[Osmf-talk] Operating reserves

[Craig Allan]

First, congratulations to Jean-Marc Liotier on your election!

Regarding reserves, people are making good, thoughtful comments. I 
needed a framework to help me think about it, so I wrote this.

THE FRAMEWORK
Policy can be seen as a set of rules to implement our organisational 
strategy. Strategy is informed by our mission (Section 3 of the AoA) and 
the long term vision of the organisation (missing). So in any 
organisation there will be likely be a hierarchy of plans, each more 
detailed than its parent, ending eventually in a large list of 
short-term tasks.

There is currently a draft strategy prepared by Allan Mustard 
circulating privately among board members. I expect that the document 
will be made available for the rest of us at some stage, and will be 
adopted by the Board after members comment. In the strategy document 
there will surely be a statement about our financial strategy.

To reliably implement our financial strategy we could put in place many 
rules (policies), to keep the Board on-track and accountable. If we 
choose that path I would like to see that all the policies related to 
financial prudence (not just operating reserve) are linked to and guided 
by the strategy document. So the ordinary member can say to the Board - 
"We have this financial strategy and these rules. Why are you not 
complying with them?"  Which addresses Jean-Marc Liotier's concerns and 
"all contractual and moral financial obligations of the OSMF" as 
suggested by Christoph Hormann.   Noted however that Joost Schouppe 
trusts the Board, as do I, and he is less enthusiastic about rule making 
to keep them in line.

By posting this context I'm not proposing we stop discussing the reserve 
policy and wait for the strategy process to complete. It is useful to 
air the issue and I would support an interim short rule proposing 
maintaining an operating reserve to be put to the Board in January.

HOW MUCH BUFFER
For determining the quantum, the best reserve amount, that is a 
different topic. Should we be "increasing the reserves by quite a bit" 
as Simon Poole suggests.

For that we can refer to the document "Grantmakers in the Arts' 
Operating Reserve ... 
<https://www.giarts.org/sites/default/files/Operating-Reserve-Policy-Toolkit_1stEd_2010-09-16.pdf>" 
that was suggested by Jean-Marc Liotier. The authors very sensibly 
propose a risk based analysis to determining the proper operating 
reserve to hold.

Risk determination normally is done by considering how likely is a 
feared event and how serious will the impact of the event be. You then 
set up ways to reduce the likelihood of the event, to reduce the impact 
of the event and actions to recover from the event. For example; if we 
have a super-reliable income stream our risk is low so we can keep a 
lower reserve, but if we depend on the unpredictable mood swings of a 
few large donors our risk is high and we need a big operating reserve.

If we follow a risk based approach then holding an operating reserve can 
be seen to be an action taken before a feared event to mitigate (lessen) 
the impact of our income stream crashing. It is here that you take into 
account the risk of terminating contractors and the risk of Brexit 
issues that CH raises.   The risk evaluation will point to an 
appropriate quantum of reserve to hold.   Allan Mustard's suggestions 
for ending consultancies and cutting costs to "circa $120K" are 
post-event mitigations that we can take to adapt our organisation to 
continue after an income stream crisis.

Note that any policy, on any topic, not just finances, can be linked to 
a risk analysis, which is a useful management tool.

I hope that helps.

Craig Allan
OSM:cRaIgalLAn

==============================
On 2020/12/14 23:47, Jean-Marc Liotier wrote:
>
> As a new member of the Board, I wish to start term my with a 
> fundamental topic - the Openstreetmap Foundation's operating reserves.
>

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