How a governance budget can empower you
The same framework that helps your organization manage its dollars wisely can also enable you to weigh its strengths and challenges – and plan more prudently for its future
We all know what a budget is – it’s a tool that individuals and organizations use to understand how much money they have and how much they can spend. That’s true enough in a general sense, but a budget can be a lot more than that. Think of it as any document that helps you, as a fiduciary, to define limits and allocate resources toward a variety of needs. In fact, your nonprofit – and especially your investment committee – can benefit greatly by applying the principles of budgeting to your overall financial governance.
“The budgeting process is innately appealing because it lends clarity, promotes accountability and can heighten organizational effectiveness.”
A good governance budget offers you a snapshot of the organization, which you can refer to on a regular basis as you make decisions. Using quantifiable metrics to look at your nonprofit’s time, resources, leadership and oversight, and to identify your strengths and weaknesses, it can be a source of invaluable insights and lead to greater efficiency. It can also help a nonprofit board be more thoughtful about the ways resources are deployed, ensuring the organization’s ongoing health and sustainability.
“The budgeting process is innately appealing because it lends clarity, promotes accountability and can heighten organizational effectiveness,” notes Bernard E. Reidy, Managing Director, National Endowment and Foundations Executive, Bank of America Private Bank. “Given limited time and resources, a committee can only benefit from a directed and thoughtful analysis of its resources relative to its goals.”
What do you need to know, and what can you do with that information?
Creating a governance budget begins with your formulating direct questions about your organization’s processes and allocation of resources. From the beginning, professional advice can be critical to getting the most out of the exercise.
Your initial questions should lend themselves to straightforward, candid answers. As noted in our recent white paper, The Governance Budget: Allocating organizational resources effectively, some of the things your leadership should be asking are: What amount of time is spent developing internal staff talent? How many individuals – full-time, part-time, external and internal – are dedicated to investment governance controls and oversight? How long does it take for the investment committee to make decisions? How much time and attention does the committee spend on developing and evaluating strategic goals and objectives for the investment pool?
The answers you get may be indicative of a healthy, high-functioning organization. Or you may conclude that, while the organization works well at the moment, you anticipate future obstacles or could position yourself better to meet strategic goals. There are no right or wrong answers – only ones that fit your organization’s objectives and situation.
After discussing what the process has taught you, your committee will likely want to think about some next steps. One potential solution, if you’re making investment decisions in-house, is to consider outsourcing – an arrangement that’s becoming increasingly popular among nonprofits because of the flexibility it offers. By delegating tactical allocations and day-to-day operations to an outsourced chief investment office (known as an OCIO), your investment committee members can have more time to focus on strategic initiatives or specific challenges your organization faces. Your investment team can work with the OCIO to pursue investment opportunities that align with your investment policy statement, while also taking advantage of the additional resources it offers. A professional advisor can help you sort through your options.
Whatever you decide, you’re likely to find the process of creating a governance budget has brought your nonprofit’s needs and resources into sharper focus. By doing so, Reidy notes, “Committees can become better able to quantify the readiness of their organization to face challenges in a changing investment environment.”
For a more detailed look at how you can design and implement a governance budget, ask your advisor for a copy of the full-length whitepaper The Governance Budget: Allocating organizational resources effectively.
A private wealth advisor can help you get started.
Institutional Investments & Philanthropic Solutions (also referred to as “Philanthropic Solutions” or “II&PS”) is part of Bank of America Private Bank, a division of Bank of America, N.A., Member FDIC and a wholly owned subsidiary of Bank of America Corporation (“BofA Corp.”). Trust, fiduciary, and investment management services are provided by wholly owned banking affiliates of BofA Corp., including Bank of America, N.A. and its agents. Brokerage services may be performed by wholly owned brokerage affiliates of BofA Corp., including Merrill Lynch, Pierce, Fenner & Smith Incorporated (also referred to as “MLPF&S” or “Merrill”). MLPF&S makes available certain investment products sponsored, managed, distributed or provided by companies that are affiliates of BofA Corp. MLPF&S is a registered brokerdealer, registered investment adviser, Member SIPC and a wholly owned subsidiary of BofA Corp.