of equipment, for example, buildings,
automobiles, computers, furniture, etc. Development of the budgets
is usually driven by the chief executive. In the case of corporations,
the board treasurer can take a strong role in developing and presenting
the budget to the rest of the board. The board is responsible
to authorize the yearly budgets.

You should develop a program budget, that is, a budget
for each major service you provide to clients. For example, a
transportation program, a child-care program. Many nonprofits
have more than one program. It’s critical to plan and track financial
costs for each program. As much as possible, nonprofits should
strive to minimize overhead or administrative costs, that
is, costs to support the resources that support the entire organization
and all programs, rather than just one program. Examples of administrative
costs are rent for a building, office supplies, labor costs for
personnel who support the central office or more than one program,
insurance, etc. It’s wise to develop a program budget that allocates
indirect costs to programs. There are several methods to do this.
We’ll also talk more about these methods back in the topic Basic Guide to U.S. Non-Profit Financial Management, after we’ve reviewed the rest of the information
on this page.

Usually, each month (during trial balancing — more on that
later), you’ll update your budget report to include actual revenue
and expenses. Then you can compare your planned revenue and expenses
to your actual revenue and expenses. This will give you a good
idea whether your operating according to plan or not, including
where you need to cut down on expenses and build up on revenue.

Petty Cash

You’ll have a lot of small, recurring expenses that you’ll
need to pay right away, for example, to buy a computer power cord,
stamps, etc. You’ll probably work from a petty cash fund.
You might establish this fund by writing a check to your organization,
and noting on the check that it goes to the “petty cash”
fund. You’ll withdraw from the fund by filling out a voucher that
describes who took the money, how much, for what and on what date.

Trial Balances

Usually, once a month, you’ll do trial balancing. Often,
the board treasurer can help with this activity. This activity
usually starts by totaling the entries from the journal(s) into
a general ledger. (As your business grows, you may
use other types of ledgers, too, for example for equipment, payroll,
etc.) When using double-entry accounting, you’ll add up totals
on both sides of the ledger to make sure that total debits equal
total credits.

You’ll make sure that the individual postings and totals are
correct by comparing each to its accompanying documentation. For
example, your recording of cash disbursements will be compared
to your bank’s monthly checking statement that indicates what
checks you wrote over the month. Your recording of cash disbursements
will also be compared to accompanying invoices and other forms
of billing to your organization, to verify there was a need for
each check that was written to pay bills.

Internal Controls

You will have various forms of internal controls to ensure
the business is following its plans, minimize the likelihood of
mistakes, avoid employee thefts, etc. There are a wide range of
internal controls. For example, you’ll be careful about whom you
hire. You might have authorization lists about who can access
which areas of the building, types of information, etc.

As mentioned above, you’ll carry over totals to various financial
reports, including your budget, to see if your financial activities
are according to plan or not. To minimize employee theft, the
business’s mail will be opened by one person who logs in each
check that is received. This person will be someone other than
the person who deposits the checks to the bank. Disbursements
of large amounts, for example, over $500, may require a secondary
signature, for example, from the board treasurer.

Another form of financial control is an audit. An audit
is a comprehensive analysis, by a professional from outside the
organization, of your financial management procedures and activities.
The auditor produces a report, with a variety of supplements,
that indicates how well your organization is managing its resources.
Some nonprofits are required to have audits. It’s usually good
practice to have an audit, whether you’re required to or not.

Financial Statements

In order to know how your organization is doing, you’ll
do some ongoing financial planning and analysis. In this planning
and analysis, you’ll likely use your bookkeeping information to
produce various financial statements, including a cash flow statement,
statement of activities and a statement of financial position.

Your cash flow statement depicts changes in your cash
during the year. Your statement of activities (known as
the income statement before) depicts the changes in your assets
over the past year. This statement is particularly useful to tell
you if you are operating with extra money or at a deficit. This
gives you a pretty good impression of your rate of revenues and
spending. It signals areas of concern, as well. Your statement
of financial position depicts the overall value of your organization
at a given time (usually at the end of the year), including by
reporting your total assets, subtracting your total liabilities
and reporting the resulting net assets. Net assets are reported
in terms of unrestricted, temporarily restricted
and permanently restricted assets. Funders often
want to see the statement of financial position. (You’ll learn
a lot more about financial statements, including examples, later
on back in the topic
Basic Guide to U.S. Non-Profit Financial Management).

Financial Analysis

By themselves, numbers usually don’t mean much. But
when you compare them to certain other numbers, you can learn
a lot about how your organization is doing. For example, you can
compare the planned expenses depicted on your budget to your actual
expenses in order to see if your spending is on track.

Another form of comparison is by using ratios. A ratio is a
comparison made by mathematically dividing one number by the other.
For example, nonprofits are expected to keep administrative costs
down in order to make more money available for programs. Dividing
a program’s expenses by your total expenses indicates the amount
of administrative overhead to run your program.

The interpretation of results from various types of comparisons
depends on the nature of the nonprofit. For example, an association
might expect to spend far less on administrative overhead than
would a social services agency during their first year. You’ll
learn a lot more about financial analysis back in the topic Basic Guide to U.S. Non-Profit Financial Management.

Financial Reporting

The types and frequency of reports depend on the nature
of the nonprofit and its situation. For example, if the nonprofit
is in some sort of crisis, the board may require frequent reports.

Your board should require regular financial reports at each
board meeting. When your organization is just getting started,
the chief executive will prepare and present financial reports
to the board. However, as the organization develops, a board treasurer
will likely take a strong role in helping the chief executive
to present financial information to the board. The finance committee,
led by the board treasurer, ensures that financial reports are
complete and helps present them to other members of the board.

The board may require a statement of financial position and statement of activities
at each meeting. They also may request descriptions of finances for each program
or of affordability for upcoming, major initiatives. They may request information
prior to filing taxes. They will certainly need to see any results from financial
audits. You’ll learn a more about financial reporting back in the topic
Basic Guide to U.S. Non-Profit Financial Management.

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For the Category of Financial Management (Nonprofit):

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