Leader: 2019 business plan and budget

It is that time of year when our business plan and budget for 2019 have been finalised and our annual report for 2018 is being fine-tuned. This prompts thoughts of the interrelationship between finance and strategy and the steps we need to take to maintain The OR Society’s financial strength.

The OR Society has, for many years, been in the enviable position of having more financial reserves than we need under our reserves policy to safeguard us in the event of major risk events. These reserves, being held in the form of investments, have then grown steadily with the prolonged bull market, leading us to develop a financial strategy where, provided our activities fully supported our charitable objects, we could run operating deficits that could be funded by reserves until they fell back into the range determined by the policy.

In 2018 (as in 2017) we successfully achieved such a deficit, although it was not as high as had been budgeted. It reflected growth of 17% in total costs and an increase in headcount in our office from 14 FTEs in 2017 to 17 FTEs last year. All this has enabled us to do more than ever: run more training courses and events with greater numbers attending; offer more volunteering opportunities; publish more journals; invest in a new website and an exhibition; and pursue strategic opportunities such as apprenticeships in OR.

“We have ambitious plans for the society and have no intention to cut our costs. The question is therefore how we can grow our income.”

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The increase in costs (including the fixed costs that drive our reserve requirement) coincided, however, with a drop in the value of our reserves, in line with the market as a whole. As a result, our reserves are now within our policy range and our financial strategy needs to change. There is no need for immediate panic, however, as the reserves are at the upper end of the policy range, so can still support operating deficits this year and next. Any growth in the reserves (and there should have been some so far this year) could also be used to finance any deficit. In addition, the new publishing contract, which came into effect last year, moved us from payment in arrears to payment in advance, providing a bigger cash cushion than is needed for working capital and normal capital expenditure needs, and this could also be used to fund a deficit. The shift in the financial strategy will therefore be a gradual move towards a more balanced budget over the next few years, and this should be achieved by growing income faster than costs. We have ambitious plans for the society and have no intention to cut our costs.

The question is therefore how we can grow our income. Well, the signs on this from 2018 and the first months of this year are good. A recent strategy meeting with our publishers, Taylor & Francis, suggests that there is scope to grow our income from publications over the next few years, despite the re-emergence in the news of the risk from open access publishing of research. While this growth opportunity is good news, in a sense it is the wrong answer. Our journals provide 60% of our income, and we should ideally be reducing our dependence on them given the longer-term risks. This places the focus on our other sources of income; and here the opportunities also look good. For example, our income from events increased by 95% in 2018. This was due mainly to the success of OR60, but it suggests that if we put on the right events with the right publicity, then we could deliver even more from this source.

Similarly, our training income increased by 35% in 2018. We know that with the right focus we could put on more training courses, and with the right publicity we could drive more attendance to those courses. For example, Mike Jackson rightly pointed out in his Beale lecture that it would make good sense for The OR Society to offer courses in the full range of systems methods, and I am sure there are many other examples like this.

This brings us on to the source of income that barely grew at all in 2018 – membership. Our membership pattern in recent years has been one of growth as the number of student members has increased. Our non-student membership, by contrast, has remained flat with a decline in full members being almost precisely matched by an increase in corporate affiliates. It is, however, many years since we last had a proper membership campaign, and this is emerging as a major strategic priority for us in 2019. Once our PMW committee has emerged from the current top priority activity of delivering the new website, they will switch focus to driving additional membership, with a strategy covering both retention and recruitment of members.

The recent additions to our marketing team put us in a better position than ever to run a successful membership campaign, including a full review of our offer to members. Given the recent growth in the wider reach of the society through LinkedIn, our analytics network and elsewhere, I am sure that there are many new members out there just waiting for the right nudge to join.

At one level the society exists to meet the needs of its members. If we are successful with that and our membership grows, along with attendance at events and training courses, then that is a clear indication that we are achieving our strategic aims, as well as generating additional income to enable us to do more in support of those aims. Our financial strategy is a means to an end, supporting our business strategy, but is no less important for that.