[Osmf-talk] Operating reserves

[Christopher Beddow]

I am a novice on these topics but following so I can learn more.

If I may add a suggestion for critique: could we consider several tiers or
compartmentalized reserves? This seems it may reduce risk. For example:

1. Core reserves: absolute last to be touched and covers operations for 3
years at an all volunteer level
2. Auxiliary reserves: covers 2 years of "nice to have expenses" which
aren't required in #1, could include paid position such as site reliability
3. Temporary reserves: covers 1 year of expenses for things that are more
experimental, reactive, or otherwise outside the core and close to core
needs. A position like iD maintainer could fall here or in #2 depending on
perspective, but in a sense this reserve gives all programs a 1 year
earning that funding is due to be cut, while auxiliary gives a 2 year
earning, and core would expect that everything is about to collapse at 3
year mark.

If this is too complicated and a simple 2 or 3 year operating reserve which
has a single category of "critical needs" is better, then I don't defend my
position too strongly and defer.

Chris Beddow


On Tue, Dec 15, 2020, 08:50 Craig Allan <allan at iafrica.com> wrote:

> 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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