December 2001
Fiscal matters continue to dominate the activity horizon in Piscataway, so it is appropriate to once more review the following challenges for fiscal improvement mentioned in this column back in March, 2001:

1. Selection and management of initiative programs within the Institute
2. Periodic review of the Corporate Infrastructure activities
3. A closer look at (read “simplification of”) the complicated set of business rules that are required to support the many offerings of the Societies and Councils
4. A financial model that more properly allocates expenses among users
   

As of December, there is additional progress to report on these challenges, which, recall, are being put in place for 2002 and beyond.

1. Initiative Programs
An adhoc committee of the Board of Directors has been looking closely at initiative spending throughout the year. Necessary expenditures such as information technology [IT] and revitalization initiatives with revenue payoffs such as IEEE Spectrum are continuing. IT alone accounts for over half of the total continuing initiative budget for 2002. Other initiatives, better suited for oversight within organizational unit operating budgets, have been dropped or absorbed. After a year of activity, it is clear that there is more work to do on initiative selection, review, and sunsetting. Hopefully, these items will be addressed in 2002.

2. Infrastructure Cost Distribution within TAB
The 2002 budget distributes infrastructure costs to TAB and the other organizational units (RAB, P2SB, EAB, SA, IEEE-USA) in accordance with the financial model proposed by the Overhead Administrative Recovery Committee (OARC). TAB is now developing a distribution method for passing these costs to the Society/Council users. Briefly, infrastructure activities support the IEEE business “engine”, including our growing portfolio of electronic products, and an increasingly complex business (perhaps too complex…see discussion below).

The OARC proposal allocates the cost of direct core functions by use in the following categories:

• Controllers
• Payroll
• Human Resources
• Business Administration
• Member Services
• Application Processing
• Procurement
• IT-Common
• IT-Membership
• IT-Financial
  

And allocates the cost of indirect corporate and other core functions through algorithms specific to TAB:

• IP Revenue Sharing
• Elimination of the TAB allotment from Member Dues
• First 6% of Investment Returns on Reserves
  

Based on target budgets for 2002, the list above sums to around $15M for Societies and Councils, excluding any investment returns. The Infrastructure Task Force looked at a number of distribution algorithms, including one based only on Reserves; a Blended method, which added the concept of IP revenue sharing (yes, you may call it a tax); the Principles method, which attempts to link Society/Council activity to each allocation item (except for those designated as initial conditions by the OARC); and a Simplified method, a variation of the Principles method. The tables at right (based on the same target budgets) show how the total bill is divided among the activity metrics (Table 1), and how the bill would be calculated for an individual Society/Council (Table 2).

These tables give two completely different, but complementary, views of the infrastructure bill: Table 1 shows how the percentage of each of the five components of the bill vary among the methods proposed, while Table 2 shows how the bill for a particular Society/Counil would be calculated. In Table 2, for example, using the Principles method, the bill for your Society would consist of 6% of your Society/Council reserves, 40% of your Society’s package revenue, a charge of $20.55 per Society member, 10.6% of your Society expenses, and $8.371K per staff head in Society Executive Offices in Piscataway. Important note: These numbers are from the challenge budget to TAB from last May, and are for illustrative purposes only. In the interim, a number of cost-cutting and revenue enhancing activities from other OUs have been inserted into the 2002 budget. These will change the entries in the two tables, and will improve the Society/Council financial picture.

At its November meeting, the voting members of TAB, in a straw poll, agreed that the Principles method seemed to have the features linking metrics to use/activity that lead to good business practices, and also shared the opinion of the Task Force that this algorithm could cause short term financial hardship for a small number of Societies/Councils. Accordingly, the Task Force was tasked to consider rescue plans to be used on an as-needed basis, and will report back in February.

In summary, IEEE and TAB have made substantial progress on the issue of how to DISTRIBUTE Infrastructure costs, so that the next step will be to focus on the issue of how to REDUCE them. Stay tuned.

3. Business Rule Complexity
The Societies and Councils can save as much as $3M/year by simplifying the following areas: Institute, Society, and student Membership pricing, publication pricing, payment options, additional information requests, and the solicitation process. A spread sheet summarizing the options for 2001 Products (a 27 option by 270 product matrix, spreading over six legal size pages in five point type) was shown to illustrate the tangled web that we the Societies/Councils have woven. In November, the Infrastructure Oversight Committee (IOC) requested the BoD to authorize RAB and TAB to investigate business rule changes to realize savings in a minimum feature alternative, and the motion was passed. What would it be like if each Society had the same membership fee? Etc, etc. Keeping it simple will save money! You will probably be hearing about this through TAB shortly.

4. Financial Model and the Budget Update
The Board approved the OARC’s recommendations for use with the 2002 Budget process at its July meeting, and the philosophy of pay-by-the-drink is now being driven down to the Society/Council level by efforts such as those by TAB’s Infrastructure Task Force. Mentioned above, but worth repeating: this will allow us to identify the costs of doing business, and is a necessary step in the process of reducing those costs.

In November, the usual time for the IEEE BoD to approve the budget for the following year, the proposed budget still showed a shortfall of $1.7M. The BoD decided that the 2002 budget process will be continued until February, charging IEEE FinCom and Staff to balance the budget to net zero using only dividends and interest as a source of income. Other returns on our investment portfolio are budgeted at zero percent. The anticipated planned spending of reserves (which would have reduced Society/Council reserves by approximately $4.1M in the beginning of the year) reported in June has been reduced to zero through additional cost savings at headquarters in core functions (infrastructure), continuing initiatives, staff compensation, travel expenses, and by recognizing only the most certain aspect of investment income, dividends and interest. Here is the significant sound bite: No budgeted depletion of reserves for 2002. Operating net has improved by nearly $22M over 2001, and it has taken an effort from every part of the Institute to achieve this goal.

Discussion
Financial focus has been intense during 2001, and processes are being implemented or studied which will make our volunteer organization fiscally stronger in the years to come. The details of OARC’s blueprint for itemizing and distributing the costs of IEEE infrastructure are in place. The next step, reducing the costs, has already started. My email address is at the top of this column. I welcome your thoughts.

EMC