[foundation-board] Draft Reserve Policy

[Pavel Richter]

Dear Board,

please find below my draft for a Reserve Policy for Open Knowledge
International. I will present this during our next board meeting and seek
your input, feedback and approval.

A Google Doc with the same text can be found here
<https://docs.google.com/document/d/1rwJi_VkZgYlemwagtdPwxPwT0Qg1CVqY3nM8ib-orNY/edit>
and is easier to comment on

__________________________
Reserve Policy for Open Knowledge International

From: Pavel Richter, CEO, Open Knowledge International

To: The Board of Open Knowledge International

Date: January 2016

Version: 0.5

Executive Summary: Open Knowledge International (OKI) will build a reserve
of 260.000 GBP until the end of 2018. From current (December 2015)
unrestricted funds, we will commit 50.000 GBP to these reserves.

As CEO, I have been tasked to come up with an operating reserve strategy
for Open Knowledge International. Such a strategy needs to fulfill the
following points:


   1.

   Provide the organization with funds in cases of emergency
   2.

   Provide the organization with enough cash flow to pay its bills in cases
   where cash is not available
   3.

   Enable the organization to fulfill its contractual obligations
   (employment contracts, rent, leasing, etc.)


The following policy was written using the “Charity and Reserves
<https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/475872/CC19.pdf>”
guidance by the UK Charity Commission.

   1. Why do we need a reserve?

OKI needs to hold financial reserves for the following scenarios:


   1.

   In case we are not able to raise enough unrestricted funding to support
   our non-programmatic work, e.g. management, business development,
   communications, research, fundraising, etc.
   2.

   In case OKI runs a project that does not cover all actual overhead costs
   of the organisation and not enough unrestricted funding is available to
   otherwise pay for this gap
   3.

   In case of unexpected expenditure (taxation issues, etc.)
   4.

   For bridge financing between projects
   5.

   To fulfill our contractual obligations, mainly towards our employees and
   contractors, in case of financial difficulties


   1. What level of reserves do we need?

There is not a set principle to apply here; but based on the answers to
question 1 (Why do we need a reserve?), I would suggest the following
approach: We keep reserves only based on our non-project funded
expenditure, and keep three months worth of such expenditure as reserves.

Why only non-project funded expenditure?  Funding for most of our projects
is received via restricted grants, and we usually plan and budget our
projects in a way that we do not overspent on them. Going forward, OKI will
try to secure larger projects with a longer duration, and hire people
specifically for these projects. Once a project ends, these people will
leave the organisation again, therefore reducing our need to secure
employment for these staff members beyond the duration of their projects.

On the other side, OKI employs a number of people who are vital for running
the projects: The management staff, Heads of Technical product,
Communications, Community, Research & Development, but also Chief of
Finance, COO, Portfolio Director and the Portfolio Managers. Not only hast
OKI spent significant amounts of money and a lot of effort in selecting and
training these people; they are also vital in securing new projects (and
project funding), and therefore vital in continuing the organization even
in cases where immediately available project funding is not available in
abundance.

In addition to the personal cost, there is also the need to maintain a
certain amount of cash available for new product development, travel
expenses, etc.

And why three months worth of reserves? I do not expect a situation where
OKI will have no other income / available funds whatsoever to maintain
non-project staff; therefore, with a total of three months expenses in our
reserves, we will be able to maintain the organisation and develop new
projects and products for a longer period of time than “only” three months.
And in a worst case, where we need to shut down the entire organisation, we
will need not more than three months to do so, and would therefore be able
to pay our contractual obligations towards non-projects staff during this
time.

With our current cost structure
<https://docs.google.com/spreadsheets/d/1SMkx9mWh8XbokbPG_qHk4Np5VZY6KJFJbcYnVgDREbk/edit#gid=0>,
it is my recommendation that OKI is aiming for a total reserve of 260.000
GBP

.

   1. How do we establish and maintain our reserve?

We have three main kinds of income which we can use to populate the reserve:


   1.

   Unrestricted grants: Going forward, we will commit 10% of each new
   unrestricted / operational grant to our reserves, until we have reached our
   reserve target.
   2.

   Profit from Viderum / commercial activities: From all profits that OKI
   receives from Viderum, we will commit 20% to our reserves, until we have
   reached our reserve target,
   3.

   Surplus from restricted grants: 100% of all surplus from our restricted
   grants will be committed to our reserves, until we have reached our reserve
   target.


I also suggest that we commit 50.000 GBP from our currently available
220.000 GBP unrestricted funds to our reserves, as well as 7.500 GBP from
the recent Sigrid Rausing Trust unrestricted grant.
Reserve build-up plan

Time

Reserves

Target

Missing

12 / 2015

57.500

260.000

202.5000

12 / 2016

100.000

260.000

160.000

12 / 2017

200.000

260.000

60.000

12 / 2018

260.000

260.000

0

The plan is based on the assumption that OKI will be able to raise
unrestricted grants in 2016 of about 500.000 GBP, enabling us to commit 10%
(=50.000 GBP) to reserves; in 2017, we will be able to raise 1.000.000 GBP
in unrestricted grants, committing 100.000 GBP to reserves. The missing
60.000 GBP are 20% of the profits I expect Viderum to deliver to OKI by the
end of 2018.

This plan is rather conservative in regards of Viderum profits (no profits
available before the end of 2018), and surplus from our restricted grants
(0 GBP within the next three years); and it is rather aggressive in regards
of our ability to raise unrestricted grants.

   1. How do we access the reserves in case we need them?

The reserves fall under the responsibility of the CEO, who uses the
reserves under his discretion, within the guidelines set in this policy.

   1. How do we report on our reserve, both internally and externally?

The CEO reports on the status of the reserves at each regular board meeting
as part of the normal financial reportings. In case the CEO uses more than
20% of the current reserve, he has to notify the chair of the board
immediately.

OKI publishes this reserve policy on its website, and makes its donors and
funders aware of this policy. OKI will report any funds committed to its
reserves in regular reports to its funders.
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