Proposal to Increase Membership Dues Mike Fischetti Executive Director Sam Smith

1. Proposal to Increase Membership Dues Mike Fischetti Executive Director Sam Smith Chief Financial Officer November 17, 2013

2. Agenda • Proposal • Current NCMA Financial Situation • Options Considered to Address Financial Situation • Third Party (MGI and ASAE) Dues Surveys • Membership Benefits • Dues Comparison • Proposed Increase and Financial Impact • Resolution Before the Board

3. This Proposal Will Recommend The Following Actions: • Raise the member dues as follows: • Individual From $125 to $150 • Group From $105 to $115 (Average Rates) • New Professional From $75 to $85 • Retired From $55 to $65 • Student From $25 to $35 • Pro Vita/Lifetime From $1,000 to $1,250 • Effective date of increase to be March 1, 2014 • The establishment of a communication and execution campaign to explain the rationale to members

4. Current Financial Situation • Projected Operating Loss for FY 14 likely to be at least $40K • External budget environment unlikely to improve in FY 15 • Conference “scandal” fallout, reduced procurement budgets, reduced contract staffing, reduced training funds • No environmental changes foreseeable • Meetings revenue stream (2nd largest for NCMA) consists of small number of high dollar events – vulnerable to material loss • Absent further reduction in costs or increase in revenues an operating loss is very probable in FY 15 • Operating cash balance as of 11/13/13 - $1.6m • Reserve balances as of 10/31/13 – Restricted $2.9m – Unrestricted $208K • Association reserves benchmark - 50% of Operating Expenses = $3m • Line of Credit facility - $250K – not currently used

5. Current Financial Situation – Revenue Streams • Membership – (33% of FY 13 Revenue) Flat • Education – (13%) On-line learning revenues continue to grow and are main focus; NES, Books – no material growth expected • Advertising – (19%) Remains soft and unlikely to grow in the short term – sensitive to economic environment • Certification – (4%) Growing but least material of revenue streams • Meetings (31%) – Most affected by economic environment and Government curtailment on travel – WC FY 14 attendance down 32% from FY 13. Meetings expected to be flat at best in FY 15 – unless change in Government policy

6. Options Considered • 1: Draw Down on Reserves - Reserves intended to be used when no other alternative available as in FY 03 and FY 04 when Operating Cash was zero and there was no line of credit. Drawdowns were FY 03 $425K, FY 04 $100K. - In FY 08 financial crisis no draw down was made. Cash managed using cost reduction and line of credit - Unlikely that current economic environment will improve in the short term. - Probable that when improvement occurs business activity will not return to pre downturn levels - Thus absent any significant improvement in revenue further draw downs would be necessary - Current Operating Cash balance = $1.6 million, L of C $250K unused Recommendation: Not recommended. Seek additional revenues .

7. Options Considered • 2: Fund projected operating losses in FY 14 and probably FY 15 out of Operating Cash balances (Currently $1.6m) and Line of Credit ($250K) - Short Term proposition only - Risks: - Bank will hesitate about renewing Line of Credit unless they see a plan to return to an operating surplus - Mortgage covenants may not be met - Third parties (e.g. Marriott Hotels) may be less likely to extend 30 day net credit and demand substantial upfront payments for conference costs - May generate footnote comment in audited financials Recommendation: Not recommended

8. Options Considered • 3: Staggered Approach – Small Dues Increases Every Year -Unlikely to restore profitability in FY 14 -Annual increase may result in negative member feedback -Increased administrative cost Recommendation: Not recommended • 4: Full Dues Increase, but Permit Member Payment by Installment - Significantly increased administrative cost - Additional burden on members – e.g. –four payments per year vs. one Recommendation: Not recommended

9. Options Considered • 5: Install Automatic “Triggers” which would Generate a Dues Increase - Could be based on inflation, time elapsed since last increase, industry benchmarks. - May or may not bear any relationship to NCMA’s actual business needs - May appear arbitrary to members – for example if the trigger increases dues every two years it may or may not be necessary from a business perspective. Recommendation: Not recommended

10. Options Considered • 6: Further Cost Cuts • All costs have been reviewed over the past year and significant cuts made (FY 14 EAC - Total Expenses down $560K from FY13 Actual) • Four staff have been laid off in the last 14 months - Further cuts risks visible reduction in services to members OR employee benefits, risking employee morale and retention For example – a major monthly cost ($22K) is the production and distribution of the CM Magazine. The number of editions could be reduced to nine per year. The downside is that all member surveys indicate CM Magazine is seen as principal member benefit Annual health care costs total approximately $225K. Will be reviewed in March prior to anniversary date and when effect of Affordable Care Act has become clearer

11. Options Considered 6: Further Cost Cuts (cont.) - Comparative ratios indicate NCMA costs already compare favorably with other associations. NCMA ratios in the most recent EAC (September 2013) are set out below - Salaries and Benefits as a Percentage of Revenues NCMA 38.6 % - ASAE Average – 42.2%, Median 41.4% - Number of Employees (FTE’s) NCMA – 24.95 – ASAE Average - 37.0, Median – 36.0 - Revenue per Employee NCMA - $239,014 – ASAE Average $229,975, Median $192,547 Recommendation: Not recommended. However the ED will continue to develop business efficiencies (Source: ASAE Operating Ratio Report 14th Edition – Based on 2011/2012 Data)

12. Options Considered 7: Dues Increase Recommended – see following slides

13. Association Survey Results • Source: 2013 Marketing General Inc. (MGI) Membership Marketing Benchmarking Report • Data based on 695 Association responses • MGI is a consulting firm, founded 35 years ago, based in Alexandria, VA and a market leader in advising associations on membership strategy and growth

14. How Often Does Your Association Raise Membership Dues ? As Needed 63% Annually 22% Every Other Year 6% Never 9% Source: MGI

15. When Was The Last Time Your Association Raised Membership Dues ? 2013 (Raised or Planned) 24% 2012 21% 2011 11% 2010 9% 2009 8% 2008 5% 2007 3% Prior to 2007 19% 56% of Associations have raised their dues since 2010 – the last time NCMA dues were increased. Source: MGI

16. How Much Are Your Basic Membership Dues ? Under $50 7% $50 - $99 17% $100 - $149 10% $150 - $199 12% $200 - $299 13% $300 - $399 10% $400 - $499 3% Above $500 10% Varies By Group Size 18% Over 66% of Associations in the survey had dues higher than NCMA Source: MGI

18. Dues Comparison with These Associations • Project Management Institute (PMI) • Institute for Supply Management (ISM) • National Institute of Governmental Purchasing (NIGP) • Society of Cost Estimating and Analysis (SCEA) • Association of Proposal Management Professionals (APMP) • American Institute of CPAs (AICPA) • American Bar Association (ABA) • FL Association of Public Procurement Officials (FAPPO) • National Procurement Institute (NPI) • Association for Operations Management (APICS)

19. Benefits Comparison • The comparable associations share the following benefits with NCMA • Magazine • Journal • Newsletters/Articles • Networking Opportunities • BOK • Certification • Conference/Training Events • e-Learning: webinars, e-courses • Volunteer/Leadership Opportunities

20. Dues Comparison

21. Proposed Increases In Dues Rates

22. History NCMA Rate Increase History

23. Annual Financial Impact of Proposed Increase

24. Proposed Timing of Dues Increase • Effective Date – March 1, 2014 • Accelerated renewal program from January 1 to February 28, 2014 to allow members to renew at existing rates prior to March 1, 2014

25. Current Value of Member Benefits CM Magazine $158 Free to members Journal $ 15 Free to members Preferred Pricing Conferences $100 per conference Certification Applications $125-$150 per app NES $50-$75 per NES Books $10-$15 per book Virtual Conference $20 per VC

26. Member Value Enhancements • 2 free professional development webinars (Value = 2 x $189 = $378 • 1 Webinar on Demand – (Available only to members) • Adding new “chat now” feature to auto connect members to member services • New member gift at 6 month anniversary • Outreach to group memberships • Gift for Point of Contact with reminder of renewal date • NCMA leadership outreach

27. Member Response to Dues Increase • The past three increases in dues have resulted in no discernible decrease in membership numbers. • NCMA dues remain low in comparison to other associations • Business environment is not good – but more reason to maintain connection with profession through NCMA membership • Conclusion - Reasonable basis to assume no significant loss of members

28. NCMA’s Mission & Values • Excellence in everything we do, especially our service to our members and CM community • Continuing education and training • Remaining the preeminent source of professional development for contract professionals • NCMA cannot continue to uphold these values with additional cost cuts • Source: http://www.ncmahq.org/About/content.cfm?ItemNumber=9018&navItemNumber=519

29. Recommendation • NCMA Board of Directors approve the following: • Membership dues to increase as follows: • Individual From $125 to $150 • Group (Avg. Rate) From $105 to $115 • New Professional From $75 to $85 • Retired From $65 to $75 • Student From $25 to $35 • Lifetime From $1,000 to $1,250 • Effective Date of Increase to be March 1. 2014 • A Communication and Execution Campaign to Explain the Rationale to Members Beginning in December 2013