Three Attributes to Consider and Balance When Making Financial Decisions

Making financial decisions is never easy. Making sure multiple points of view, strategies and possible consequences are considered will help to optimize results and protect the organization. Three attributes to consider when making financial decisions are return on investment (ROI), safety, and confidence.  These three attributes individually may appear simplistic, but together they can help shape and focus discussion and positively impact strategy and sustainability. 

Attempting to explore these three outcome-oriented decision attributes and balancing them can be more art than science. However, factoring all three attributes into the analysis and discussion will add insight and help to improve results.

ROI, safety and confidence considerations will vary widely depending on the financial situation or challenge in question. The three attributes can best be viewed as follows:

ROI

• Use of assets

• Rate of return

• Financial resources

• Balance sheet (net assets)

Safety

• Internal controls

• Risk assessment

• Sustainability

• Logistics

Confidence

• Well-managed organization

• Mission advancement

• Brand enhancement

• Public perception

Each financial decision point will be influenced by circumstances related to timing, resources, and mission. Application of the three attributes is most easily understood by walking through a few hypothetical examples.

Example #1: A board member recently asked a question about whether the organization is maintaining too high of an average balance in its business checking account.

Analysis: In considering a proper response to the question, you want to project a balance between ROI, safety and confidence.

For checking account balances, it is best to address safety concerns first. Point out that internal accounting control systems and cash management policies are comprehensive and often complex. Minimum and maximum target checking account balance requirements that will facilitate meeting expected expenditure needs also must consider cash exposure risks associated with higher cash balances in checking accounts. The goal is to maintain an acceptable level of risk while balancing the convenience provided by higher cash balances (safety).

Next explain that funds above the maximum target balance will be transferred to the intermediate investment pool enhancing return on investment for these funds (ROI). By explaining these first two attributes, you address the third attribute (confidence) that the cash position of the organization is well managed with proper controls and procedures.

Example #2: While reviewing the budget for the next fiscal year, Board members noticed that the science camp program that was launched as a pilot program two years ago is budgeted to grow substantially in size and scope over the next fiscal year, from the current 15 sites to 30 sites. Board members questioned the impact on sustainability of expansion of the camp program, and wanted to know if that strategy was prudent for the organization.

Analysis: Since the question came through a Board budget review process, the question has financial undertones but is more complex than just the financial impact. The three attributes will serve you well in addressing the question.

Consider having the director in charge of the camp program explain that this program is in line with core mission objectives to get young people excited about science and STEM careers, and reference the recently passed strategic plan which calls for expanding programs that will help raise young peoples’ interest in careers as scientists (confidence). Remember to include in your messaging other related advantage points that investment in this highly successful camp pilot program has caught the attention of sponsors and donors, enabling the development department to secure additional federal grants, expand fundraising, and add two new corporate sponsorships which will relieve the organization from using operating reserves required to fund the start up of the camps (ROI).

Tempering this excitement, make sure to address capacity and risk management issues related to rapid growth of the camp program. Are internal control systems adequate? Does staff have the capacity to manage expanding logistics resulting from adding camp sites? Be fully transparent with addressing issues related to ensuring the security of a growing number of young people at new camp sites (safety).

Planning Tip – Make it a priority to anticipate questions from Board members and address inherent perceptions Board members may have related to significant game-changing financial decisions. It is a mistake to ignore Board member concerns. Actively seek input from Board members and other volunteer leadership as you progress through significant financial decisions. Board member input will be value-added to the decision-making progress and enhance perceptions that Board member input is valued and encouraged while promoting transparency and inclusiveness.

Be aware that inherent Board member perceptions matter very much. Strive to understand why Board members might have concerns that are different from senior management, and work to address these concerns as early in the process as possible. Also pay close attention to the order of discussion points related to the three attributes. Focus messaging on the attribute of primary concern to the person asking a question. Structuring your response to address that attribute first will enhance overall confidence and trust and encourage acceptance.