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Definition: OU => Operating Unit Examples:

TAB FinCom AdHoc Committee on Infrastructure Reorganization or or how can we best cover IEEE’s Indirect Infrastructure Expenses. Definition: OU => Operating Unit Examples: Major OUs: IEEE major boards (e.g. RAB, TAB), Standards Association OUs: Societies and Councils. Presentation Outline.

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Definition: OU => Operating Unit Examples:

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  1. TAB FinCom AdHoc Committee on Infrastructure Reorganizationor or how can we best cover IEEE’s Indirect Infrastructure Expenses Definition: OU => Operating Unit Examples: Major OUs: IEEE major boards (e.g. RAB, TAB), Standards Association OUs: Societies and Councils

  2. Presentation Outline Slide(s) • Who served on the TAB Finance IRC 3 • What is Indirect Infrastructure 4 • A Brief History of Infrastructure 5-12 • The Problem 13-16 • The Opportunity 17 • A New Approach to Funding Indirect Infrastructure 18-23 • How the Infrastructure Account requirement for Revenue was Determined 24-27 • What is the Net Effect on your S/C28

  3. TAB Finance Infrastructure Restructure Committee Member Attendees • Harold Flescher - TAB Treasurer • John Barr - TAB FinCom • Jan Brown - UFFC, Past President • Rich Cox - TAB FinCom, Division Director • Gordon Day - TAB FinCom • Stephen Diamond - TAB FinCom, Division Director • Al Dunlop - CEDA, President • Youngmin Kim - EMBS, President • Ed Rezek - 2007 TAB Treasurer • Peter Staecker – Past TAB Treasurer • Lew Terman – Past-Past-Past-Past TAB Treasurer Consultants and Support Attendees • Bob Bailey - IEEE Finance • Ken Gilbert - TAD Finance • Dave Green - RAB Treasurer • Denise Hurley - TAD Finance • Joe Lillie - IEEE Treasurer • Mary Ward-Callan - TAD ED • Bruce Worthman - ComSoc Finance

  4. Infrastructure Charges These are the internal costs of doing business – there are two types: Direct Infrastructure– these are charges for services rendered. Direct infrastructure expenses are distributed by the metric in parenthesis (The IRC proposal does not change these metric driven expenses) • Controllers (expenses) • Administration (headcount) • Human resources (headcount) • Business admin and Financial Planning (expenses) • Member services (membership) • IT (headcount/expenses/servers) • IEEE investments management (expenses) Indirect Infrastructure – these are costs that can’t be assigned for any specific service rendered (The IRC proposal addresses these expenses) • Corporate Activities and Awards • Facilities, mail services, warehouse…. • Corporate strategy and communication • Executive • Legal fees • IEEE Research • Development of Information Technology • Financial services • Infrastructure OUs - RAB, EAB, IEEE Media (Spectrum, the Institute)

  5. A Brief History of Infrastructure What was the General Fund How do we pay for Indirect Infrastructure Now? Member dues & the 90% rule

  6. Quick review • Infrastructure* (as an annoyance) has been with us since the 2001 financial meltdown. • Direct: expenses which can be aligned with and distributed by an agreed-upon usage-based metric. • Indirect: expenses which cannot be aligned to any metric. • Prior to 2001, an IEEE General Fund was used to cover these expenses. • The IEEE General Fund • Once Received ALL income streams • Once Funded everything • Was the only reserve account in IEEE at one point *This site in the TAB financial Operations Manual has more information. Many Society Officers have access to this site with a valid IEEE web account. http://www.ieee.org/web/volunteers/tab/secure/finops/index.html

  7. When life was simpler, IEEE had a General Fund (GF) Attributes: • ALL income streams went to the GF • ALL OUs including Societies had an annual budget that was funded from the GF • ALL surpluses/losses (including infrastructure) were annually zeroed out to the GF • The GF was the only reserve account in IEEE All expenses, all major initiatives and everyone’s annual expenses were paid for out of the GF

  8. What Happened to the General Fund?The Societies, primarily, tweaked and got the revenue streams! 1971 Society Surplus Concept established - Societies were given their own reserve accounts(these funds were thus LOST FROM THE GENERAL FUND) 1974 Societies given credit for “Short Term” interest onreserves accounts (these funds were thus LOST FROM THE GENERAL FUND) 1974 • BoD gave Societies non-member single sales revenue (these funds were thus LOST FROM THE GENERAL FUND) • Long-Term Investment Pool created by BoD to permit Societies to share in investment gains (these funds were thus LOST FROM THE GENERAL FUND) 1980s • ASPP revenue distributed to Societies (these funds were thus LOST FROM THE GENERAL FUND) • Book Broker revenue distributed to TAB (these funds were thus LOST FROM THE GENERAL FUND) 1996 - Book Broker revenues given to the Societies by TAB

  9. Why did the General Fund disappear? • All revenue streams save investment income from the General Fund Reserve and IEEE dues had been diverted – to become reserves for the OUs • ALLIEEE infrastructure costs, direct and indirect, were still paid from the General Fund • This unstable situation (no revenue income save investment income, and use of the GF to cover IEEE infrastructure) was maintained throughout the 80’s and 90’s due to very favorable market returns from the GF reserve. • With the market crash of 2000 and a large BoD approved 2000 negative IEEE budget, the GF went to zero. • Result? The OUs with the income (and the reserves) had to cover direct and indirectinfrastructure and negative market returnsthen and for the future as there was no GF!

  10. So how did we pay for indirect infrastructure when the GF disappeared?

  11. IEEE Member Dues: the other revenue stream As part of the new (circa 2002) financial model, The BoD defined that a percentage of IEEE Member dues will be allocated to cover the expenses of RAB, EAB, IEEE USA indirect infrastructure, and Spectrum & The Institute. Up to 90% of IEEE member dues was selected by the BoD as that percentage. Member dues were felt to to have growth potential and could be increased to cover future indirect infrastructure needs. As part of the recovery from the fiscal crisis of the early 2000’s, all expenses of all OUs had been cut to the core. Many desirable activities had been set aside.

  12. IEEE Member Dues: the other revenue stream So as part of the new (ca 2002) financial model: Up to 90% of member dues are allocated to cover the expenses of RAB, EAB, IEEE-USA indirect infrastructure, Spectrum & The Institute and to administer member dues (Of note that of the 90%, by IEEE Bylaw I-108.5, 12% of member dues is set aside specifically for geographical entities - regions, sections, chapters, affinity groups & student branches). Operationally, the difference between the budgeted requested percentage of member dues and 100% of member dues reduces the expense of indirect infrastructure to other OUs prior to its distribution. Because of the fiscal crisis of the early 2000’s, all expenses of all OUs had been cut to the core. Many desirable activities had been set aside.

  13. The Problem

  14. 90% Rule - The Future • As of the Sept. budget inputs, the 90% rule has been met, barely, for the 07 budget process. • This means the expenses of RAB, EAB, IEEE Media, IEEE-USA indirect infrastructure and dues admin. currently essentially equals 90% of dues. • For the 2008 budget cycle and beyond, the “90% rule” cannot be achieved with only inflationary dues growth as this grows revenue more slowly than even essential expenses

  15. Why will the 90% be exceeded? • IEEE Dues annually increase by only the CPI (inflation rate). It is believed that larger increases in dues will lose many more members • Our expenses actually increase by more than the CPI (salaries, energy costs, taxes, travel/meeting expenses, etc.) • The early 2000 “crisis” causes all OUs to cut many delayable activities. Some of those and some new “desirable” activities (desirable to other OUs and the IEEE BoD) are being slowly added; e.g.Corporate Partnership Program, • New “required” activities have had to be added: e.g. audit compliance, BMS, IT/Web

  16. The 90% Rule - The Future (2) For 08 budget and on one of four things MUST happen: • We must have large IEEE dues increase. • Unlikely to happen - most believe that we would lose a lot more members, and membership loss is already an important issue, • We must have large spending cuts within the OUs covered by the “90%” rule. • Unlikely to happen - as the BoD sees their activities as critical to the success of IEEE as a whole) • Requests beyond the 90% rule limit will simply be approved by the BoD And additional infrastructure expenses will be passed on to TAB & SA If 90% is exceeded without a spending structure to replace the 90% rule, all funding will be AdHoc and willprobably (undoubtedly in my mind) result in an increased rate of spending (ergo higher indirect infrastructure expenses) up to the ultimate limit defined by the BoD - which is simply to not run a negative budget. 4. A new structure for funding indirect infrastructure must be developed and approved

  17. The Opportunity • TAB should develop and propose to IEEE FinCom a solution that satisfies three constraints: • Remove TAB (& SA) dealing with infrastructure • Put TAB revenues and expenses under the control of TAB • Find a way to fund the rest of IEEE • AND do this as a win-win solution for all

  18. A New Approach to Funding Indirect Infrastructure Expenses for IEEE

  19. Principles of the New Approach (from the TAB IR Committee) • Create an Infrastructure Account (IA) that will annually cover all expenses of Indirect Infrastructure • Create an Infrastructure Reserve (IR) to pay for major IEEE developmental items like BMS. (Not annual operational expenses). • Change IOC to create a review committee that will implement in-depth review processes, to include baseline or zero-based budgets, for the corporate activities currently reviewed. • OUs currently funded under dues structure will set-up a process for prioritizing desirable activities to fit within the available funding prior to submission to IEEE FinCom.

  20. Specifics of New Approach • Infrastructure Account (IA) • Will cover all indirect infrastructure expenses • Will be (eventually) funded by 20% of package product income. The required funding for 2008 is projected at 17.5% of package product income. • IEEE will modify their business practices to live within the constraints of 20% of package product income for 2010 and beyond. • Infrastructure Reserve (IR) • Initially funded at $10M thru loans- $2M each from TAB and RAB reserves and $6M by equal percentage from all reserve-bearing entities. • The IR be permitted to grow to $20M, after which further growth will go to pay back the initial $10M loans. • After loan pay-back, the IR will grow without limit.

  21. Specifics of New Approach -Controlling the Growth of Indirect Infrastructure Expenses 3.IEEE Infrastructure Oversight Committee (IOC) to be restructured with 6 members with staggered 3 year terms; chair to be past IEEE Treasurer. Membership preference to be given to people who have fiscal/business acumen. Shall review all indirect infrastructure activities, baseline activities as well as new initiatives. 4.VolunteerOUs/activities under the 90% rule will develop a process for collective review of activities and prioritization of collective activities within the available funding.

  22. Infrastructure Reserve Details • Initial Startup Loans ($10M) of Infra Reserve (IR): • $2M each from RAB and TAB Reserves, • $6M from reserves of all those with reserves in proportion to their share of the total reserves. • No Cap on IR after pay-back of initial loan beginning after growth to $20M. • The IR is not to be used to fund regular operational activities

  23. Infrastructure Reserve More Details • Once the initial fund IR is created, it will grow or shrink from: • Investment returns – The IR will receive investment returns (positive or negative) in proportion to the IR share of the overall IEEE reserves. • Infrastructure Account (IA) variances – In the new model, a budgeted percentage of gross package product revenue (17.5% in 2008 growing to 20% in 2010 and beyond) will be used to cover the annual expenses of indirect infrastructure through creation of a new Infrastructure Account (IA). Although the plan is to match the indirect infrastructure requirements to the amount of package product revenue identified, it may not be possible to do this exactly due to the numerous budget iterations. Any variance created by this budget activity, positive or negative, will be absorbed by the IR. • Operational variances • Net operational variances from infrastructure and other activities will increase or decrease the IR rather than being returned to organizations with reserves (as has been past practice) • Any Package Products revenue amount over or under budget will be distributed to organizational units as in the past; however the IR will receive 20% of this variance (2010 and beyond). • Special Projects – The IR may be reduced to fund special IEEE projects as approved by the IEEE Board of Directors (e.g. BMS or XPLORE). • Payback of loans – If the IR exceeds $20M at the end of any fiscal year, the amount over $20M will be used for repayment to the Organization Units that provided the initial loans. The value of the IR may not exceed $20M until the entire $10M loan has been repaid. Once the entire original $10M is repaid, the IRF will be allowed to grow without limit.

  24. Some Benefits of the New Approach: • Society budgeting will be more predictable (no Indirect Infrastructure impact). • Corporate discipline will result: Infrastructure OUs and staff activities will have a known, defined and growing revenue stream to use but must live within those revenue boundaries. • Peak funding requirements for operations can be met from the new reserve fund. • IOC - New and Stronger continuity over years. Focus on appointing members with fiscal expertise. • Other OU’s funded by dues will design their own review team to prioritize the importance of new activities within the funds that are available

  25. How the Infrastructure Account revenue requirement was determined Start date: 2008

  26. Assumptions – Indirect Infrastructure • Starting point: Total projected IEEE Indirect Infrastructure in 2008 = $19.4M • Indirect Infrastructure is projected to increase 9% per year based on historical values and future IEEE needs.

  27. Gross Package Product Revenue • Package Product Revenue considered for this model includes: • IEEE Electronic Library • All Society Periodical Package • Conference Proceedings • IEEE Enterprise • Member Digital Library • Mid-sized Corporate (future) • Starting Point ~$112M in Year 1, with Package Product Revenue growth based on estimates from IEEE marketing, with growth estimates ~6-8%. • Model uses from 17.5-20% of this Gross Revenue to cover all the Indirect Infrastructure needs

  28. Impact of New Model-The net bottom line impact you should expect to see Estimate for 2008 (first year of implementation)

  29. Questions?- Contact a member of the Committee Members • Harold Flescher - TAB Treasurer - Email: h.flescher@ieee.org • John Barr - TAB FinCom – E-mail: j.barr@ieee.org • Jan Brown - UFFC, Past President – E-mail: jan.brown@ieee.org • Rich Cox - TAB FinCom, Division Director – E-mail: r.v.cox@ieee.org • Gordon Day - TAB FinCom – E-mail: g.day@ieee.org • Stephen Diamond - TAB FinCom,Division Director – E-mail: s.diamond@computer.org • Al Dunlop - CEDA, President – E-mail: aldunlop@adelphia.net • Youngmin Kim - EMBS, President – E-mail: ykim@u.washington.edu • Ed Rezek - 2007 TAB Treasurer – E-mail: e.rezek@ieee.org • Peter Staecker – Past TAB Treasurer – E-mail: p.staecker@ieee.org • Lew Terman – Past-Past-Past-Past TAB Treasurer – E-mail: l.terman@ieee.org

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