When hard times hit, contingency plans go into effect. Developing such plans is the work of the good times. It is the work of a well-informed, engaged board that is knowledgeable about an organization's mission and programs.

Much of the "prep work" to deal with crisis is accomplished by regular and thorough strategic planning, according to the executive director and a member of the board of one social service organization.

"If we didn't have the strategic plan, we wouldn't have been able to do it," the board member said of the fiscal contingency plan the agency created in response to the economic crisis. "It was really helpful in getting the board comfortable with the [new] endowment policy."

Realistic expectations
It's difficult to convince people to tighten their belts with a hazy, general idea that "maybe we are going to lose some funding." Foreseeing that economic changes were ahead, this organization utilized a consulting firm to assist the agency in developing a business plan.

"When we started, the agency was bullish," one board member said. "With the consulting firm, we fairly quickly became more realistic."

The consultant evaluated the impact of insufficient funding for administrative overhead from government and the effects of potential cuts in government funding and grants from private donors. The agency response was proactive: New sources of funding were sought while reductions in spending were planned.

In a series of meetings, program and mid-level managers brainstormed ways to cut spending. First was the renegotiation of all vendor contracts and streamlining of administrative program support. The goal was to keep direct staff unless a particular contract was eliminated.

By cutting costs rather than staff, it was easier to ensure staff buy-in, which is critical to implementing cuts without undermining morale and programming. Senior management presented the proposed cuts to the board, which reviewed, then approved, the belt-tightening plan.

Meetings among mid-level and program managers were already occurring regularly at this agency as part of the process that supports both internal communication and feedback for the strategic plan.

Cutting Costs: Guiding Principles
When evaluating cuts, the agency focused on what programs were core to the agency's mission. Those that were not core to the mission could be dropped or consolidated. To guide this assessment, a list of 12 criteria for programs was developed that included such areas as:

• is aligned with the agency's mission
• serves the target population
• is in the agency's area of expertise
• has ongoing funding
• has measurable impact

Cutting costs: Little things mean a lot
Because it was proactive, the agency had time to implement a number of cost-saving actions, such as:

• Renegotiated contracts with vendors: cleaning, maintenance, technical support, etc. Vendors were willing to negotiate rather than lose contracts completely.
• Cut the frequency of some services, such as cleaning. Wastebaskets can be emptied less often.
• Reduced staff through attrition. It means remaining staff has to carry the extra load but involvement of all stakeholders in the discussions means staff understood the need.
• Reduced management and administrative overhead before cutting program staff.
• Cut back on cost-of-living increases. In the interest of fairness, this agency gave everyone making less than $50,000 annually a 3 percent increase. Those making more than $50,000 were given $1,500.
• Eliminated some of the specialized activities for clients that required outside consultants, going back to "plain vanilla without the sprinkles" as the executive director said. This reduces cost without eliminating programs.
• Reduced frills. Have less expensive field trips, cut some administrative support from full-time to half-time.

Such cuts generated projected savings of almost $4.8 million through 2010. But that wasn't enough. Income also had to be reviewed.

Income: The basics
"We looked realistically at the give/get policy of the Board," the executive director said. With many board members connected to Wall Street, it was easily anticipated that their donations might be affected. Pledges from a recent endowment campaign were stretched out, i.e., more but smaller payments.

The agency looked for new sources of income, both new grants from funders already acquainted with the agency and new relationships, including those that would draw upon expected federal stimulus money.

Beyond the Basics
Although the value of the agency's endowment had declined, the board developed a new policy vis a vis withdrawals of interest income from the endowment fund. Until now, the policy had been to withdraw only the income needed to service bonds issued for building renovations.

The Finance Committee came up with a new policy that allows the agency to borrow money from the interest income generated by the endowment to fund operations, special projects or capital expenditures. Such loans would have a repayment schedule and might have an interest charge, both determined by the Finance Committee. The board must approve any withdrawal under this policy.

The board was deeply involved in both ongoing strategic planning and in the contingency planning for the economic implosion so it understood and could make an informed but speedy decision about the endowment policy.

"The board knew the agency had made painful expense cuts," the board member said. "It had shown us it was running as efficiently as it could."

What helped?

• Funding for skills the agency didn't have, such as the consulting firm that evaluated expected income.
• A vigorous, ongoing strategic planning process that kept the board up-to-date on the value and cost of each program.
• A clear understanding of and focus on the agency's mission.