 Hello, everyone. My name is Ashley Gunn and I'm a senior associate at nonprofit finance fund. Many of you met me when we held our one-on-one interviews throughout this past spring and summer. As many of you know, we've been working alongside New America to better understand workforce development programs through community colleges. In our interview process, we had an opportunity to learn more about how all of you fund your programs and leave your programs. It's always our goal after those presentations to come to all with some resources and support around funding and managing financial health. And that's why I'm here today. Before I dive into what we will be discussing today, I wanted to just reintroduce NFS to you. This will also help give some context to our content today. Nonprofit Finance Fund, or NFS, provides lending and consulting support to mission-driven organizations. And our goal is to assist organizations in linking money to missions. We work in five of these communities across the United States, and we partner with nonprofit and organizational leaders to think through how they can have a financially healthy organization, and have access to the resources to meet their mission and deliver programs to their communities. So it's important for me to re-emphasize that we primarily work with nonprofit leaders, and through our content is really thinking about how leaders operate in that system. However, after our conversations in the spring and summer with all of you, we realized a lot of the resources and tools that we share with nonprofit leaders would also be useful to all of you as higher education leaders. And so today we come to you with some modified content that we think would be useful as you think through your own organization's financial health. Our goal with this presentation is three parts. First, we want to introduce you to the concept of full cost. We think of full cost as an advocacy tool that we equip nonprofit with leaders with to better advocate for the financial resources they need to achieve their mission. Our second goal with this presentation is to give you some tools and resources around financial storytelling. Our second goal is to provide you with some tools around developing budget scenarios that could help with financial storytelling and advocacy. As a reminder, if you need additional support after this presentation and understanding any of the concepts we discussed today, or thinking about how these concepts could be applied to your organization. We're offering two in person opportunities. Our first will be a group discussion where you'll have an opportunity to connect with and talk with other members of the cohort. And the other opportunity is to participate in one on one drop in coaching with me or Dana to talk through how these concepts could be applied to organization. For some reason, none of these opportunities fit within your schedule, but you'd really like to take advantage of some in person conversation. Don't hesitate to reach out to me or Dana. My contract contact information is at the end of this presentation, and you may already have access to our email. So let's get started with understanding full cost. I want to start off by talking about full cost in the context of the nonprofit sector, and then highlight what translates to your sector. What is full cost full cost is a way for an organization to identify and communicate all of the financial resources that they need to run their organization perpetuity. So understanding full pop cost gives us the tools to understand how an organization can adapt and thrive. It's an advocacy tool for any organization or program that is trying to meet their mission. When we met with you all this year we identified many different ways your programs were funded and then that dynamic there's a combination of external and sometimes internal factors evaluating the cost of the program and what financial resources are needed to cover that cost. Regardless of the variations in your program structure, one common challenge we heard was funding the cost of student support and wrap round services, whether it was additional support for student advising or support funding for students when they needed to take certifications or exams. So this is a situation where full cost is an advocacy tool comes into play. Full cost asks us to think about the entirety of our needs and ask for the financial resources we need. And the nonprofit sector full cost also serves other essential roles. It pushes people away for that from the dichotomy of funding that goes towards programs and funding that goes towards overhead costs. It captures what short and long term needs. It's holistic. And it allows us to think of what an organization needs to adapt and grow, which allows for nuances and changes over time. It's also a tool for racial equity, understanding that many organizations that are BIPOC serving and led rural organizations or organizations that are marginalized in any other way have often been chronically underfunded for many years. Full cost is also one with trust based philanthropy the idea that funders will more trust and can hold more trust in how the organizations that they're giving money to will manage the funds and use them. Last we have must have for all organizations and sometimes have when we translate this to your sector where we realize that some parts of the full cost model just simply don't apply while others are still very relevant. So this slide shows you all of the must have tabs and sometimes have that are relevant to the nonprofit sector, but I'm going to walk us through some of the pieces that are most relevant to you all. So let's start with total expenses total expenses include operating expenses as well as non operating. So we use operating non non operating to differentiate between costs that are accrue every year, money that you spend in service of your mission. So operating it's just like you kind of expected to kind of come up every year. It's pretty accurate in terms of how it reflects how you're spending money to serve your community. And then we also think of non operating so you would think of that as sort of like a one time influx of cash. So for example, let's say you're holding a capital campaign to purchase new buildings like maybe you're part of a university that's held a capital campaign and you receive an influx of money or have an influx of expenses related to that that would constitute non operating it's not sort of a regular part of your day to day business. And it's not money that you could expect in perpetuity every year. So we differentiate between both operating and not operating. So it could include direct program expenses, and in the community college sector that could take a few forms. For example instructional costs, including teachers curriculum development direct cost could also include financial support for students in the form of books or it could include stipends and wages for time and trading certification or exam fees. Also it could include emergency support like food care or food childcare transportation support for students. It also includes non financial support so student success staff job placement retention support, as well as the service like the program management aspects evaluating the program collecting data, engaging with stakeholders, maybe even communication and marketing about the program as well. So what it takes to run your program include all of these categories as your total expenses. You typically find them in your budget of your program or if you have access to an income statement or profit and loss or use that for documentation. You will find your expenses there as well. So one way to begin this conversation is to think about what's missing from your budget, but would help your program operate at its full capacity. Unfunded expenses warrant their own conversation because many organizations and programs have them but have operated so long with them that they don't often think of them as additional expenses. So full cost as we mentioned it's an advocacy tool it's something that you can use to both think about and assess your organization's cost but also advocate to funders whether internally or externally about the financial resources you need to operate at full capacity. And so one of the most common unfunded expenses is something we call sweat equity, which is essentially the gap between current wages and fair wages for the exact same type of work. So if we were able to cover these expenses, it would allow us to do our job better and better service students that we're working with other common unfunded expenses you may be experiencing unfilled positions that have been unfilled for a while. So far supplies. We think about an increasingly virtual environment flow internet unfunded expenses. Don't include expenses to do more or add any additional programs they're simply what you're currently incurring as a part of your program, but you're not currently covering separately. Another example here is let's say that you as a program leader in this on this slide we talk about exact directors, but you know you're working beyond 40 hours a week, maybe 60 hours a week but if you had an assistant or another administrative position. You would be able to reduce your time to 40 hours a week and hire an administrative assistant for the additional administrative work that you're taking on so it's an unfunded expense at this time, you know having an additional staff person to take on some of those administrative responsibilities. Another category of full costs are fixed asset additions. So we consider fixed asset additions to be a sometimes have for many nonprofit organizations. We also understand that within higher ed new buildings this are often purchased on a college wide level as opposed to an individual program. You may not have the resources or really the structure to purchase new buildings or new land. But at the same time you may have a need for specific buildings special specialized equipment that allow you to run your program really well and have the different tools that students need to get the most out of the program. And so, for that reason included fixed asset additions as a full cost piece that's relevant to folks who are running sort of a workforce development program and it and it's a need that you can advocate around fixed asset additions. It's the purchase of new equipment buildings furniture land or leaseholder improvements, but not including replacement or simple maintenance. There are a couple of questions to consider with fixed asset additions. Namely, does your program necessitate specific equipment and how will you pay for those. Again we understand that the payment or purchase may be coming from the college college wide level, which might include debt or special campaigns, or even services, the University or college may have accumulated over time. However, there's also value and understanding and calculating those costs for yourself, just as a tool for budget advocacy. So the final component of full cost that we believe is applicable to you is change capital. Again, this isn't sometimes have, but can change capital is a periodic reinvestment into the organization to change its business model. Periodic could mean every 10 years, every 20 years, maybe every five years but periodic, a long period of time where you're looking at your program and thinking about how can we change this program to better server mission or even how could we change our mission to better server community. The timeline is really dependent on you know changes in the sector that you operate in. It isn't organic growth that's happening happening naturally over time it's very intentional growth to change your programs and create a different shift in your business model where essentially anytime we use that word we're talking about how you spend money and make money in service of your program. And so when you're making a significant change like that there's a period of time where you may be spending more money than you're actually bringing in. And so that change capital is meant to go in and cover that period of time where you're spending more money than you're bringing in. So you think you're going to make a huge program change and you need to hire additional faculty or invest in new technology or do some upfront marketing in order to bring in a number of students that you need. This amount of capital is really meant to cover those expenses. It typically comes from an external funder or a large source because it's often a significant amount of money. So you need to calculate you know what those costs are by thinking through just some of the costs associated with changing the program. And as you're thinking through what change capital means you might have it's important to focus on. What about your current program is going to change and what type of external funding funding exists out there to finance this change. And once you settle into your business model how are you planning to outgrow that change capital over time. In this original image I showed at the beginning of the full cost presentation. I've highlighted the pieces of full cost that we've just reviewed. Total expenses, fixed asset additions and change capital are the pieces that really resonates with you know what we've seen as advocacy needs within the program that we talked to. So let me bring this into some financial storytelling. So our financial story is a story of reorganization but through the financial lens, and it uses numbers to explain where you are today and how you got there and where you want to go. You've probably told your financial story many times over and so the tools that were often today compliments that the ways that you may have told your financial story are through front, you know creating a funder proposal. Developing a financial narrative in a strategic plan, evaluating any financial emergencies in an annual report, or conveying financial planning and decisions and internal financial statements. So thinking about developing a budget that you may present to your department chair, or kind of talking through with your staff. In any story it's really important to understand who your audience is when you're telling your financial story, and it may be valuable to have a financial story for both internal audiences and external audiences. When I think of cove it and how it's affected all of us individually but also in our program level, internal financial storytelling is even more essential because it can help your staff and faculty. I don't know if other students understand any possible changes in the program, but also to ensure that they feel confident and trust that the program is in a stable place. If you do plan to have any major changes, it can ensure buy-in by crafting a story that helps internal audiences understand where you're going as an organization. While we often think of funders, it's especially helpful to also think of any other stakeholders, even prospective students, and telling your financial story will also assist them in having confidence in you, but also in being able, especially in talking to funders, give you the tools you need to advocate for the resources that you need. So let's talk through the structure of how in the financial story, especially considering some of the full cost pieces that we just talked about. So a financial story again is a story of your organization through numbers. The specific numbers can often be found on your internal financial documents, or maybe you kind of, you know, may know them off the top of your head. And the story itself is something that you live every day, so it's really adding more definition to that. So a strong financial story could lead with a single impactful moment and bring, you bring the audience along with you as you talk about the components that made that moment possible. It's important to emphasize the full cost of that moment of impact. And maybe telling all the audience all the different resources that your organization has or needs to make that moment possible. Sharing the impact that the, you know, funding of the full cost will have on your mission, and obviously ending the story with a very specific need to your funder or to have or you're communicating with. So what does that look like an actual story format. So here's a story of a nondescript, a statistic focused nonprofit organization and you'll see on the left that it kind of walks through all of those different story structures and ends with that impact asked need. Other pieces of the story they're important includes very clear numbers so it's again it's that story with actual financial data. And because you've taken a time to look through and understand the full cost. It what the story does is it really pulls together all the different costs of the organization. So sometimes for a funder that may be only thinking of one thing, maybe thinking of, okay, you may need staff where you may need a building but it talks about all the different pieces that allow you to actually have the impact that you're trying to have. It makes it really clear for the funder. So since this is recording I definitely give you know, this is a great opportunity to pause sort of look through the story. If you have any questions about this or concerns about how all these pieces fit together, especially around the financial storytelling piece. Again, don't hesitate to reach out can help you in sort of crafting or thinking that through, or even finding other pieces there. And hopefully within this email I shared some resources on full cost and better understanding the cost of your organization. But you know if you kind of need some support kind of think you do that that's a really great way to use some of the one on one coaching that we're offering as well. And while the story really looks at or is really geared towards an external funder. I think there's value and also thinking about how this can be used in an internal budgeting process. Which might be a process that you kind of are more intimately involved in kind of thinking through maybe revising your budget or preparing for a new budget circle, a cycle, or being able to sort of advocate for more resources than you've received in the past, being able to think through these and be able to kind of create a structure like this for a very specific asset. So I want to pivot into a conversation around scenario planning and strategic budgeting. So this conversation will offer you some resources on building budgets that account for uncertainty. Scenario planning is essentially playing out the what ifs of different choices events or conditions. It helps us visualize and quantify the effects on our budget so we can plan our response. And finally, we can use scenario planning to make sure that in the event of X will still be able to survive and survival is dependent on the ability to pivot to the unexpected. And that's what scenario planning helps us do the distinction between scenario planning and budgeting so scenario the actual scenario planning process is really expensive it involves probably more people than just you, but really thinking through finance, fundraising human resources. It's just a comprehensive planning about different potential futures, but they influence the scenario budgeting process which is more narrowly focused on the actual numbers, the more concrete pieces of what that scenario could actually look like. So I'll review high level scenario planning but also provide just some tools and resources around the budgeting aspects as well. So some considerations when you're going through a scenario budgeting process, you know, obviously to build a budget that reflects your strategic goal, that's realistic expectations and accounts for revenue restrictions. And what we're talking about there is, you know, there may be times when you receive funding but it can only be used for a very specific purpose. So, you know, someone may say I want to offer this but it can only be used to provide students with, you know, extra money to purchase kind of exam certification. And so, while you may receive a large influx of cash it's very restricted to a specific purpose and so building a budget really takes into account, obviously that the money is present but that it's reserved as well. And obviously accounting for uncertainty. So, in our next few slides we'll talk through discount revenue, just based off of being able to sort of predict the different types of funding sources that you might have access to. But also kind of knowing what it takes to reach your goals as a cushion for an ability to think through the nuance of uncertainty. And then, being able to identify your fixed and variable expenses, which some of the full cost pieces, especially around the total expenses helps you to do that. But also be clear about different trade-offs when you're considering different scenarios. Like any process of budget is pretty iterative especially when you're thinking of different scenarios and so it can take a lot of work to sort of figure out the different types of scenarios that might work and to make really large predictions off of obviously a lot of uncertainty or a lot of changing variables. Being able to come back and compare your budget to actuals pretty regularly to better refine that process. Updating projections. So we'll talk through, for example, if you're looking at how to evaluate different possible funding sources that come through. There's an initial step of being able to assess how likely are you to receive funding, but obviously to make that process work better is to go back and say like, did we actually receive the funding. Making decisions necessary when response to change and communicating about to your team and to your stakeholders about those decisions. So let's return to the point of how you can account for uncertainty with different revenue sources. One way you can manage this uncertainty is to predict the probability of your revenue. The process begins by grading your expected revenue. So we suggest using the letters ABCD and eat distinguish different levels of risk for each revenue source. So for example, a being committed the most dependable, be less and so on and so on. Next, you can sign each level of risk, a range of probability. So obviously thinking about the a the most dependable like this is a source is funny that you know you're always going to get the amount is always going to say the same. That would be 100% secure the probability of receiving as 100% down to let's say for example in this example, which is maybe you're about to pursue a new type of funding. You have no idea what your chances of getting it are it's very new you don't know enough about the fund there, the funding source, the revenue source. So it's a pretty low probability you don't when it when you're developing different scenario budgets, because it's so unlikely you don't want to take that into consideration when thinking through your budget. If you'd like you can even color code, each level of risk like we've done here. But the important part is to apply these revenue grades or probabilities each revenue source indicating the likelihood of receiving that funding in your fiscal year. There are a few ways to go about this and I'm going to share two common ways that you can use this probability information. So there first is a practice known as the discount method or discounting the revenue. And this is a great way to be really clear and systematic about what you know and what you don't know about your revenue. So here we have a made up organization ABC organization that we use as an example. They have this chart where they give every one of their funders align with their name, the current status of their funding, how likely they think it is to come in and what amount they're expecting or requesting. You can see that it's up to them to rate the probability of every one of their line items, and you can decide as an organization like how you want to determine what merits a particular rating. So when you look line by line you'll see that for each of these different possible revenue sources ABC assigned a probability that will receive the funding, the discount method. The discount method is where you multiply the probability by the amount. So something that's already committed like the government funding gets into the budget at 100%. And down to the bottom you can see this is an example of the prospect so they're about to kind of reach out and try a new funding source, but the probability of it is pretty low. So in this discount method, they're kind of saying we might only get $500 of that. So that's into the day they have a budget that incorporates how risky those different funding sources are. So while they're looking at like $56,000 in request, they're just planning for a little around $45,000 in revenue. The other method is the cutoff method. So instead of multiplying the revenue by the percentage likelihood, you set a threshold for when you decide to start counting something in your budget. So see in this red line so ABC is basically like their caught up is at 60%. So anything below a 60% probability they're just not even going to count in their organization, and everything above the counter above that caught up actually gets counted in full. And so in this scenario, you can see, again, they're kind of like reaching for $56,000. But with this cutoff method are landing around $46,000 in terms of revenue. So it's up to you and your leadership to decide which method makes more sense for your work. But in either way, they help you set more realistic expectations around revenue on the scenario planning. So we recommend four steps to the scenario projection process. Define the scenarios, articulate the key assumptions, quantify the financial impact document and reform. Scenario planning can be really daunting and there are many options to consider. So we're going to borrow from the nonprofit world here but this scenario can also relate to higher ed and the dynamic of budget implications for staying remote or going in person. So in this example the organization is considering the dynamic and the financial impact. The scenarios will be used to craft a couple of budgets that reflect either of these. So you could decide to use this approach for any variables you're thinking about, whether it be about timing, funding or something else. And once you've defined the scenarios, the next step is to articulate in a written plan, all the credit considerations, who is involved, who are the decision makers. So this is a process that's best served by working with others and this is the part of scenario planning where we say it can take a lot of time to think through all those different scenarios, all the different factors and all the different underlying assumptions. It can be very hard, it can also be very difficult to think through those processes because they have very real impacts on both you as a leader, your staff and the folks that you're working on behalf of. So this is a process that is, you know, iterative and takes time and conversation with others. So when we look through these two different scenarios, what does it look like in terms of how it impacts the budget. So this is where scenario budgeting comes in. So a scenario budgeting allows us to take our planning considerations for reopening and put concrete numbers against each plan to account for the various what is. So in this example, the sample org adopted a budget for FY 21, the baseline budget, which you can see in dark purple. It reflects their current operation, which is like they're kind of operating on a limited reopening. In addition to that baseline budget there's two other scenarios, the scenario a and b that represent the other possible scenarios that they can face. It accounts for how COVID-19 could affect their ability to either fully reopen or stay remote and what the actual budget line items are. So you can obviously this is recording your welcome to pause and sort of look through how these different scenarios affect each of the different revenue categories as well as each of the different expense categories. The takeaway here is that budget scenarios can help to generate discussion about what is possible as you're thinking about reopening and can be one of the best tools for allowing you to plan effectively and make decisions. But even beyond COVID or some of the dynamics from that. There's a lot of use in thinking through different scenarios, because there seem to be a lot of different factors at play and what kind of funding might come through for your program that relative relativity of your workforce program in relation to sort of like what is in demand. If you're looking for external funding or rely on external funding in some way. The different pieces of that and how that might come into play in terms of your revenue. Or if you're looking to kind of expand and have more students or less students, you know, kind of reflecting the sort of increase in demand, thinking through different scenarios that could affect your budget and kind of playing with those a little bit to help you think about, you know, the value in getting additional funding, or kind of starting to understand some of the different effects on some of your expenses or cost as well. So this is a large topic, and we do have more resources to explore this further and so we have a simple scenario planning tool with step by step instructions that just kind of walks you through more in depth. It is obviously kind of geared towards nonprofits, but there might be some applicability, just in terms of your budget process as well. And at the end of this presentation. I also have a link to just some more covered resources that we have brought together which again I think there might be some really useful tools and resources in there as well. So I just want to put a plug in again for the one one coaching that we're offering if there's any questions that this content has spurred for you that you would like to talk through further. That being said, I just want to thank you for your time and energy for kind of going through this presentation and looking through the resources and taking the time to talk to us throughout late spring and the summer as well and giving us an insight about your programs. I hope that what I've shared today has been illuminating and that any of these tools and resources could be valuable to you on the slide you'll see that link to the COVID-19 resources that I was talking about, as well as my email address if anything comes up. And if you would like to stay in touch with NFS and kind of get more access to our content, you can follow us as well on NFS news, but don't hesitate to reach out and I hope to be in touch with you in the future. Thank you and have a great day.