That’s the question we asked ourselves at JMT a few years ago when we were deciding whether that next big investment in servers and other infrastructure upgrades was the right path. For many businesses and nonprofits, costs related to IT infrastructure, personnel, outside services and all of the other expenses necessary to keep your critical applications running can push as high as 20% of the annual operating budget. Even if you accept these costs as the “cost of doing business”, it is still disruptive, both financially and to productivity, when the inevitable spikes in cost hit that are outside of your plan.
At JMT, we made the decision to take all of our critical business applications to the Cloud a few years ago. It didn’t happen overnight. First and foremost, we didn’t want to sacrifice any essential capability that would impact our ability to operate at a high level. This meant carefully vetting applications based on their ability to serve JMT’s needs. Secondly, we needed to understand the relative total cost of ownership of these systems compared to what we had in place.
JMT, like many organizations, had existing infrastructure (mail, database servers, Citrix, etc.), perpetual licenses to the software we used (we paid publisher support and maintenance), staff who were either full or part time dedicated to performing IT work, outside IT consulting contracts and the works. Comparing the cost required that we look out over a longer period of time to recognize the licensing differences between SaaS applications and what we were used to as well as looking ahead to a time where we wouldn’t need servers and other infrastructure on which to host these applications.
We started with CRM and were able to use a cloud-native CRM side-by-side with our on premises accounting and productivity applications. Soon thereafter, we moved away from Microsoft Exchange and began using Google Apps for e-mail and collaboration. The next big piece after that was to move to a cloud-native financial management solution that could be fully and seamlessly integrated with our CRM. The final piece, which is wrapping up right now, is to move all file storage/management offsite leaving just one box in our office to manage local connectivity and broadband access for the computers in our main office. The rest of everything we do is securely managed in the Cloud.
We are now converting what used to be our server room into additional office space. Our staff is able to work as productively from the office or at home or from a hotel without any additional enabling technologies. Our company is saving tens of thousands of dollars a year in expenses related to upgrades, hardware, outside services and other things we didn’t ever think twice about paying in the past. These savings weren’t immediate, but they became apparent once our transition was complete.
How much is that? Are you sure?
Consultants, CPAs, attorneys and other professionals have long relied on time & materials billing as a cornerstone of project costing. When a client approaches with a problem, they estimate the number of hours they will likely need to complete the work and then multiply that by the hourly rate they charge for that type of work. So if they think the client’s project will take 100 hours and their hourly rate is $150/hour, they can quote $15K for the work “give or take”. Some may even provide a low, likely and high estimate to allow for the fact that the client will be billed based on the actual number of hours it takes, regardless of what was originally quoted.
Tragically, an estimate is an estimate and, in many cases, the total effort necessary to complete the work exceeds what was originally envisioned. This can occur for a number of reasons, but common reasons are insufficient scoping or inefficient execution. This sometimes results in open-ended engagements where the consultant continues to bill the organization long after the original budget is consumed. This is bad for both the organization and the consultant who must justify why the original estimate was so far off. At the end of the day, the time & materials billing paradigm leaves the client holding the bag and eating the difference.
In our work with nonprofit organizations, we have found that two important factors most often result in a successfully, on-budget project:
- Comprehensive Discovery & Scoping – Perform detailed discovery and scoping prior to beginning the project. If you know exactly what Point B looks like and you have a clear roadmap for getting there, it’s less likely that you will see constant shifts and changes throughout the project.
- Guaranteed, Fixed-Price Engagements – Instead of estimating the effort necessary to complete the project, agree to a fair price for the finished product. If a successful project is worth $X, agree to $X instead of gambling on the unknown of how many hours it will actually take your consultant to do the work.
There are many advantages to this approach beyond what has already been stated. Eliminating the uncertainty about the cost is something every nonprofit can appreciate. Avoiding any risk of having to go back to the board of directors to authorize more money for the project than was originally anticipated is highly desirable.
Some final thoughts to keep in mind:
- Keeping, monitoring, questioning and signing off on timesheets is an inefficient hassle for both you and your consultant. If you take that out of the equation, greater focus can be placed on completing the scope of work.
- You can’t establish a fair price without doing sufficient discovery on the front end. If someone offers you a fixed price, but hasn’t asked many questions to scope the project, read the scope carefully and be ready for change orders.
- Some providers will, with good intentions, provide a low hours estimate of the effort necessary to try to keep the price down in cases where there are strict budget constraints. This can be a recipe for disaster since the effort necessary to achieve point B doesn’t change based on good intentions. You end up with either incomplete work, or paying more.
Remember, in a time & materials billing situation, it is the consultant that is protected from risk. If you get a well-scoped, reasonably priced fixed-price engagement, you are the one who is protected.
Last month we all were given the official news that Sage Nonprofit Solutions was being sold to Accel-KKR, a private equity firm. This week, that sale was finalized and Sage Nonprofit Solutions is legally an independent company, no longer a part of Sage North America. Congratulations to our colleagues at the new company!
As we noted a couple of weeks ago, there are a quite a few advantages to this new ownership configuration for users of Sage 100 Fund Accounting, Sage Fundraising 50, Sage Fundraising Online, Millennium and the other products that are part of the Nonprofit Solutions family. Most importantly, the organization will be able to be singularly focused on delivering value for the nonprofit and local government clients it has served for over 30 years (through previous ownership transitions). Look for a new brand to emerge that emphasizes this exclusive connection to the nonprofit and public sectors.
Here are a few things that we have learned that are worthy of noting:
- As of today, a new company name and brand have not been finalized. This is expected to come together in coming weeks. Be on the lookout for communications announcing the new company name. JMT is contributing input to Nonprofit Solutions and their agency to help formulate this new brand strategy.
- Since “Sage” is integrated into all of the product names as part of Sage North America’s master branding strategy, you can expect all of the product names to change to varying degrees. One change that has been informally confirmed is that Sage 100 Fund Accounting will be renamed and include the traditional brand name “MIP” in some way. This is good news for those of us who could never stop calling it MIP anyway.
- Over time, you can expect updates to your software to include changes to remove references to the Sage brand. Further, some of the features that were motivated by common Sage initiatives may be deemphasized or phased out over time.
- Krista Endsley, previously SVP & GM of Sage Nonprofit Solutions, is continuing as CEO of the new company and will be guiding the company during the transition and onward through its aggressive growth strategy. Further, all key members of the Nonprofit Solutions management team are remaining in place at the new company. This means that you can continue to expect the consistent, high quality execution that you have grown to expect in all phases of the business.
- Nonprofit Solutions, as an independent company, is in the process of transitioning systems (finance, CRM, etc.) away from the shared Sage infrastructure to systems of their own. This is being done carefully, but it would be prudent to expect some bumps in the road as this occurs. If, at any time, you encounter something strange or are struggling reaching the appropriate point of contact at Nonprofit Solutions for any issue, please contact your JMT CAM.
JMT Consulting Group, as Nonprofit Solutions’ largest business partner, is working very closely with our colleagues at the new company and will continue to share information as it becomes available. We will continue to update you on the status of the transition through this blog and encourage you to contact us at any time if you have any questions or concerns about the transition.
Many large (and some small) nonprofit organizations and most state and local government agencies have formalized procurement policies that require the use of an arm’s length, competitive bidding process for purchases over a particular amount, also known as a Request for Proposals (RFP). Regardless of the rationale for the policy or the desired outcome, poorly executed RFPs cost their issuers considerably in the form of time, project cost and opportunity cost. RFPs can work well for getting competitive bids for commodities, but can be problematic when procuring unique, customized products and services. If you know what you want and are simply looking for a low bidder for identical products/services, an RFP can work well.
If you are in position where you are either considering or compelled to use an RFP as part of your procurement of a new application software solution (finance, CRM, HR, etc.), we recommend keeping the following in mind:
- Research first. Don’t use the RFP as a means for gathering requirements and market information. If you are unsure of “what’s out there”, go look. Engage help. Do internal business analysis to clearly understand your own processes and why you have them. Once you have done the necessary information gathering, sharing clear requirements with potential vendor partners will be a lot easier and provide better results.
- Be clear about what Point B looks like. Don’t ask for a laundry list of features or capabilities in no particular order. Describe your utopian vision for where your organization will be once the project is complete. This means clearly describing your current situation and the rationale for the project. It also means describing and prioritizing the capabilities that you believe are most relevant to project success. By its very nature, the RFP process limits the amount of discovery a potential vendor can perform, so don’t make them guess.
- Share your project budget. Yes, give vendors a ballpark of what your organization is willing to spend so vendors that can’t deliver an appropriate solution in that price range disqualify themselves and save both of you time and money.
- Avoid complex “scoring” models. Some organizations employ vendor solution scoring as a means of enforcing “objectivity” on the process. While these are created with good intentions, the models themselves can be flawed and yield results that are completely different than the intuition of the majority of the selection team. This is especially true if those scores are applied primarily to application features and functionality. Further, it can result in disqualification of the best solution based on what amounts to an unintended “technicality”.
- “Who” matters. In projects where a material portion of the project budget is services, give appropriate weight to the qualities of the vendor and don’t understate the importance of execution to the overall success of the project. Two implementation partners with arguably similar technical solutions and prices will only be differentiated by their organizational qualities: vertical expertise, experience in similar projects, references, business philosophy, project methodology and culture.
I wish I had room in this blog post to share some of the more ridiculous anecdotes and examples from RFPs we have received in the past (“accounting software must be able to print checks”, “score this list of >3,500 un-prioritized features on a scale of 1-5”). Suffice it to say we have refused to compete for projects where we may have been the ideal solution provider for the organization in question, but chose to stay out because of the absurdity of the process itself.
Here are some things to keep in mind as you compose your next RFP:
- Vendors weigh the cost of responding against their perceived probability of winning the business. The smartest solution providers will avoid responding in cases where the cost to respond is too high or the probability of winning the business is difficult to determine.
- Hiding your decision criteria (i.e. your priorities and budget) from the vendors hurts you. Vendors will not have a clear understanding of how to respond or will unintentionally omit relevant information from their proposal.
- RFPs very often result in a purchase decision being made based on incomplete information. This is a natural byproduct of the restricted communication flow common to the procurement process.
RFPs will continue to be a fact of life for many agencies. JMT recommends that those agencies that are required to use this procurement form follow the advice offered above and, if possible, avoid use of RFPs whenever possible.
Why is everything so hard?
Things used to be great. The data entry made sense. The reports were all configured to give us exactly what we needed. Month end processes were efficient, routine and predictable. Now it seems like we’re doing more and more offline in Excel spreadsheets. Coding is confusing. Month end is painfully inefficient and reporting is time consuming compared to before.
What happened?
When you make a substantial investment of resources in a new financial management system, you have a justifiable expectation that the technology and tools will continue to provide benefits for years to come. For some organizations that are on a relatively stable vector, this works out. However, for many organizations, circumstances create a material shift in the assumptions underlying the design of the finance system.
There are a lot of things that can disrupt the effectiveness of your current system design:
- Introduction of substantially more or different sources of funding
- Substantial growth or contraction in operating revenues
- Functional reorganization
- Mergers with similar organizations
- Introduction of substantially different programs or services
- Key personnel turnover
Besides these factors, the march of time also introduces external pressures on the organization such as new regulatory requirements, technology shifts and new funder reporting expectations.
A common logical pitfall is to assume that the software in place is no longer the right fit for your organization’s requirements. While this is sometimes true, most of the time it is not. In order to realize the full potential of the tools at your disposal, it is essential to periodically reevaluate how you have deployed the system including:
- Is the Chart of Accounts design optimized for your ideal operational and financial reporting structure?
- Are you fully utilizing the applications and components that make up your current system?
- Are there optional applications or 3rd party tools available that could materially improve your financial management effectiveness?
- Is the finance system working well and seamlessly in the context of the entire back office application environment?
- Is your team properly trained to take advantage of what you have?
JMT recommends that all organizations reevaluate their financial system at least every 3-4 years to ensure that the system is, in fact, optimized in the context of the unique requirements and business processes of the organization. We routinely help our clients through this process and what most have found is that it has breathed new life into their systems without having to go through the cost and painful process of evaluating and converting to another system unnecessarily.
This month we are proud to feature JMT’s Executive Seminar Series topic “A CFO’s Guide to Evaluating Nonprofit Financial Systems”.
At JMT, we are dedicated to helping our nonprofit clients advance their mission through optimized systems and processes. In some cases this involves identifying appropriate financial management software if the systems you have in place are not adequate. Given that most nonprofit organizations tend to keep the same accounting software in place for seven years or longer, getting educated and making an informed, deliberate decision on new software may seem daunting.
Recognizing this, JMT is offering a live Executive Seminar series in cities across the country this month (March 26-28). Over a free gourmet lunch, our consultants will help CFO’s and other senior finance staff to understand key issues related to nonprofit financial software evaluation including:
- Distinguishing features from requirements and priorities
- Establishing a credible financial rationale for the project
- Factors to consider when comparing potential solutions
- The technology landscape, including the Cloud, hosting and other infrastructure factors
As part of this seminar, we will be comparing the merits of two widely-used financial management systems, Intacct and Sage 100 Fund Accounting (MIP), to illustrate the issues discussed above.
Whether you have an immediate need or are looking ahead to a project in 2014 or beyond, you can expect to walk way better equipped to manage a successful transition for your organization.
Why work with an independent value-added reseller versus a software publisher directly?
If you have ever approached a software vendor about their product, it probably went something like this: “Do you have budget for a purchase?” “When do you plan to buy?” “Are you the decision maker?” “Who is our competition?” “Have you seen a demo?” Often, there is only a mild interest in reason why you inquired or what your ideal Point B looks like. Unfortunately, it’s assumed that their product will work for you until proven otherwise. In many cases, any fit questions will be limited to only areas where they know they can potentially solve problems and ignore everything else.
The more enlightened vendors that serve nonprofits either employ a services organization or a reseller channel that can take a more holistic view of the inquiring organization’s circumstances, but most do not. Many software publishers remain focused on moving as many units of their core solution as possible with as little friction as possible. Understanding what the ideal Point B entails in its entirety often creates friction and that’s why many don’t ask.
Given this reality, there are specific advantages to working with an independent reseller versus the software publisher directly.
- Solution versus Software – most independent resellers view clients and their business requirements much more broadly than just features and functionality. The tools and features don’t solve the problem. It’s how they are implemented in the context of an organization’s unique systems and processes. The right solution will include services, related products, integration and user-specific workflow. Unless the software being sold by the publisher happens to solve 100% of the business problem, the customer will be left to solve the remainder on their own and somehow fit it together.
- Objectivity – while this varies by degrees from reseller to reseller, many represent multiple products from multiple vendors, each with its strengths and weaknesses based on context. This allows the consultant to recommend the best fit solution based on the unique requirements presented by the client. In the eye of the software publisher, and in the absence of a “show stopper” requirement, their software is always the ‘best fit”.
- Not Box Movers – Software publishers, by their nature, are in the business of moving as many licenses as they can for the greatest profit margin. It’s just the nature of the beast. While not always intentional, publisher sales teams may be faced with pressure to meet unit goals and other targets that cause them to look for shortcuts or lowball services to get the deal done. The box gets sold, but the customer is left with an inadequate, hurried implementation. Good resellers, who make most of their living from value-added services, consider the software and its features to be one tool in the process of solving client problems. While it matters if you use the right tool, how you use it makes all the difference.
- Expertise – Value-added Resellers are often subject matter experts on industry best practices, regulatory issues, technology and other areas that enable them to deliver significant value in the form of their services and recommendations. Without this subject-matter expertise, they would serve little purpose except as an unnecessary middle-man in the process and would quickly become extinct. On the other hand, software publishers are usually subject matter experts on their own software, but rarely beyond that. While they may offer implementation professional services, they are usually not equipped to make significant and well-considered recommendations beyond how to best use their software.
Two key bad assumptions may tempt you to go straight to the vendor in your evaluation:
- “The vendor knows more than anyone about their product.” – While this may be true on the technology, they may not have more experience than an independent consultant who specializes in actually implementing that product in organizations like yours.
- “I will get the best price from the vendor.” It is important to understand the difference between price and value. As noted above, the vendor may give you the lowest quote, but you may end up paying more long term with something far less valuable in the end.
Most organizations don’t have a lot of experience identifying, evaluating and selecting business applications like accounting and donor management software for their organization. Working with an independent consultant that has this experience will increase the likelihood that your project will be successful.
Last week the news broke that Sage Group PLC, the UK-based company that owns Sage North America and many software brands worldwide, was planning to sell Sage Nonprofit Solutions along with a number of other products as part of its stated goal to become more focused on their core business. This news was not surprising as Sage had clearly outlined their strategy and intent to refocus their business last summer.
At JMT, we welcome this news. While the relationship with Sage has benefited Sage Nonprofit Solutions in many ways through world-class infrastructure, global brand awareness and implementation of best practices, there have been some definite drawbacks to the relationship for “non-core” vertical businesses like Nonprofit Solutions. In particular, significant resources were expended conforming to corporate initiatives and guidelines that benefited Sage in the aggregate, but may have been at odds with the local strategic goals. Further, no one missed the confusion and cost associated with frequent rebranding and product name changes. As a dedicated partner to Nonprofit Solutions, the impact was felt acutely at JMT as we worked to update our own marketing, educate our clients and explain why the changes were a good idea.
It’s important to acknowledge that there are people and companies in the marketplace that stand to gain by fomenting fear, uncertainty and doubt about the future of Nonprofit Solutions. Recognize the difference between suggestions made with ulterior motives and the facts of the situation. Things we know to be true:
- Sage Nonprofit Solutions has experienced consistent, profitable growth, even through the recent recession.
- The Sage Nonprofit organization is being kept intact, meaning that the subject matter expertise and accumulated knowledge in the organization will continue to be dedicated to serving up quality products, services and support.
- Accel-KKR, the private equity firm that purchased Nonprofit Solutions, has a strong, documented track record of investing in technology companies that are poised for significant growth.
As an independent reseller for a number of nonprofit technology vendors, we understand that the marketplace is a fluid environment. Small companies get big. Mergers & acquisitions happen. New options emerge that help to redefine the landscape. This is part of the natural evolution of the marketplace. We see this change as overwhelmingly positive and look forward to continuing our long, prosperous relationship with Nonprofit Solutions.
I spoke recently with a prospective client that asked a simple question: What makes nonprofit accounting software “nonprofit accounting software”? I realized at that moment that there are software products in the marketplace that bill themselves as being “built for nonprofits” and there are others that claim to “work well for nonprofits”, but then the description of what distinguishes the product from other software solutions is either vaguely or misleadingly defined.
To answer this gentleman’s question, I had to think about it for a moment, but the answer was pretty simple: It’s software that effectively facilitates performing “nonprofit accounting”. You’re probably thinking “duh”. The real answer lies in the definition, in the context of accounting systems, of what’s required of nonprofit organizations from a tracking and reporting perspective.
Here are some capabilities or attributes of what a nonprofit should consider critical when evaluating the suitability of a software solution for their organization:
- Consistent with FAS 116, can I effectively segregate activity according to the nature of donor restrictions? For example, if I receive a grant restricted for a particular purpose, can I positively identify the revenue as temporarily restricted and keep that bucket of money segregated and accounted for both during the current and subsequent fiscal years until it is consumed or the restriction is satisfied? In nonprofit accounting software, you should expect the system to facilitate this process in some way, particularly the closing of restricted funds to the proper designated net assets account.
- For the Statement of Activities and 990, am I able to distinguish between expenses according to whether they are related to programs, fundraising or management & general activities? In a nonprofit accounting software package, it should be relatively simple to designate expenses at the time expenses are booked through a dimension or segment of the Chart of Accounts. It is especially helpful if the Chart of Accounts is table-driven (segment values are assigned individually on transactions as opposed to linear (account segments are concatenated into a single string). Either way, you need to be able to accurately record or allocate expenses to the proper bucket or you will end up doing a lot of work later to split it out for financials and 990 purposes.
- Produce proper financial statements for a nonprofit. As mentioned above, nonprofit organizations have specific financial reporting requirements, originally outlined in FAS 117 that require income and expenditures to be reported on the Statement of Activities and, instead of a balance sheet, a Statement of Financial Position. The two requirements above feed into the proper presentation of these financial statements and a good nonprofit accounting software package will make production of these financial statements directly from the software trouble-free and automatic when properly configured.
- Ability to accurately account for, budget and report on restricted grant funds. This may include being able to track grant budgets and activities on a different fiscal calendar than what you use at your organization. In a good nonprofit accounting software package, building budgets and running reports for those restricted funds across fiscal years should not only be possible, but relatively straight-forward.
Except as noted above, there are some other capabilities that are not uniquely important to nonprofits, but can be very helpful and should be expected by any organization considering new systems:
- Can I effectively budget and report at the level of detail that’s important for my organization?
- Can I allocate overhead and indirect costs in accordance with our cost allocation plan and OMB A-122?
Many of the requirements of nonprofit accounting go beyond simple software features and capabilities and can only be met fully with appropriate systems and processes for your overall organization. Working with an experienced consultant who can help identify, configure and deploy the right tools can make life a lot easier in the long run.
