Would You Know If Your Candy Machine Was Broken?

As you might imagine, there are a few vending machines scattered around our campus. The one behind our building get cleaned out regularly when we have rental groups with large numbers of kids or our own shows are in tech week.

A number of months ago, whenever I would try to get a granola bar from one end of a row, I got a message to make another selection. A little experimenting showed this was the case for a few of its neighbors. Across campus near the administration building there is a machine in which a whole row returns the make another selection message.

I usually don’t see the guy refilling the machines or when I do, I am generally in a rush. But I finally said something to the guy about a month ago. He thanked me for the report and said he would tell the technician to take a look at it. Then he commented that he had noticed on his computer inventory that those items weren’t selling.

It is people like him that make me really nervous.

Part of the reason I finally said something to him was because I started to realize he had no real investment in his job. The situation had existed for about 6-9 months.

Even if he wasn’t the same person who was tending to the machines when the problem started, there were many signs one existed. Not only was the fact that part of the machine broken conspicuous when they were the only things ever left when students and kids literally emptied the rest of the machine, but the items that weren’t selling were actually noticeably sun-bleached. And of course, he admitted his inventory was telling him that items in both machines never sold.

Wouldn’t you suspect a problem if an entire row of candy bars in a machine never sold, yet the Snickers were moving well in the sites around the campus?

The reason people like him make me nervous is that I start to wonder what problems I am not being told about. The vending machine guy may not be paid well and doesn’t feel like he has any incentive to make sure the machine is producing revenue efficiently. I begin to wonder if people working for me might feel something similar. My concern isn’t so much about revenue maximization as ensuring patrons, renters and others who use the facility don’t have a negative experience.

One of the most difficult tasks businesses offering services seem to have these days is training people to be aware of problems and be proactive about either attending to them or reporting it for further action.

I generally feel like I have a good staff that pays attention to these things. This afternoon my technical director noted that the dust from nearby construction had infiltrated our ticket office and the room needed to be cleaned. But there have been times when I have noticed a glaring problem and wondered why none of those who pass that way regularly, including cleaning staff, students and faculty, attended to it in some manner.

Of course, a lot of the responsibility resides with those who train and supervise. It is incumbent upon them to discuss the values of the organization, mention the types of behavior that is expected and outline the available courses of action.

It is also important that those courses of action be viable and legitimate. If a problem is reported and results are not forthcoming, there is less incentive to report problems in the future. The same if the resources to effect the solution are rarely available or there is a perception that making the extra effort on behalf of the organization is not valued.

If a solution can’t be effected immediately, the timeline for the response should be communicated clearly–e.g., “The leaky toilet will be replaced when the building is closed for the summer, in the mean time, this is the temporary stopgap solution we suggest.”

In the non-profit arts, frequent communication about what sort of environment and experience the organization wishes to provide is important given the large number of volunteers that assist with so many tasks. Even long time volunteers may forget the overall vision because they are not exposed to it as consistently as regular staff and they may volunteer at a number of other places, each with its own vision of things.

Most of all, supervisors and other leadership need to emulate the values they espouse with their own actions. If they aren’t excusing themselves to assist someone who looks lost or bending over to grab a candy wrapper blowing by, it is more difficult to get others to do the same.

Misunderstanding Your Competition

To pick up from my last post about the Set In Stone report, the one aspect of the research I was intrigued by was their survey of people’s perceptions of the impacts (or lack thereof) of a new construction project.

As you might imagine, those who perceived themselves to be direct competitors were the least enthusiastic about a new building project. However, the groups who were most enthusiastic were those who were in the same district as the project, but didn’t view themselves as competitors.

Nope, No Impact Here

The report writers note both the positive and negative impacts of a new project- It might compete for audiences and revenues on one hand, but could also bring additional vibrancy to the area attracting businesses and traffic. Interestingly, the perceived impacts of a new project were pretty low.

• No higher than 28 percent of organizations in any subsample believed any change in their attendance was due to the new project opening; that subsample was the most closely linked to the project (competitors in the same district). The full sample result was only 12 percent believing the project opening affected their attendance.

• While 40 percent of competitors in the same district believed the project opening had an effect on new businesses opening in the area…Only 23 percent of the full sample believed the project opening was the key cause of new businesses in the area.

However, in terms of general impact, people were quite positive in their outlook about the project.

• When the question about community impact is posed in general terms, dramatically positive views are expressed. The question “Do you think the project makes the city a more attractive place to live?” generated a uniformly enthusiastic response, with the full sample generating 88 percent positive responses, and competitors within the same district reporting a 96 percent positive response.

There was also a lot of enthusiasm about the impact the new project would have in the community in advance and immediately upon the completion. However, according to the report, after the completion, enthusiasm dropped about 8% for the overall sample. However, for the group that was most enthusiastic–those in the same district who didn’t view themselves as competitors that I mentioned earlier–their optimism about the impact on economic development dropped 16 points.

I should note that the report writers emphasize that it is difficult to separate general economic conditions from project specific conditions as factors in the decline in optimism. They don’t know if the decline is due to problems with the greater economy or specific to the projects.

Foes Are Just Friends Who Compete With You

What was also interesting to me was the perception of competition versus collaboration people had in relation to projects. Those who viewed themselves as direct competitors were most likely to view the project as creating a more competitive environment while those who were located in the same district but did not view themselves as competitors felt the project created a more collaborative environment.

And yet,

Ironically, the group with the highest percentage of organizations believing that cultural organizations feel more competitive (competitors in the same district, also had the most optimistic view about increased tourism (52 percent believed it had increased). Thus, there is no evidence that community organizations link their views about changes in tourism to their views about the effect of the project on the competitive/collaborative climate.

The section of the study about competitiveness was very intriguing to me because so much of it was based on perception rather than reality. Just because people didn’t identify themselves as competitors, doesn’t mean that is really the case. The study found proximity was often a factor in identifying a project as a competitor, even if the cultural discipline didn’t match. You might expect that a museum might view a nearby performing arts center as a competitor.

Yet the study found (and I paraphrase for clarity) that a slightly higher percentage of those who identify themselves as non-competitors were located in the same district and were a cultural discipline match for the expansion project. The report authors state this “is inconsistent with expectations and inconsistent with the results observed for the “competitor” subsamples.”

You Can Have My Audience, Performers and Employees, Just Leave The Money

It made me wonder if there was a degree of wishful thinking/willful blindness among other cultural organizations that the expansion project represented a threat to them. These results left me wondering and wishing the survey had included data on whether local conditions improved or not in the wake of a project. I suspect given the scope of the study, they were unable to assemble a dependable data set to make this comparison.

Still it raises a lot of questions about how accurately cultural organizations, and I daresay businesses as a whole, assess the impact of developments on the economic conditions of their communities. I suspect the assumptions arts and cultural organizations make are little different from those other businesses make about the impact that will result upon the arrival of a big box retailer like WalMart, Best Buy or Home Depot.

Not surprisingly, money seems to be the dominant factor. The study found that the greater the funding for the expansion project came from non-local sources, the less people expressed concern that the environment had become more competitive. The perception of the economic climate seemed to be based mostly on whether the expansion project was making it more difficult to fund raise rather than whether the project was competing for audiences or talented artists and employees.

I wonder if this is something of a statement on the relative importance/availability of funding versus audiences and talent for cultural organizations: People are more easily replaced than money.

Stuff To Ponder: Process and Pitfalls Of Cultural Facility Construction

If you are planning new building construction or a significant renovation, you would do well to check out the Set in Stone research project performed by the University of Chicago. When I first heard about the site and the research which looks at the construction of cultural arts facilities from 1994-2008, I thought it might be a thinly veiled indictment of overly-ambitious construction of arts centers.

But in fact there is far less failure reported than I expected, (though plenty of struggle), and the site is designed to be a resource for both research on the topic as well as guidance about the whole process. Prominently placed on the page is a six minute video that provides some quick advice about under taking a construction campaign.

Basically, it says people underestimate the project costs and over-estimate their ability to generate the revenue to operate the building upon completion. The video also notes that there are a lot of factors and constituencies with expectations contributing pressure to the project and suggests four questions to continually ask at all stages to keep things on track–or help ultimately decide to terminate the effort.

Four case studies illustrate the impact of these pressures on new facility construction. My favorite is the case study for the Art Institute of Chicago. It really provides some detailed insights into how the ambitions of the board, fundraisers and architect interacted to shape the construction of their new Modern Wing.

There is a quick overview of the study available but you may eventually want to take the time to read the full report. The full paper discusses construction and funding trends around the country and explores the impact of population shift and GDP on some of these trends.

There were some surprising and interesting situations they uncovered like the Pittsfield, MA metropolitan statistical area has the highest per capita spending on construction projects in the country, trailed by San Francisco; Appleton, WI; Madison, WI and Lawrence, KS. Who knew?

Interestingly, the construction during the boom period they researched didn’t seem to be in response to demand from the cultural sector.

This suggests that, in the boom period, increases in the supply of cultural facilities may not have responded to demand increases in the cultural sector. In fact, the evidence suggests that the relationships were negative during the boom period; either there was overinvestment in the supply of facilities relative to cultural sector demand for facilities, or facilities investment may have been responding to something else altogether.

What I also found interesting was that population size didn’t impact how much a city invested in the cultural infrastructure but rather how fast the population was increasing or decreasing. If the population started increasing, so did the investment in infrastructure.

What I found most informative was a comparison of the construction processes of different types of cultural organizations. There were assets and liabilities generally common to each type of cultural organization: producing theatres, museums, non-resident performing arts centers and resident performing arts centers.

Producing theatres seemed to have the easiest time with the process going from conception to completion in a relatively short time (7 years). Producing theatres were motivated to advance their mission and were able to keep that front and center throughout the process. They had the biggest cost overruns at 92% higher than the initial budget, (my emphasis)

“However, the starting budget was usually an internal figure and these projects’ managers were clever about when to announce their budgets publicly so that the escalations did not appear outrageous to the community. Interestingly, the publicly perceived escalations were often much lower—an average of about 19 percent. More importantly, the escalations that did occur often had a clear connection to organizational needs and were seen as helping the organization pursue its artistic mission.”

Museums also had a relatively short conception to completion time (about 9 years). One of the biggest challenges the report says they face is strong boards who often meddle with the plans often blurring a clear sense of leadership and leading to a fairly high rate of turnover on project boards. Cost overruns were only about 46% but were due to non-mission critical additions. Also museums were not able to be as flexible about generating revenue and often had to cut staffing and programming to deal with budget shortfalls.

The construction of Non-resident performing art centers were often strongly motivated by service to the community. (my emphasis)

“However, more often than not, community need for the nonresident PAC was not accurately determined. For example, a large majority of these projects used economic impact arguments as rationales for building. Included in these arguments was the implicit assumption that by building a cultural facility in a blighted area, it would automatically attract and sustain a substantial audience who would not otherwise have ventured there. Nine times out of ten, these assumptions were not accurately tested, and when the facility project was completed, the desired swarm of activity never materialized…Since the motivation for the project was so strongly centered in the desire to culturally enrich the broader community in a necessarily general way, a specific organizational artistic mission (if there was one) was often swept aside or obscured by a general enthusiasm for the idea of building a new arts facility for local residents.”

This situation resulted partially because these projects were organized by groups operating from a shared leadership model which meant there is often no clear stated central vision. Cost overruns of 62% were attributed to delays and lack of organization in the decision making process. Non-resident performing arts centers were generally flexible in their ability to absorb the overruns thanks to their low operating costs. Unfortunately, because most of the costs came from presenting performances, the preferred option to reducing expenses is usually to reduce programming.

Resident Performing Arts Centers have the hardest time getting started, mostly due to the need to serve the disparate requirements of multiple resident companies which often represent different arts disciplines. Because the founding organizations are often well-established, each with their own board of directors, a single clear, consistent leader is often difficult to identify.

These projects averaged 12 years from conception to completion, which doesn’t include the feasibility study period preceding the project proposal. Influence of the various groups can wax and wane quite a bit in that time. The constituent groups may be unwilling to cede authority even to the performing arts center executive once the facility begins operations. Changes in plans and leadership often means opening dates are frequently rescheduled.

“First, resident PACs were the costliest among all the different categories of projects. On average, they cost approximately $109 million to build and went about 64 percent over their initial proposed budgets. On a per seat basis, the median dollar per seat for resident PACs was $37,527, compared to $12,155 for nonresident PACs.”

The need to serve many resident organizations means that the resident PAC has less flexibility to use its spaces to generate additional revenue for the facility. Also, all the organizations are in the same boat together. If one organization faces a distressing situation, it impacts the future of all.

There were some other interesting observations that resulted from the study that I will address in a later entry. As I said, the Set In Stone site provides some pretty good resources and information to help you recognize and perhaps avoid problems others have faced with their major construction projects.

Info You Can Use: Outside Audits And You

During the summer many non profit boards of directors suspend their meetings due to the difficulty of scheduling meetings around members’ vacations. When meetings start up again in the fall, it may be a good time to think about revisiting organizational policies.

Using the Sarbanes-Oxley Act, which currently only applies to publicly traded companies, as a guide Independent Sector (IS) and BoardSource have drawn up a checklist of good governance practices to implement.

There is also a link to a more expansive discussion of the topics in the checklist you may wish to read.

While the act currently only applies to public companies, financial impropriety in the non-profit sector has lead many to explore how sections of the law might be applied to non-profits or to suggest the creations of similar rules for non-profits.

The bulk of the rules apply to auditing and financial disclosures though some deal with conflict of interest, record retention policies and whistler blower protections.

One of the biggest challenges in applying the recommendations from the law is that while publicly traded companies have to pass certain milestones in terms of size and assets before going public, non-profits come in all shapes and sizes. An outside audit is really only practical for some large non-profits (and required for those receiving more than $500,000 in federal funds.)

Most non-profits should at least have an independent audit committee, but as the article notes, many smaller non-profits will have difficulty finding a qualified people to be treasurer, finance committee and audit committee and good governance requires there not be significant overlap.

For those who do use an outside auditor, though the Act only requires the lead partner of the auditing company change every 5 years, IS suggests the company be changed every 5 years and that the company not provide any other services, except tax return preparation as pre-approved by the board, to minimize conflict of interest.

For those organizations using an audit committee, it is suggested none of the members of the committee have any financial/business interest with the non-profit.

The very bare bones, basic criteria for a board that IS suggests is that they all receive training to become literate enough to understand the organization’s financial documents. IS says it is important that when the organization signs off on their 990 that: 1- the 990 is actually completed comprehensively and accurately, something that is infrequently done; 2- that the signature actually reflects an understanding of the organization’s financial condition.

I have talked about conflicts of interest policies in the past and the IS document doesn’t really discuss this in as much detail as the financial disclosure.

One thing I was not aware of and wanted to share is the whistler blower protections. You may be aware that it is illegal to take any retributive actions against those who report misconduct: firing, demotion, harassment, passing them over for promotion. What you may not know is:

“Even if the claims are unfounded, the organization may not reprimand the employee. The law does not force the employee to demonstrate misconduct; a reasonable belief or suspicion that a fraud exists is enough to create a protected status for the employee.”

I wasn’t aware that the criteria to achieve whistle blower protection was based on a reasonable belief rather than requiring some sort of evidence. Perhaps I have been watching too many crime dramas–or perhaps not enough of the right types.

In any case, it is important to have good clear policies about employee conduct, financial and accounting practices, conflicts of interest, records retention (which includes email and voicemail) in place long before any of these things become issues.