Nicole Olynk Widmar a, Emily Lord a & Annette Litster b a Department of Agricultural Economics, Purdue University

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1 This article was downloaded by: [Dr Kenneth Shapiro] On: 09 June 2015, At: 12:15 Publisher: Routledge Informa Ltd Registered in England and Wales Registered Number: Registered office: Mortimer House, Mortimer Street, London W1T 3JH, UK Journal of Applied Animal Welfare Science Publication details, including instructions for authors and subscription information: Sensitivity Analysis to Aid Shelter Management Decisions: How Does Altering Expenditure Affect Operational Viability? Nicole Olynk Widmar a, Emily Lord a & Annette Litster b a Department of Agricultural Economics, Purdue University Click for updates b Department of Veterinary Clinical Sciences, College of Veterinary Medicine, Purdue University Published online: 16 Mar To cite this article: Nicole Olynk Widmar, Emily Lord & Annette Litster (2015) Sensitivity Analysis to Aid Shelter Management Decisions: How Does Altering Expenditure Affect Operational Viability?, Journal of Applied Animal Welfare Science, 18:3, , DOI: / To link to this article: PLEASE SCROLL DOWN FOR ARTICLE Taylor & Francis makes every effort to ensure the accuracy of all the information (the Content ) contained in the publications on our platform. However, Taylor & Francis, our agents, and our licensors make no representations or warranties whatsoever as to the accuracy, completeness, or suitability for any purpose of the Content. Any opinions and views expressed in this publication are the opinions and views of the authors, and are not the views of or endorsed by Taylor & Francis. The accuracy of the Content should not be relied upon and should be independently verified with primary sources of information. Taylor and Francis shall not be liable for any losses, actions, claims, proceedings, demands, costs, expenses, damages, and other liabilities whatsoever or howsoever caused arising directly or indirectly in connection with, in relation to or arising out of the use of the Content. This article may be used for research, teaching, and private study purposes. Any substantial or systematic reproduction, redistribution, reselling, loan, sub-licensing, systematic supply, or distribution in any form to anyone is expressly forbidden. Terms &

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3 JOURNAL OF APPLIED ANIMAL WELFARE SCIENCE, 18: , 2015 Copyright q Taylor & Francis Group, LLC ISSN: print/ online DOI: / ARTICLES Sensitivity Analysis to Aid Shelter Management Decisions: How Does Altering Expenditure Affect Operational Viability? Nicole Olynk Widmar, 1 Emily Lord, 1 and Annette Litster 2 1 Department of Agricultural Economics, Purdue University 2 Department of Veterinary Clinical Sciences, College of Veterinary Medicine, Purdue University Streamlining purchasing in nonhuman animal shelters can provide multiple financial benefits. Streamlining shelter inputs and thus reducing shelter costs can include trading paid labor and management for fewer, more involved volunteers or purchasing large quantities of medical supplies from fewer vendors to take advantage of bulk-purchasing discounts. Beyond direct savings, time and energy spent on purchasing and inventory control can be reduced through careful management. Although cost-cutting measures may seem attractive, shelter managers are cautioned to consider the potential unintended consequences of short-term cost reduction measures that could limit revenues or increase costs in the future. This analysis illustrates an example of the impact of cost reductions in specific expense categories and the impact on shelter net revenue, as well as the share of expenses across categories. An in-depth discussion of labor and purchasing cost-reducing strategies in the real world of animal shelter management is provided. Keywords: animal shelter economics, animal shelter, shelter decision making Shelters must remain financially viable entities to continue to work toward fulfilling their stated missions and objectives. Business management and decision-making skills, along with an understanding of shelter-specific consequences, specifically financial consequences, of various management decisions could help provide shelter managers with the support they need to continue into the future. The successful management of a nonhuman animal shelter depends on several Correspondence should be sent to Annette Litster, Department of Veterinary Clinical Sciences, College of Veterinary Medicine, Purdue University, 625 Harrison St., West Lafayette, IN catvet@purdue.edu 209

4 210 WIDMAR, LORD, LITSTER factors, both biological and economic in nature. Recent analyses have been used to describe fundamental principles of economic assessments for animal health performance in modern animal production environments (Galligan, 2006). While the stated missions of most animal shelters focus on saving animals lives or the rehoming of companion animals in a given geographic region, each organization must remain economically viable if it is to continue toward its stated goals. There are a number of different ways to organize an animal shelter or rescue organization; various pros and cons exist for each organizational structure. Many animal shelters are established as nonprofit entities. In the United States, nonprofits are set up to serve the public good, and this structure makes these organizations unique (Stein, 2011). The definition of a nonprofit organization is that of an agency in the United States that has a 501(c)(3) tax status (Herman & Renz, 2008). According to Chapter 3 of the Tax-Exempt Status for Your Organization document by the Internal Revenue Service Department of the Treasury (2011), An organization may qualify for exemption from federal income tax if it is organized and operated exclusively for one or more of the following purposes: religious, charitable, scientific, testing for public safety, literary, educational, fostering national or international amateur sports competition (but only if none of its activities involve providing athletic facilities or equipment; however, see Amateur Athletic Organization, later in this chapter), or the prevention of cruelty to children or animals (p. 23). The use of volunteer labor and the oftentimes uncertain revenue streams are, perhaps, not unique to the nonprofit sector, but they are common management challenges for nonprofit organizations. According to a search for animal-related nonprofit organizations conducted on the National Center for Charitable Statistics website, there are 22,889 total animal-related registered nonprofit organizations in the United States; 18,488 are registered as nonprofit public charities (animal-related), 3,568 are registered as other nonprofit charities (animal-related), and 833 are registered as nonprofit private foundations (Internal Revenue Service, The Urban Institute, National Center for Charitable Statistics, 2012). The remainder of this analysis will focus on the management and operational functioning of a shelter or rescue without drawing distinctions regarding taxation issues or legal business structures. In other words, the focus of this analysis is entirely on informing and improving management decision making; specifically, the potential for streamlining inputs to reduce shelter costs associated with achieving stated missions is investigated. While it is acknowledged that organizational or legal structure may influence the financial implications of various decisions, the consequences, both positive and negative, of various management techniques and decisions are discussed without regard to legal business status impacts. The goal of this analysis was to assess the consequences, both positive and negative, of altering shelter input spending, specifically focusing on labor and food, supplies, and medical expenses and using a computer-based budgeting tool. By demonstrating impacts on shelter financial performance associated with input procurement and management, this analysis illustrates the potential for improved decision making by shelter managers through careful input and supply management. It was hypothesized that labor efficiency and shelter-specific characteristics would be important determinants of the optimal strategies to obtain labor, companion animal food, and other supplies. Therefore, shelter managers must be aware of the impacts of various management decisions and have a framework in place to analyze the financial consequences and tradeoffs associated with their decisions.

5 SHELTER MANAGEMENT DECISIONS 211 MATERIALS AND METHODS Excel-based budgets were developed to analyze the costs and benefits of various strategies to obtain labor, food, and other supplies for an animal shelter in order to inform shelter manager decision making. Costs of key shelter inputs, such as food, medical supplies, medications, and labor were expected to greatly affect shelter financials and the viability of the shelter operation. Due to the nature of animal sheltering (and animal care in general), it was expected that many of the cost and revenue streams would be situation- and shelter-specific. For example, it was expected that shelters would vary considerably in their cost structures due to variations in such factors as disease prevalence; air quality; sanitation procedures; the past experience of staff and volunteers; veterinarian familiarity with animal sheltering; and size, scale, and geographic location, to name only some. Even though the starting points of various shelter costs (i.e., food, medicine, veterinarian time, sanitation equipment, and supplies) were expected to vary, the analysis presented here was designed to help managers and employees of animal shelters and animal rescue organizations better frame input (i.e., companion animal food, labor, and supplies) procurement decisions associated with their shelter operations. While the numbers employed in the examples in this analysis are not intended to represent any given shelter, the decision process and structure behind the economic decisions are presented to aid managers in more effectively framing and collecting data, conducting assessments, and making decisions relevant and advantageous to their own operations. Shelter revenues are generally derived from a number of sources, likely differing across different shelters. Total annual shelter revenue (TSR) throughout the analysis was defined as: TSR ¼ AR þ SR þ DR þ FBR þ IR þ FR where AR is revenues from adoption fees, SR is revenue from retail sales, DR is revenue from donations, FBR is revenue from facility rental fees or boarding fees, IR is interest revenue, and FR is revenue generated through fundraising efforts on an annual basis. The TSR, as defined in this analysis, was developed to include common sources of income for animal shelters. Other potential sources of revenue not explicitly included in this example, such as grants or the provision of services such as training or obedience classes, are also possible and may be applicable depending on a specific shelter s situation. The total AR was estimated by first calculating the adoption revenue from puppies, kittens, dogs, and cats individually. Therefore, AR was calculated as: AR ¼ðPUP FEE PUP ÞþðDOG FEE DOG ÞþðKIT FEE KIT ÞþðCAT FEE CAT Þ where PUP is the number of puppies adopted out annually, FEE PUP is the adoption fee per puppy, DOG is the number of dogs adopted out annually, FEE DOG is the adoption fee per dog, KIT is the number of kittens adopted out annually, FEE KIT is the adoption fee per kitten, CAT is the number of cats adopted out annually, and FEE CAT is the adoption fee per cat. TSR was estimated on an annual basis and then converted to a monthly basis as follows: TSR 12 ¼ MTSR where MTSR is the total monthly shelter revenue.

6 212 WIDMAR, LORD, LITSTER Shelter costs were expected to be highly variable and shelter-specific. Total annual shelter cost (TSC) throughout the analysis was defined as: TSC ¼ FSM þ VET þ UT þ DEP þ MAN þ PRO þ TAX þ FUND where FSM is the cost of food, supplies, and medicines; VET is the annual veterinary fees incurred; UT is the total utility expense; DEP is the depreciation expense; MAN is the management expense; PRO is the cost of professional fees for the year; TAX is tax expenses for the year; and FUND is fund-raising costs on an annual basis. The TSC, as defined in this analysis, was developed to include common shelter expenses. It is possible that individual shelters may have additional expenses, depending on the activities that the shelter undertakes. TSC was estimated on an annual basis and then converted to a monthly basis as follows TSC 12 ¼ MTSC where MTSC is the total monthly shelter cost. On a monthly basis, the net revenue for the shelter (MNSR) was calculated as MNSR ¼ MTSR 2 MTSC Baseline Scenario Development Using a baseline scenario with adoption and operational assumptions, revenues, and expenses, net income values were estimated to enable a starting point, or status quo, for comparison to alternative input use strategies throughout this analysis. The baseline scenario was not developed to represent any specific shelter s financial situation, but rather to provide a starting or comparison point for analysis and discussion. Ranges of various inputs, costs, and revenues posted on a large independent charity evaluation website (Charity Navigator, were reviewed prior to developing the baseline scenario; figures used in the analysis itself were selected as reasonable estimates, rather than taken from any directly provided information. As not all shelters have publicly available information and to not directly use figures from any shelter that does provide such information, the baseline scenario figures are a construct of the authors intention to provide a point of comparison throughout the analysis. Annual figures chosen for the baseline case were divided by 12 to generate average monthly data. To develop a working baseline scenario, MTSR and MTSC were estimated and used to determine the MNSR. A number of different factors were expected to impact the MNSR, including factors impacting both revenues and costs. The AR is generally expected to be a major contributing area of revenue for a shelter. The percent of AR coming from dogs, puppies, kittens, and cats was calculated to illustrate the percentage of total AR that was contributed by each of the four animal types, using adoption fees shown in Table 1. Total categorical costs for the revenue generation categories previously listed were assumed at those levels shown in Table 2. In addition to revenue generation assumptions, expenditures by category outlined in the MTSC equation were necessary to develop the baseline scenario. The shelter costs by category used in the baseline scenario were assumed to be at those levels shown in Table 3.

7 SHELTER MANAGEMENT DECISIONS 213 TABLE 1 Baseline Assumptions for Adoption Revenue Adoption Revenues Number Adopted Adoption Fee Total Revenue Dog 1,682 $ $210, Puppy 720 $ $126, Cat 2,030 $50.00 $101, Kitten 870 $95.00 $82, Total yearly revenue $520, Total monthly adoption revenue $43, Total monthly volunteer hours 8,000 TABLE 2 Baseline Revenue Generation Assumptions by Category Revenue Category Total Revenue Total monthly adoption revenue $43, Monthly retail revenue $3, Monthly donation revenue $130, Monthly boarding or facility rental revenue $5, Monthly interest revenue $2, Monthly fundraising revenue $40, Total monthly revenue $224, TABLE 3 Baseline Cost Assumptions by Category Adoption Expenses Monthly food/supplies/medicine $40, Monthly veterinary fees $9, Utility expenses $34, Administration Expenses Monthly depreciation $11, Monthly management $90, Monthly professional fees $1, Monthly taxes $1, Fund-raising expenses $20, Total monthly expenses $206, Sensitivity Analyses To make sound decisions that contribute to the financial well-being of the shelter and that enable the organization to continue to work toward its stated goals and objectives, managers must consider the costs and benefits of various management strategies. Sensitivity analysis is an important part of modeling in economics, management, and other quantitative assessments; it is

8 214 WIDMAR, LORD, LITSTER the assessment of the impacts on income and cost projections of changing key budgeting assumptions (Kay & Edwards, 1999). In this case, sensitivity of the MNSR to assumptions surrounding input parameters, such as various cost and revenue streams, was assessed. Sensitivity analysis can be used to explore any of the assumptions surrounding input parameters for revenues or costs associated with the shelter. Key input parameters investigated in this analysis were labor and management costs and streamlining food and medical purchases. The relationships between expense categories in animal shelters or exact impacts of changing expenses and revenue sources are largely unknown due to the lack of reliable financial and management data in this industry. Thus, labor expenses and monthly food/supplies/medical expenses were varied while holding all other parameters constant. Ideally, the expected impacts for animal shelters of varying expenses and revenues would be better understood, thereby allowing for more complete assessments of the impacts of altering expense categories. However, given the limitations due to the lack of available data, expense categories were varied while assuming no direct impact on other expense or revenue streams an illustration of what may be the expected impact of switching vendors to obtain lower prices on directly substitutable goods via a quantity or loyalty discount, for example. Shelter-specific factors were expected to impact expenses greatly. The potential for large variation across shelters and the lack of reliable historical available data regarding shelter expenses (by category) may lead managers to consider a wide range of potential outcomes to inform their decision making. In particular, monthly management expenses, which may be impacted by the exchange of paid labor for volunteer labor, as well as the number of paid staff and associated salaries and expenses may be highly variable. Thus, monthly management expenses were varied in both directions by 50% from the baseline assumption of $90,000 to assess the range of a low of $45,000 to a high of $135,000. Monthly expenses on food/supplies/medical needs varied independently from $30,000 to $50,000 from the original baseline assumption of $40,000; a smaller range of food/supplies/ medical expenses was investigated due to the smaller total starting expense, and it likely increased certainty surrounding these expenses for a shelter manager. While varying costs in individual categories is useful in determining sensitivity to key shelter costs, it can be useful to assess costs in more than one cost (or income) category at once. For example, monthly management expenses and monthly food/supplies/medical expenses were varied simultaneously to determine possible impacts on monthly net revenues if monthly management costs decreased but food/supplies/medical expenses increased. Perhaps more troubling is the scenario in which both expense categories increase simultaneously. Various scenarios were explored in a simplified framework to provide insight and examples for managers who wish to follow similar steps to perform sensitivity analyses for their own operations. RESULTS Baseline Scenario The MNSR under the baseline scenario assumptions was calculated. In the baseline scenario, the MTSR was estimated at $224, and the MTSC was estimated at $206,550.00, making the estimated MNSR $18, In the baseline scenario, AR served as an important revenue

9 SHELTER MANAGEMENT DECISIONS 215 Interest Revenue 1% Fundraising Revenue 18% Adoption Revenue 19% Boarding Revenue 2% Donation Revenue 58% Retail Revenue 2% FIGURE 1 Percent of total revenue contributed by various sources in the baseline scenario. source for the shelter. The share of AR contributed by dogs, puppies, kittens, and cats was calculated to clearly illustrate the percentage of total AR that was contributed by each of the four animal types; in total, 16%, 20%, 24%, and 40% of adoption revenue came from kittens, cats, puppies, and dogs, respectively. Illustrations of the breakdown of contributions to total revenues are shown in Figure 1, while the breakdown of total costs is shown in Figure 2. Sensitivity Analysis Sensitivity analysis was performed to determine the impacts of changes in various cost categories on total shelter financial performance. Monthly food/supplies/medical expenses were adjusted from the baseline value of $40,000 downward to $30,000 and upward to $50,000 to simulate uncertainty surrounding the estimated value. The 25% decrease in monthly food/ supplies/medical expenses is illustrative of potential savings that could be incurred by obtaining quantity or bulk-purchasing discounts, switching vendors to obtain comparable products for less cost per unit, or altering specific product purchases to increase efficiency and thereby reduce total supply needs. In this example, reducing monthly food/supplies/medical expenses to $30,000 resulted in an MNSR of $28,316, while increasing monthly food/supplies/medical expenses to $50,000 resulted in an MNSR of $8,316. Monthly management expenses were increased to $135,000 and decreased to $45,000 (all other factors held constant) to illustrate the impact of changes in management costs on the overall shelter financial performance. The range of MNSR values calculated was from $63,316

10 216 WIDMAR, LORD, LITSTER Monthly Taxes 1% Monthly Professional Fees 0% Fundraising Expenses 11% Monthly Food/Supplies /Medicine 27% Monthly Management 32% Monthly Depreciation 6% Utility Expenses 18% FIGURE 2 Percent of total costs by category in the baseline scenario. Monthly Veterinary Fees 5% when management expenses were $45,000 to 2 $26,684 when management expenses were assumed at $135,000. Altered management expenses could be experienced due to the exchange of paid labor for unpaid or volunteer labor or a reduction (or increase) in the cost of staff monetary compensation packages. Perhaps of interest to managers when assessing the sensitivity of their shelters to changing costs is the break-even value. In this case, we solved for the break-even monthly management cost at $108,316. In other words, if the monthly management expenses exceed $108,316 and no other costs are reduced or no income-generating activities are increased, the shelter will have a negative MNSR. Figure 3 shows the MNSR resulting from a variety of combinations of monthly management expenses and monthly food/supplies/medical expenses. Varying expenses may have impacts on financial management but may also have impacts on the welfare of animals in the shelter, as well as the ability of the shelter to improve the well-being of animals in their community. The number of resulting scenarios from varying just two cost categories is extremely large; only a small segment of the possible combinations is shown in this analysis. Figure 3 illustrates that when the baseline scenario is changed to include $100,000 in management expenses and $44,000 in food/ supplies/medicine expenses, the MNSR is $4,316 and management is 45% of total shelter costs while food/supplies/medicine is 20% of total shelter costs.

11 SHELTER MANAGEMENT DECISIONS 217 Monthly Management Expenses $50,000 $30,000 $68,316 $60,000 $32,000 $56,316 $70,000 $34,000 $44,316 $80,000 $36,000 $32,316 $85,000 $38,000 $25,316 $90,000 (Baseline) $40,000 (Baseline) $18,316 $95,000 $42,000 $11,316 $100,000 $44,000 $4,316 $100,000 $30,000 $18,316 $50,000 $44,000 $54,316 $60,000 $40,000 $48,316 Fundraising Expenses Monthly Taxes Monthly Professional Fees Monthly Management Monthly Depreciation Utility Expenses Monthly Veterinary Fees Monthly Food/Supplies/Medicine 1% 1% 0% 1% Monthly Food/Supplies/Medical Expenses 5% 6% 4% 5% 9% 12% 15% 20% 20% 26% 29% 45% 0% 10% 20% 30% 40% 50% Monthly Basis Net Revenue $100,000 Management Expenses; $44,000 Monthly Food/Supplies/Medical Expenses $50,000 Management Expenses; $44,000 Monthly Food/Supplies/Medical Expenses FIGURE 3 Sensitivity of net revenue to changes in management and food/supplies/medical expenses in the baseline scenario, with graphical representation of highlighted expense category combinations. For comparison, when management costs of $50,000 and food/supplies/medicine expenses of $44,000 are included, the MNSR is $54,315; monthly management is 29% of total costs and monthly food/supplies/medicine is 26% of total costs. Total costs and percentages of those total costs coming from various expense categories change significantly throughout this sensitivity analysis and are of interest to shelters for management purposes and to potential donors who are often interested in the portions of their donations that are used for administrative versus operational activities.

12 218 WIDMAR, LORD, LITSTER DISCUSSION Although fundamental to the ability of shelters to fulfill and sustain their missions, the application of economic and management concepts to shelter management presented here is novel. Simple methods were deliberately applied in this model to illustrate concepts that are readily applicable in real-life shelters. This analysis and discussion are intended to facilitate a change in attitude and framing of financial management in shelter managers; although the scale of this shelter example may not precisely represent any individual shelter, the concepts of framing decisions and calculating consequences and tradeoffs between alternative management strategies are indeed relevant. The base case financial assumptions and scenarios developed in this analysis were designed to help shelter managers envision and explicitly account for some of the economic consequences both intended and unintended, positive and negative of their decisions. Simply highlighting areas of the shelter operation that are financially sound versus those that are areas for potential improvement will enable more informed decision making by shelter managers. While total costs and revenues are important to keep in mind, illustrations of the breakdown of contributions to total revenues (Figure 1) and total costs (Figure 2) by category are also informative, as they give managers and potential donors alike an understanding of how resources are generated and used. Several simplifying assumptions were made throughout this analysis out of necessity due to data limitations. A key factor for shelter managers to recognize is potential impacts on shelter cash flow from management changes. In the hypothetical shelter scenario, estimated annual costs and revenues were developed and divided by 12 to approximate monthly cost and revenue values. In actuality, revenues and expenses may be seasonal, or for reasons specific to a specific shelter management strategy or outside forces, they may be extremely variable. Large annual payments, such as property taxes or insurance premiums, for example, can cause significant short-term financial stress on a business or shelter. While investigating sensitivity to changing expenses is helpful in assessing how changes in labor costs or food and medical supply costs can impact the shelter during the course of a year, managers are encouraged to also investigate the timing of key expenses (and revenue streams). Paid labor and volunteer hours are, perhaps, the most obvious examples of where perceived cost savings, like paid labor spending less time training or managing volunteers, could lead to higher costs today (i.e., more supplies wasted, inefficiencies in work flows) as well as down the road (i.e., less satisfaction by volunteers leading to higher volunteer turnover). In a hypothetical example in which managers neglected volunteer management and volunteer turnover was increased, it could be that training costs increase, efficiencies decrease, and rebuilding community and goodwill with volunteers takes far more energy and time than maintaining a volunteer culture would have. Explicit accounting of these costs and the trickle-down impacts that ripple throughout the organization are important concepts for managers and decision makers to understand; the lower-cost choice today may yield higher costs and/or decreased revenues in the future. The analysis shown here was used to investigate the financial consequences of increasing and decreasing management expenses; numerous reasons could lead to these changing costs, including the exchange of paid labor for volunteer hours or increasing (or decreasing) efficiencies. Examples of situations in which this analysis of management and labor costs may be helpful include assessments of possible salary increases for managers or employees, possible additions of management or paid labor (hiring), and assessments in trading off paid management and labor for volunteer management or labor. Possible scenarios include reassigning animal care or other tasks

13 SHELTER MANAGEMENT DECISIONS 219 to volunteers and directing paid managers time more toward personnel and volunteer management or securing skilled volunteers capable of taking over previously paid duties. Business owners and shelter managers alike should consider the options for streamlining management and labor inputs to investigate the possibility of reducing costs and possibly capturing efficiencies in their systems. For example, perhaps 100 hr of labor are required for a certain procedure. The procedure may require 100 hr regardless of how many people are involved. However, there are potential efficiencies that could be captured if a smaller number of people were employed more intensively in the task, compared with a larger number of people each contributing very few hours. Volunteer labor hours are an important input in many animal shelter and rescue groups, as they are for many nonprofit organizations. There has been a great deal of work devoted to assessing volunteerism, why people volunteer, and the impacts of volunteers in various organizations. Organizations rely on volunteers to pursue their mission, and without volunteer labor, many organizations would not remain viable or survive (Taylor, Mallinson, & Bloch, 2008). Taylor et al. (2008) argued that volunteerism should be conceptualized as an interactive process in which volunteers can have attitudes and motives about volunteering but must also have organizations in which they want to volunteer. Understanding how an organization mobilizes resources, including human resources, is important to understanding the inner workings of how the organization seeks to move toward its stated missions and objectives. McFarland (2005), describing a survey conducted online by the Humane Society of the United States in November and December 2002 of 289 animal-sheltervolunteer managers stated, While the survey is not a representative sample, the results were interesting and confirmed what we ve suspected all along: many shelters haven t taken the time to plan properly and ensure that the necessary management tools are in place to manage their volunteers successfully. Labor efficiency and human resource management is a major area of focus in today s shelters, and many businesses alike (vi). The findings presented in this analysis were used to assess the impacts of altering expenses associated with management for supplies. Total animal numbers cared for in the shelter were held constant throughout the analyses. Various management practices could be investigated in an effort to reduce food, medical, or animal care supply expenses without changing animal numbers, including purchasing in bulk, changing shelter practices to capitalize on potential discounts by purchasing more items (or increased quantities of a single item) through a single supplier, or timing large purchases to coincide with sales or available discounts. As food is one of the key inputs in the operation of an animal shelter, food expenses are a natural area on which to focus when considering the streamlining of purchases. Often multiple staff members or volunteers are responsible for the daily (or twice-daily) feeding of the entire shelter population. Considering the food inventory required for large breed puppies, small breed puppies, overweight senior dogs, active young dogs, full-grown, large-breed dogs, and special needs dogs, shelters are often feeding various brands of dog food in a number of varieties and suited to a large number of life stages. A similar range of food types is required for cats. Maintaining even a basic inventory can be expensive. Not only is the shelter in need of a secure space that is protected from weather and temperature variations and is accessible to shelter workers, but also resources are tied up in that inventory that cannot be spent elsewhere. For example, if $1,000 worth of dog food is sitting in inventory, that $1,000 is not available to take advantage of bulk purchasing of a flea and tick preventative. In fact, superior management

14 220 WIDMAR, LORD, LITSTER of inventory is a competitive advantage for many successful businesses; inventory requires space, and managing inventories takes time that could be spent on other activities that could potentially have more of an impact. In addition to saving on food purchasing, comparison shopping among suppliers for key inputs that shelters wish to buy in bulk and have on hand, such as flea and tick preventatives, can reduce total expenditures markedly. Closely paralleling the cost of food purchases, medical costs such as vaccinations, microchips, heartworm preventatives, and flea and tick protections, may all have the same bulk discount-purchasing incentives. Constraints or challenges arising from limited cash availability for purchases; lack of communication between volunteers, staff members, or managers; and frequent last-minute or emergency purchases may limit a shelter s ability to purchase in bulk, thus limiting potential for savings or even increasing total expenditures. Whether running a shelter, a small business, or a large-scale operation, input procurement and inventory management are critical components of financial and business success. Controlling costs is oftentimes linked with reducing inputs or, more specifically, reducing quantities of inputs and supplies used. Reduction of total quantities of inputs purchased and used, such as companion animal food, cage space, labor, and medical supplies used, will certainly reduce total spending. However, it is not always possible to reduce total usage. Further, focusing exclusively on reducing costs does not necessarily move the shelters toward accomplishing their mission of saving animal lives and improving the lives of animals in their communities. Reducing MTSC could yield a higher MNSR, but this is not always the case. Driving down MTSC could yield unintended consequences that impact MTSR negatively. In this case, if MTSR decreases more than MTSC has decreased, MNSR may actually decrease due to the costcutting measure undertaken. Perhaps of greater interest than MNSR, at least to potential donors, is the change in the percent of total costs that occurs as costs are shifted between categories. Apart from threatening the very existence of an organization, financial distress can be disruptive to the daily operations of an organization. Serious financial distress distracts managers, can deter investments or donations, and limits opportunities for future growth or organization improvement. Missed opportunities for seemingly small savings add up over time and are increasingly important when finances are constrained and therefore, savings opportunities are lost. Beyond cash costs associated with purchasing inputs and supplies, costs of adjustment and attempting to reverse a management change can be extremely high. Managers should understand that although streamlining shelter inputs and cost control are important for keeping operational expenses under control, cost reduction is only one side of the equation. Revenue generation potential should also be considered; the higher-cost option, such as hiring an additional paid employee rather than using additional volunteer labor, may indeed be the optimal financial decision for the shelter, depending on the revenue implications of the alternatives. Animal shelters and rescue organizations should seek to determine the optimal decisions for their unique cost structures and revenue generation plans, and they should consider investigating numerous possible scenarios to determine expected impacts of proposed changes to the operations. CONCLUSION To continue providing for the animals in their care, saving animal lives, and improving the lives of animals in their communities, animal shelters need management strategies that facilitate

15 SHELTER MANAGEMENT DECISIONS 221 informed decision making and forward planning. An example analysis was presented in which changes in various costs categories could have large impacts on the overall financial performance of the shelter, as well as the probable acceptance of shelter spending by donors and other stakeholders. It is important to note that although the shelter example used may not precisely reflect any individual shelter, the concepts of framing decisions and calculating consequences and tradeoffs between alternative management strategies are relevant for shelter managers. Shelter managers are encouraged to perform sensitivity analyses of key assumptions regarding the performance of their own operations. Managers should carefully assess whether expected financial performance is based on assumptions surrounding numbers of animals adopted or costs of key medical supplies being set at a given level. Sensitivity analysis enables managers to determine what could happen if animal numbers changed or if key costs like food, medicine, or management expenses changed. Assessing the consequences of changes in key input parameters in advance allows shelters to better prepare themselves with alternative management strategies, such as streamlining shelter input purchasing or deferring large expenditures to a more advantageous time. Future work focused on economic impacts of various decisions by shelter managers should consider variable revenue and expense streams throughout the year, rather than incorporating the simplifying assumption that expense and revenue streams are constant. For example, it is likely income from donations may vary seasonally. While total annual costs may be useful in certain decision-making situations, cash-flow implications and the timing of inflows and outflows of resources could also influence the options available to shelters. FUNDING This study was supported, in part, by a grant from Maddie s Fund. The Purdue Maddie s Shelter Medicine Program is underwritten by a grant from Maddie s Fund, The Pet Rescue Foundation ( which helps to fund the creation of a no-kill nation. REFERENCES Galligan, D. (2006). Economic assessment of animal health performance. Veterinary Clinics of North America: Food Animal Practice, 22, Herman, R. D., & Renz, D. O. (2008). Advancing nonprofit organizational effectiveness research and theory (nine theses). Nonprofit Management and Leadership, 18, Internal Revenue Service Department of the Treasury. (2011). Tax-exempt status for your organization (Pub. No. 557). Retrieved from Internal Revenue Service, The Urban Institute, National Center for Charitable Statistics. (2012). Exempt organizations business master file: March. Retrieved from Kay, R. D., & Edwards, W. M. (1999). Farm management (4th ed.). Boston, MA: McGraw-Hill. McFarland, B. (2005). Volunteer management for animal care organizations. Washington, DC: Humane Society Press. Stein, D. D. (2011). What motivates people to volunteer? A survey research study to analyze characteristics and motives of individuals that donate time (Doctoral dissertation). Retrieved from ProQuest Dissertations and Theses database. (UMI No ) Taylor, T., Mallinson, C., & Bloch, K. (2008). Looking for a few good women: Volunteerism as an interaction in two organizations. Nonprofit and Voluntary Sector Quarterly, 37,