Best Practices, Budgeting, community associations, Management

Building the Association Budget: Fundamentals, Hard Work & Guts – Part 3 (Components of a Great Budget)

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We’ve established the purpose of a community association budget. We’ve learned the benefits of applying sound methodology  Now we are ready to dive into the nitty gritty.

Budget formats can vary significantly. Their contents depend on the complexity of the property. A 300-unit condominium association with a central HVAC plant and staff will have a more intense budget than a 30-home HOA. But the best budgets tend to have a few things in common, regardless of their scope and complexity.

How Do We Get There from Here? Essential Budget Components

There are two basic components that can help support the budgeting disciplines outlined in the first two parts of this series.

First, a comparative spreadsheet helps to see patterns and context. At a minimum, it includes columns for:
• next year’s proposed budget
• current year’s adopted budget
• projected current year-end results
• last year’s audit results

To gain longer range perspective, prior year budget and audit figures can be added. For smaller communities that may not engage an independent auditor each year, unaudited figures are better than nothing. The goal is to see the reality of past performance in order to help plan for the future. To provide context for the current year’s projected column, a year-to-date column may be helpful.

The next component requires the most work. It is also essential to understanding what’s behind the cold, hard numbers in the budget. A detailed narrative, in which each line item and the assumptions behind them are expressed in detail, can make a huge difference. The process of creating, reviewing and editing the narrative is where each line item is challenged. Exactly what is included in “miscellaneous administrative” or “landscaping non-contract?” How was the total annual figure calculated? Memorialize it. If “meeting expense” includes recording secretarial services at $175 per meeting times 12 meetings, plus an allowance for light refreshments at the annual meeting of $300 and room rental for the annual meeting at $250, put it in writing. Include contract details. If the terms of a two-year janitorial service contract include a $2,000 per month fee with an escalation of 1.5% at the May anniversary, show the math: ($2,000/mo. x 4 mos.) + ($2,000/mo. x 8 mos. x 1.015 increase) = $24,240. It’s kind of like 3rd grade arithmetic – show your work!

Other Useful Components

Line items that require significant funding can be carefully budgeted and communicated by supplemental worksheets. A high rise with large utility usage can benefit from the compilation of utility logs. Several years of utility use can provide valuable data to make the 12-month spread more accurate, track energy conservation efforts, and mitigate some of the guesswork involved in developing the budget. If the association is in a locality where it can buy natural gas and electricity on the futures market in bulk, the gross rate can be very accurately estimated. (Accurate usage) x (accurate rate) + contingency for unusually hot or cold weather will result in a nice, tight budget.

Associations with large staff may benefit from a detailed personnel worksheet to capture the potential cost of coverage for full-timers while on leave, allowance for pay increases, overtime, and state and federal unemployment tax costs. The methodology used by health insurers in determining premiums can also create budgeting headaches. A detailed worksheet can help in estimating costs.

A statement of capital expense cash flow and reserve contributions can help demystify the calculation for replacement reserve contributions. We will cover this in greater detail in Part 4 of this series.

Finally, some people are visual learners. If charts and graphs help community members to grasp the data in the budget, use them.

It’s Good for You…and Everybody Else

There are many benefits to fully utilizing these components. The discipline to analyze and prioritize wants, needs, and realities with the financial plan is maintained. There will be a clear understanding of the plan for the upcoming year. And the final document helps to ensure continuity from year to year in the event of volunteer or management turnover. These two components, if well-crafted, show the results of the combined trend and zero-based approach and give community members confidence in the plan, their leadership, and their management. The transparency built into the discipline builds trust. And trust is everything. 

Next…

In the next segment, we will offer tips for communities facing the challenge of change. There are additional components that can be included in the budget package. Additionally, leaders and managers of communities facing challenges can be filled with anxiety. We will share communication strategies to help.

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Best Practices, Budgeting, community associations, Management

Building the Association Budget: Fundamentals, Hard Work & Guts – Part 2 (The Method)

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In the first blog in this series, we covered the basics. A focal point of that piece was clarifying the real goal of a budget. It’s worth repeating:

The purpose of the budget is to create a reasonable plan to finance the operation of a community association in accordance with the realities of property condition and in accordance with the vision and values of the community.

Focusing on the purpose helps stakeholders gain clarity and provides context. It also gives them some tools to make tough decisions when needed.

The Past, the Present & the Future

The inability to predict the future is a common human weakness. We really stink at it. And yet, predicting the future is what budgeting is all about. While, we will never get it exactly right, we can hedge our bets with sound methodology.

This methodology will also help to avoid other all too human foibles. Ignoring the past is always a fantastic way to ensure disaster. Seeing past our biases to recognize current realities can also be a challenge.

Trend or Zero-Based?  Both!

There are two basic budgeting methods – “trend” and “zero-based.” Trend budgeting uses the current year’s budget as a baseline and assumes an incremental increase each year thereafter. For example, if the landscape non-contract line item is $10,000 and the annual inflation assumption is 2%, the budget for the following year will be $10,200. Frequently, the same multiplier applies to all line items. There may be some variations from line item to line item in the actual expenses during the year. However, the hope is that the overall bottom line will come out about right. Do communities apply the same percentage to all line items?

Zero-based budgeting is far more robust. It is commonly utilized when drafting a budget for a community that has not been built yet. Those writing these budgets use all available information about the planned project. They attempt to visualize what it will take to operate the property when built. Finally, they proof each operating line item for accuracy against similar properties and industry knowledge.   The reserve contribution line item is calculated by creating a reserve schedule, compiled using RS Means data and construction figures provided by the developer.

The best budgets for existing community associations use elements of both methods. Every single line item should be scrutinized and challenged with a fresh set of eyes each year. The analysis may result in some cost savings, or it may result in creating new line items to reflect expenses not previously required. At the same time, history and current conditions help predict the future, like it or not. Uncontrollable trends cannot be ignored. They must be reflected in the affected line items. Assembling the information necessary to analyze data from the past and seeing the present clearly will go a long way towards creating a viable plan for the future.

Why All the Work?

One benefit to this approach is that it helps to build trust. Members, who are reasonably concerned about how their money is spent, are more likely to recognize the scholarship woven into the process. The budget document will provide some level of comfort that money is not being spent needlessly. It isn’t something conjured up to make the numbers look good, or to achieve some political purpose. The figures represented in each line item mean something. They’ve been vetted thoroughly. They are grounded in reality and reason.

The discipline inherent in the methodology can also help to explain reality to homeowners. It is simply not realistic to imagine that HOA fees can remain flat when rising costs impact every other facet of life. Any architectural, mechanical, electrical, landscaping, or plumbing component becomes more expensive as it ages until it is finally replaced. I like to share an automotive analogy to help make it real. I can make a classic ’57 Chevy Belair my daily driver. But my running costs are going to be much higher than if I bought a brand new Honda Accord. If I fail to recognize that reality, I won’t have the money to keep the Chevy on the road.

What’s Next?

With the basics and methodology covered, we are ready to explore the components of a great association budget. That will be Part 3 of this series. Stay tuned!

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Best Practices, Budgeting, community associations, Management

Building the Association Budget: Fundamentals, Hard Work & Guts – Part 1 (The Basics)

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Budget season for community associations with calendar year-ends are upon us. Even though I’m no longer responsible for writing several budgets each year any longer, I could feel it coming. Thirty years in the management business re-wires your brain, I suppose.

It might sound odd to some, but I always looked forward to budget season. It found it was an opportunity to establish and build upon the partnerships I enjoyed with my clients. I found that once I wrote a budget for a client for the first time, the exercise put me in a position to have full command of the operation. I noticed that by upgrading the budget document and process, I earned immediate credibility with my clients. The boards understood the numbers and had confidence in sharing the information with their communities. I also got the opportunity to collaborate with on-site personnel, which was a great way to help them to have input, for me to better understand their day-to-day challenges, and to build our team from the mutual respect the process required. It was a LOT of work. We took no shortcuts. But it was worth it. The community members were well served, everybody learned a lot, and it as a blast, even when the results were difficult to communicate! I will never forget standing in front of a large group of owners explaining why their developer’s budget created the need for a 24% condo fee increase the first year after transition. 25 years later, that condominium still stands, thanks in part to the tough work we did together those first couple of years.

Thanks to great training and a boss who gave me his torch to carry and the freedom to expand on the fundamentals he taught, after a few years I became the semi-official Budget Guy. I taught the process to new managers and helped other managers out when they got stuck, or were nervous about sharing a difficult message with their clients. I got to present an annual budget workshop for the management company for a few years. In 2011, I was asked to co-present on the topic for the Montgomery County (Maryland) Commission on Common Ownership Communities. We had so much fun, the crowd gave us an ovation at the end. Attendees from the concurrent sessions were shocked to hear people’s enthusiastic response to a budget program! That was followed by a lengthy recap in the COC’s newsletter.

I dusted off that old article and realized that a multi-part blog format allows us to share the best practices and tips picked up through the years without the constrictions of print space or seminar time constraints. As with everything else we share on this blog, we hope the series saves you some time, gives you a tool or two you can use, and helps you to avoid some of the quadrazillion mistakes I’ve made through the years. Maybe, just maybe, you will come to enjoy budgeting as much as I do and find the same benefits I was able to reap. So here we go!

Let us start at the very beginning…

BACK TO THE BASICS

The story goes that famed football coach Vince Lombardi opened every Green Bay Packer preseason camp with the same introductory sentence. Raising the pigskin high enough to be seen by the 50 or so professional players in front of him, he intoned, “Gentlemen, this is a FOOTBALL…” He understood the importance of reinforcing fundamentals.

So what is a budget? It is an essential part of association operations as the first of the three interrelated financial phases – planning, operations, and review. Deficient planning in the budget process leads to poor performance in the operating phase as reflected in monthly financial statements. Inevitably, this leads to poor results in the review phase, the annual audit. Conversely, excellent budgets lead to solid operational results and contribute to nice, clean audits. Creating a budget is not an isolated exercise or theoretical effort. It has real impact.

Done properly, budgeting lays a foundation for financial and community success. Done poorly, serious short and long term difficulties are sure to be created or perpetuated. We’ve been helping a number of clients dig out of financial trouble. Sometimes replacement reserves were underfunded directly with the “transfer to reserves” line item being set too low. Other times, reserves are underfunded indirectly. Unrealistic operating budgets lead to deficits. After paying the bills, there was not enough money left to fund the reserves from month to month.

Regardless of the reason for insufficient reserve funding, there’s always telltale signs of chronic under budgeting: A belief in the myth of saving money and deferred maintenance. Budgeting low out of fear of increasing fees has a vicious and compounded boomerang effect. Deferred maintenance results in exponentially higher fees for the members in the long run. Maintaining components past their useful lives is very costly, and can include the collateral damage from water leaks and emergency remediation. Higher fees are also required to help fund capital expenditures made more expensive by emergency replacements, exponential deterioration, or interest costs for debt service. Look at the exhibitor list from any CAI conference. You’ll see plenty of bankers there. There’s a reason that market niche is growing. Many associations have under budgeted for years and are now forced to pay the price…a very high one.

So let’s get back to the basics and get this right.

WHAT’S THE GOAL?

What is the purpose of the budgeting process? I ask this question when I teach financials to community association volunteer leaders. Sometime I get some pretty good answers. But I always find myself compelled to say, “I guarantee that a percentage of you don’t want to say out loud what you believe – that the purpose of the budget process is to keep fees as low as possible.” True, it is the board’s responsibility to the community to use funds wisely and avoid waste. But read any governing document and you will find the primary responsibility of leadership is to maintain the common elements and collect fees sufficient to do so. Of course there is more to a budget than accounting for the sticks and bricks. Quality of life is largely determined by the service levels provided for in the budget.

So then, the purpose of the budget is to create a reasonable plan to finance the operation of a community association in accordance with the realities of property condition and in accordance with the vision and values of the community.

GUTS, PART ONE

Too many managers are either nervous about proposing budgets with increases, or intentionally propose budgets with low or no fee increases as way to stay in the good graces of their clients. Don’t get me wrong, in rare cases, no increase can be possible. I even had one client who reasonably decreased their fees after paying off a loan. But when it’s done for political reasons, it’s a slippery slope. For the nervous, we’ll offer some perspectives and strategies in the following segments to help. For the political animals, please stop. Sucking up is not customer service. You aren’t helping anyone in the long run, including yourself.

Boards and Finance Committee Members get nervous, too. It’s completely understandable. They must answer to their neighbors. The nervousness means you take your responsibility seriously. You are to be commended! We hope this series of blogs helps.

It takes guts to take the long view. But that’s what leaders do. Outstanding professional managers and community volunteers know they are leaders first and foremost.

COMING SOON…

In the coming segments, we will continue to outline fundamentals of budgeting. First, we will review budget methods to help analyze the past, see the present, and plan for the future. Then we will identify critical budget components and tips for assembling and presenting them. With the fundamentals covered, we then get to the really fun stuff. We will cover strategies for communicating difficult news…like a 24% fee increase. Then, we’ll finish up with how to avoid common mistakes and a final exhortation to stay the course.

I know I’ve been a bit of a deadbeat lately in the blogging department. Sorry about that! Chantu’s been doing her part, but I haven’t been shipping. Business has been great, but that’s no excuse. I’ll try to make it up to you by delivering upcoming blogs more quickly so you can have them at your disposal as you dive into your budgets.


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Best Practices, community associations, Culture, Customer Service, HOAs, Management, Professionalism

Sucking Up is Not Customer Service

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I had a conversation once with a young manager. She was learning to navigate the sometimes challenging terrain of management-board relationships. At the time she was working for a management firm that had, in my opinion, lost their way. At one of their company functions, a more experienced manager had shared an anecdote about golfing, drinking, and intense schmoozing with his board president. She concluded, “I guess it’s true – the best strategy for job security is being buddies with the board president.”

NO, NO, NO!

Our young manager had a misguided understanding of what customer service is all about on a deeper level in the specific field of community association management. How can managers and other professionals truly serve their community association clients?

What Are We Really Doing Here?

Miriam-Webster says a contract is “a binding agreement between two or more persons or parties.” I think there is a fundamental element missing from that definition. In order for the performance of a contract to meet the expectation of the parties, the definition should finish with the words, “…that provides mutual benefit to both parties.” A zero-sum gain approach to a contractual relationship is short-sighted. If the party performing the service is forced into a low-price box, or is otherwise constricted in the performance of their duties, the relationship often proves unsatisfactory and tends to be short in duration.

When the agreement is some form of service contract, one of the benefits to the client is they receive services that they do not have time and/or expertise to perform themselves. Digging deeper, that means a client is forming a partnership of sorts with a party who brings value to the table. The more mutual the benefit and the deeper the partnership, the more successful the relationship can prove to be.

Supervisory + Advisory = Partnership

Management contracts and position descriptions describe the work that will be performed on behalf of the client. This is proper and important, because it establishes expectations for service. It is describing supervisory functions. Yet, a contract or position description does not always describe the expertise with which those tasks may be performed. Furthermore, the greatest potential value of the relationship may be largely unstated, except perhaps in the fluffy marketing material provided in a proposal. Excellent management companies and professional managers are able to provide recommendations and guidance that can change the status quo and set the table for progress and improvements in the community. It is these services of an advisory nature that make the relationship most beneficial to the client. Yet, while most boards are happy to take management to task for deficiencies in their supervisory duties (and reasonably so), they may never get to the level of receiving or accepting advisory services. In the end, no one wins.

The Challenge? Fear & Schmooze

Some managers are afraid of getting fired. Some may be inexperienced. Some may lack confidence in their abilities. Boards may micromanage for any number of reasons. An “on-the-cheap” mentality may have led to a vicious cycle of mediocre service. Mediocre service invites micromanagement. A manager who never passes the test of capability in supervisory duties will never earn the trust necessary to be an advisor.

Some management companies are afraid of being fired. They fear telling clients anything that they think will put the contract at risk. This sometimes plays out in a blame game. Companies throw their own managers under the bus to appease an angry client and never deal with core issues. Saving the client by skewering your own people creates a cancerous organizational culture and impedes true partnership. It’s based on personality or politics, not leadership, values and vision.

All of these factors are unhealthy. They easily lead down the slippery slope of schmooze. Trading professionalism and respect for a shallow relationship based on low standards may keep the relationship going for a while. But no one is well-served, especially not the community members.
That is why I see this as so insidious. Community Association 101: Board members and the managers who serve them have a duty to care for the best interests of community members as a whole. Anything that works against that violates this fundamental principle of leadership and stewardship.

It’s Not Always Evil

Sometimes people just don’t know. A dedicated volunteer leader may not realize what is available. To illustrate: While performing an operational audit for a client, it became clear to me that volunteers had been performing management duties for a long time because they did not have a clear picture of what a professional could do. During that engagement, there was a need to find an interim on site manager. I was able to connect them with two PCAM-credentialed managers for short periods of time. Both of them blew the board away. A new world opened up to them over the course of a few short weeks.

When the Customer is Right

“The customer is always right.” 

– Chicago Retailer Marshall Field, 1905

There are times when our clients are always right. Like when expressing how they feel about something. Or when they communicate an expectation. Whether or not a feeling is justified or an expectation is reasonable is a different matter. In the moment, it’s irrelevant. That IS how they feel, that IS their expectation. We spend too much time judging the feelings and opinions of others. It’s a damaging, waste of time. Just listen. Acknowledge. Identify.

When the Customer is Wrong…or Perhaps Uninformed…

Sometimes a manager’s conundrum raises its ugly head when a client has difficulty accepting reality. There could be different reasons for this. Fear, ego, or simply a lack of understanding can be powerful obstacles. In this critical moment, a manager may feel she has a choice – tell the client the truth, or tell them what they want to hear. The truth is, a professional manager has a duty to provide their best advice, whether it will be accepted or not. The art is in the telling. Managers with high will discern whether their challenge is in the timing of the message, its presentation, or both.

Rolf Crocker, CEO/Principle of OMNI Community Management, LLC, in Fair Oaks, California, is one of my favorite thought leaders in the community association business. He has a unique perspective and a knack for helping others reach clarity. He taught me a rhetorical device to guide clients to what should be an obvious answer. A version he usually uses is as follows:

“This is the point in the conversation where I ask you if you want to hear what you want to hear, or do you want to hear what you need to hear? If it’s what you want to hear, we can talk about the weather, the market or your favorite sports team.”

This approach is genius. He’s making his point while allowing his listener the room to make light of it – for a moment.

Getting to Mutual Benefit

Boards and managers need to be deeply rooted in the fundamentals of business, ethics, and leadership. Management has to suck it up and prove value, sometimes without being paid for it at first. It’s a tough row to hoe, but “trust me and pay me” won’t always work. Once the opportunity for value is proven, boards need to see that value, respect it and pay for it. We must be responsible for ourselves, remember who we serve, and stay true to that, no matter the short term cost. Tell truth to power, tactfully but unfailingly. Forging and maintaining successful partnerships is one of the most fulfilling human experiences we can have. Please don’t blow it by throwing away principles and relying on a relationship based on influence. Those come and go. Partnerships based on respect, trust, and shared values are those that last. Done right, everyone wins.

Is this a pipe dream in the commoditized and occasionally political world of community association management? Nope. I’m proud of the relationships I forged with the communities I served. I am also comfortable with the few relationships ended by one party or the other. Those partnerships were fatally flawed and needed to end. My principles remained intact and there are no regrets. I’m not alone. There are some great managers, companies, and boards out there who get it. They are profitable in every way. Just ask Rolf.

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community associations, Management Insider

Management Insider #2 – How We Got Here

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Sometimes managers entering the community association field have a hard time understanding some of the stressful dynamics of the business.  They hear that profit margins are tight.  They may wonder if their bosses are making excuses to justify low wages.  As I’ve stated before in the T-Rex Blog, management fees ARE artificially low.  A look into the past can help explain why.

Fortunately for me, my ex-boss and current mentor was there at the beginning of the early condominium boom, starting his career as a community association manager straight out of college in 1973.   When he walked me through the history of the industry, things started to fall into place.

The United States had its challenges in the ’70s.  Real estate agents wanted to sell and developers wanted to develop, but inflation and interest rates were high.  As the end of the decade loomed, mortgage rates reached into the double-digits.  The concept of converting apartments into condominium associations became appealing.  Enter the first condo boom.

Off The Rails…And We Didn’t Even Know It

This is where some of the persistent challenges that dog us today had their beginnings.  There were several factors:

  • Condominiums were sold as “carefree living.”  Someone else will take care of the grounds, the roofs, and the hallways…no worries! 
  • The transition from apartment house to condominium association shifted responsibility for interior living spaces from on-site staff to the unit owner.  Leasing activity and rent collection were no longer factors.  As a result, the site staffing typical of apartment complexes was either decreased or deleted altogether.
  • The same notion about decreased workload combined with the developer’s desire to keep condominium fees as low as possible led to a baseline of low management fees.
  • Early condominium documents sometimes treated professional management as an afterthought.  Like magic, multi-million dollar pieces of real estate that previously required professional management could now be administrated by volunteer boards with little or no management or real estate experience.

Hindsight being 20/20, in many ways we were set up for failure.

How Could They Have Known?

An Urban Land Institute lawyer and framer of early community association governing documents stood before us, a crowd of association managers and lawyers, at a CAI National Conference in the late nineties.  I still remember his words.  “As I stand before professional managers and attorneys serving community associations and working with the documents we wrote in those early years, I have one thing to say…we’re sorry!”  He explained that they were writing from scratch.   Lawyers need precedent.  They had to go all the way back to 14th-century English horse trail law to find something they could use to define common elements and their administration.

Indeed…who knew that community associations would become so complicated?  Who knew the world would become such a litigious place?  Who knew how legislated and regulated associations would become?  Who knew the promise of technology would result in an immediate gratification mindset? Who knew volunteers would want to do less over time? Who knew societal norms would decrease personal accountability and increase distrust of anyone in authority?  And finally, who would have imagined the current trend where courts would hold community associations responsible for members and residents’ civil rights, even though their governing documents provided no basis of authority to do anything substantial about it?

“I have great respect for the past. If you don’t know where you’ve come from, you don’t know where you’re going. I have respect for the past, but I’m a person of the moment. I’m here, and I do my best to be completely centered at the place I’m at, then I go forward to the next place.”

– Maya Angelou

Industry Trends

Community association management continues to mature.  I think of it as an adolescent – certainly more sophisticated than it was in its infancy, but not yet fully grown.  Business does what it does – big fish eat little fish.  As a result, national, regional, and even local companies acquire other companies to gain market share and leverage volume. At the very same time, technology makes it easier than ever before to start a management company with little overhead.  Whether company costs are minimized by volume or low overhead, the result is the same – a push to be “competitive” in the marketplace.  An unintended consequence is that a professional service became commoditized.  The industry accidentally devalued itself.  As Tom Peters would say, it’s a race to the bottom. 

It All Adds Up

So what have we learned?  Management companies operate in a space with an increasingly demanding client base.  They compete in a commoditized industry.  And they employ a workforce that may be poorly trained, under-supported and generally demotivated to one degree or another.  

Is all hope lost?  Sadly, for too many in the industry, yes.  In my travels and deep dive discussions around the country, I’ve felt their stress and heard their resignation.  I get it.  They’ve had the same concerns and expressed the same frustrations for the last twenty years or more.    

Light at The End of The Tunnel?

If the way it’s always been done doesn’t work, there’s a reason.  Get to the root and you can find a solution.  It requires thinking differently.  That makes unconsciousness a poor option.  It’s time to stop banging our heads against the wall. 

There are no easy answers.  However, there are a few practical strategies and perspectives that have turned things around for some.  These will be the subject in upcoming blogs.       

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community associations, Management, Management Insider

Management Insider #1 – Helping the Marketplace

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As I near my one-year anniversary of launching Association Bridge as a full-time venture, I am realizing how much freedom I have to share information. For 30 years prior, I spoke in the voice of a community association manager.  The last 20 of those years were as an executive in the field.  During that time, whenever I commented on the management business, I am sure some people thought that I had an agenda.  In a recent conversation with a client, I had an Aha! moment.  I was able to explain the realities of the management business with absolutely no dog in the fight.  I was able to help that client perceive their reality clearly in a way I couldn’t before, or at least couldn’t quite as effectively.

One of the many ideas that came out of this month’s CAI Annual Conference had to do with the board-management company relationship.   Sy Syms, an iconic discount clothier came to mind.  He had a great company motto: “An educated consumer is our best customer.”  Well, Sy was right and it works in our space as well.  The more a community association board understands about the business of management, the better their odds of securing the services they need.  They stand a better chance of forging an effective partnership with a management company.

Education and Partnership

Yes, I said partnership.  The most satisfying and sustainable relationships are mutually beneficial to both parties.  A zero sum game is transactional, not relational. Elements of partnership are integral to any sustainable relationship.  Trust and confidence are fundamental.  Why would business relationships be any different?

I think that can be a challenge in the community association management marketplace for a few reasons. Hyper-competition and commoditization have resulted in artificially low fees. This is at the core of failure cycles that can inhibit the perception of value, respect, and ultimately, trust.   

The Aha! Moment

The moment I mentioned in the introduction was an Aha! moment for my client, which was why it was an Aha! moment for me.  This board had already recognized they needed on-site management to provide the level of service they expected.  But it did not stop them from expressing dissatisfaction over the performance of their community manager.  They noted he had nine clients and took too long to address concerns or give them adequate support.  They already knew he was overworked, but they didn’t see the fuller picture until I asked to see their financial statements. The interchange that followed went like this:

Me:  So your monthly management fee is $1,686.  That’s about $400 per week.  Let me tell you a little secret.  How much of that do you think goes towards your manager’s salary?

Board: (collective shrug)

Me:  Probably about $100, give or take.  So… how much time do you think $100 gets you each week?

Board: Ohhhhhh

Suddenly, everything made sense.

Solutions

Boards are going to have to go a little deeper.  Management companies are going to have to let their clients see what’s behind the curtain a little more.  When that happens, partnerships can happen.  Failure cycles can begin to transform into success cycles. 

This is the first of a new series of blogs.  My goal is to help community association volunteer leaders understand the management business.  I hope the insights into the challenges companies face and the opportunities that are available will help Board members to ask the right questions and make the best decisions when selecting and working with their management company.

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business life, Professional Development

Go Where The Ideas Are

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As I reflect on CAI’s National Conference just completed, one word jumps out at me – ideas.  I had the privilege of facilitating two sessions of TED-style talks and co-presenting on promoting professionalism for Chapter Executive Directors. In all three sessions, I found myself saying some version of “This is where great ideas happen!”  In the first two instances, I was referring to the conference itself.  The last time it fell out of my mouth, I was referring to local CAI Chapters.  All three were from the gut and unscripted.  By the time I heard CAI’s next president challenge attendees to share at least one thing during the conference I’d already received and shared many.  I’ve learned to come to conferences ready to learn, notepad in hand, scribbling furiously during presentations, and jotting notes during conversations.  After three days in Orlando, I’m energized and reminded of the power of ideas.

Shout Outs

I was primed before I even got to the event thanks to all the session preparation.  The collaboration with all six Ted speakers was electric.  Each of them gave away a piece of themselves and packed a ton of value into their 18 minutes on stage.  Our minds were stretched and challenged, and we walked away with actionable ideas.  I want to recognize all of them here.  Thank you to Neda Nehouray, PCAM, of HOA Organizers, Brandon Page of Specialized Pipe Technologies, Emily Schmidt of Speaki2i, Connor Doyle, PCAM, of Giant Steps, LLC, Justin Davis of AppFolio, and the mystery man, Steve Economou, of Rainscapes Environmental.  The audience and I are grateful for them all.  I’m glad these talks were recorded. I am looking forward to seeing them once they are posted online by CAI.

I am likewise grateful to my co-presented Jessica Towles, CAI Trustee, and Lieberman Management Services.  Our industry is fortunate to have someone in a leadership position who is so incredibly passionate and determined to advance the industry.  The collaboration for our session on promoting professionalism helped sharpen my focus and provided an outlet for some ideas that have been swimming around in my head for a long time.    

Ideas and Eggs

Ideas remind me of eggs waiting for fertilization – potential waiting for a catalyst to become a new creation. We carry around countless impressions, thoughts, and concepts just waiting to be connected and energized into a fully formed idea.  Our existing ideas get connected to new ones and become something completely new.  That’s why it’s so valuable to go where the ideas are. Once you’re there, you never know where it may take you.

Idealand

Conferences can be a treasure trove for ideas.  Presentations are an obvious source.  There is a tendency to get energized by them, but leave all the ideas at the door on the way out of the hotel.  One way to make those ideas stick is the oft-underutilized source of ideas – fellow attendees.  Some of my best notes from last week came from amazing conversations and meetings I had outside of the sessions.  Talking about session content allows you to burn them into your brain.  Listen carefully to how others share their perceptions of the ideas shared.  It will broaden your understanding and the collaboration might generate ideas.

Where Else Can You Go?

  • Read and Study:  Take in knowledge from books, blogs, research, or whatever pushes your brain.  Studying the material – highlighting and making notes, pausing, and meditating on the content to let it sink in, is even better for idea fertilization.  Lingering in a new thought can be a powerful thing. Re-reading material you’ve read before can be an eye-opener.  If you are growing, you are a different person than you were the first time.  You’ve changed, things have changed, and you might see things in a different light. If nothing else, you’ll remind yourself of gems from the past.
  • Video:  No, not cat videos…. Nothing wrong with that from time to time, but we are looking for ideas here.  There are some great talks captured online.  TED.com is a great place to start. If you are a visual learner, this is a great place to go.  TIP: Take notes!
  • Audio Learning:  Podcasts, talks, books, whatever floats your boat. I’ve found an enormous benefit of using my driving time to take advantage of audio learning.  Brandon threw out a terrific line in his talk at CAI National, “Make your vehicle a temple of self-directed learning.”  As a side benefit, I’ve found that I am a more relaxed driver.  Now when I hit a traffic jam, I think, “Cool! I can get another chapter in!  TIP: I find that if I listen to a book or an article first and then read it, my retention increases and the ideas flow.    
  • Non-Industry Specific Digital Learning:  Follow interesting people on social media. Hint: Schedule a specific, limited time block for this so as not to get sucked in, only to land on those cat videos after 3 or 4 hours.  You can get a ton of ideas from Udemy.  I am currently enjoying a Seth Godin course now and have another one on tap when I’m done with this one.  The ideas that have come out of it are worth far more than the nominal price I paid.
  • Do Industry Learning Face to Face:  Whether you are pursuing industry-specific designations or continuing education credits, avoid the webinars, and go live whenever possible.  It can be like a mini-conference.  Live learning is a fuller experience.  I’ve never taken a class where I didn’t walk away with at least one new idea that was at least in part sparked by participant interaction of some type.
  • Talk to People:   Any of the seven people listed in this blog is a great place to start. They are all idea generators and great collaborators.  Look for ideas in day-to-day interactions.  Put the smartphone away for a while.  Texting has limited idea generation capability, and if you are distracted by the phone, you’ll miss opportunities to talk and be fully engaged.  Be interested in others.  Ask questions.  As an introvert in many social situations, I know this can be tough to do.  I sometimes call to mind the words of my mother when she told a story about my Pop-Pop. If he jumped on a Baltimore trolley and no one was speaking, he made it his mission to start conversations and have the whole car buzzing by the time he got off. I’m not nearly as bold. But I figure if he could do that, I can at least strike up a conversation with one new person at a time.  One thing can lead to another.  Ideas may be the result.  Seek out those who are different than you and can stretch you. Go beyond the usual chit-chat when you can, and avoid negative nonsense.  

“Great minds discuss ideas; average minds discuss events; small minds discuss people.” Eleanor Roosevelt

  • Collaborating With Yourself:  If you don’t schedule to invest in quiet, reflective time, it might never happen.  Find things that stir awe inside of you.  Ponder the blessings in your life.  Allow yourself to be filled with gratitude and love, which connects you to something larger outside of yourself.  My grand-daughter and I heard a talk about awe, and we came up with our three-word description of the process: “Whoa! Wow! Thanks!”  The process creates chemical changes in your brain and allow your mind to connect dots that had been obscured in the day-to-day.   
  • Write:  There is something about composing that changes your brain.  Getting your thoughts out of your head and onto the paper or screen can also help you to clarify your ideas and trigger new ones.  An idea left unwritten can all to easily become promise unfulfilled.

I Don’t Care Where You Go – Just Go!

Everyone has different learning styles, attention spans, experiences, and inspirations.  Everyone is in a different place in their lives and careers.  Yet, one thing is sure for all of us – ideas create solutions and energy.  Who doesn’t benefit from those?

You may find your ideas in completely different places than I.  Some of the fertilization techniques might be effective for you; others might not.  Find what works for you and keep at it.  The ideas are there for you.  I don’t care where you go, just go and get them.

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community associations, Ethics, Management

Do The Right Thing – Beyond A Written Code

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I do my best to make sure this blog and my social media channels provide positive messages, intended to work towards solutions. I’ve described the space as a “snark-free zone.” This time, I’m going to rant a little. It may come off a little snarky, but the goal remains the same – solutions.

It’s A Big Deal

I’m angry. A headline the other day read “Maryland HOA Management Company Accused of Taking $2.5M from Associations.” This company appears to have taken advantage of their client’s trust and misappropriated their funds. The allegation seems well founded. Jerks.

I’ve been angry before. Almost three years ago to the day, a former management company owner pleaded guilty to the same amount of theft from several of his clients from the same county in Maryland. Déjà vu I was still a management company executive at the time. We took over one of their clients several months before their house of cards fell. Fortunately, the CEO hadn’t gotten his hands on their funds, but I still remember the files coming over in black trash bags. You can imagine the quality of the financial records.

The vast majority of professionals engaged in community association management would never even think of perpetrating such malfeasance upon their clients. A large percentage of us dedicated to serving community associations see it as more than a job. We recognize it for what it is – a trust. So we work hard to live up to that trust. And yet, the entire industry gets tainted every time a bad player does something like this. Honest people get painted with a broad brush of distrust and disrespect. That makes me angry.

Don’t get me wrong, in very rare occasions bad actors have darkened our industry in the past. In some cases, it led to beneficial legislation. One management company failed to disclose ownership interest in service companies they recommended to their clients. In that state, that practice is now illegal. In another case ten years ago, an executive with an ownership interest in a management company was sentenced to prison for embezzling over $3M in finds from 400 clients. That led to manager licensing in Virginia. The former case might not seem as bad as the latter, but both speak to the core of the problem – abuse of trust.

Think About the Little Things

There are codes of ethics in place to set standards. For years the Community Associations Institute has required all credentialed managers to adhere to a code. To review the document and a very detailed Code Clarification Report, click here. 

A written code can’t prevent bad actors. When I stumble across emails where a manager has shared a competitor’s proposal with their favored contractor and allowed that contractor to submit his proposal afterward, I get angry. Even though that manager didn’t embezzle money, that’s a direct violation of the anti-competition clause.

Other situations aren’t so obvious. I understand that some contractors like to give gifts to managers. It’s part of relationship building. However, it can quickly become a slippery slope. When a contractor who regularly treats a manager to ballgames and dinners seems to get preferential treatment from that manager, a line may have been crossed. When it starts to walk, talk and smell like an “Ol’ Boys Network,” it probably is. If it becomes quid pro quo, it’s a problem. The schmooze fest makes me angry. And a little nauseous.

Loopholes

There used to be a gap. CAI’s ethics code didn’t apply to management companies that held the AAMC designation. That allowed some companies to receive remuneration from business partners to be on a recommended vendor’s list without disclosing this to their clients. In the political realm, I believe they call it “pay for play.”

I interviewed a few managers who were looking to leave a firm in part due to the pressure they felt to promote the preferred vendors. Technically, they were not violating the manager’s code of ethics because they didn’t get directly remunerated for the recommendation. The companies weren’t violating anything because the manager’s code didn’t apply to them. But the whole thing made these managers uncomfortable, and rightly so.

I am pleased to report that this gap has been closed. As of 2016, the manager’s code of ethics applies to management companies with the AAMC designation. Bravo, CAI!

Trust, But Verify

Most financial malfeasance can be averted. Boards have reason to be hurt and angry when they learn that the managers they entrusted with members’ assets have abused that trust by unethical and criminal behavior. Still, Board members cannot escape the fact that governing documents require they exercise fiduciary responsibility. The buck stops with them. In too many cases of theft, Boards either did not have controls in place, were asleep at the switch, or some combination of the two. It didn’t have to happen. CAI publishes guidelines I urge EVERY Board to consider and make sure are in place.  Fraud protection procedures and a modicum of oversight mitigate against the possibility of theft.  

Please Do Something Else For A Living

If you are a manager or a management company and do not appreciate the depth of what is entrusted to you, please quit. Don’t be a jerk. Do something else for a living. This industry needs dedicated, ethical people with the heart of a servant. Those character traits seem more and more rare these days, but they still alive and well in the community association industry. What we do makes a difference. Help us advance this industry, or please get out of the way.

Beyond The Code

Here’s the bottom line. Those of us who serve community associations are taking care of other people’s stuff. They need to be able to trust us. The heart of ethics is trust, not a formal code that can only legislate actions. Intentions are important. We need to be golden. Period. With trust in such short supply in the world at large, we need to go above and beyond.

I never saw the movie Do The Right Thing by Spike Lee. But I remember seeing a clip that has stayed with me ever since I first saw it. 

The Mayor: Doctor…

Mookie: C’mon….what, what?

The Mayor: Always do the right thing.

Mookie: That’s it?

The Mayor: That’s it.

Mookie: I got it. I’m gone.

Always do the right thing. Got it?

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Best Practices, Risk Management

Proactive Risk Management – An Investment

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An in-unit inspection and maintenance program can bring tremendous benefits to community associations. A careful analysis of each situation is needed to determine if and how a program should be undertaken.

Condensation drain line back-ups can result in thousands of dollars in damage. Leaky valves left unattended may result in the need for mold remediation. Burst washer hoses and rusted out water heaters could easily result in a significant master policy claim. One faulty smoke detector can result in injury or, worse yet, loss of life.

Can associations prevent such things from happening? Of course not. But a systematic in-unit inspection and maintenance program can go a long way to avoid or mitigate them. This may be an opportunity to prevent damage and control expenses. In-unit programs can also contribute to energy conservation, quality of life, and value to association membership.

Why Not A “Risk Management Inspection Program?”

Many high rise buildings have a seasonal filter change program. Why stop there? Why not use this as an opportunity to address other conditions and provide value to the members? Take the opportunity to raise awareness of potentially problematic conditions and assist unit owners to fulfill their duty to maintain? The list should include everything from tub grout to smoke detectors.

4-Point Analysis

1. Risk Management Analysis – Property Configuration: What kind of community is it? Will conditions in one home create problems for other homes or the Association as a whole? This kind of program would not apply to single-family home HOAs. High rise condominiums and cooperatives would undoubtedly benefit. Mid-rise and garden communities might also benefit.

2. Risk Management Analysis – Component Exposure: What are the elements in units? What damage could those elements cause? What are the potential soft and hard costs of that damage?

3. Resources: Is there on-site staff? If so, what are their capabilities and time constraints? Are contracted services an option?

4. Legal Considerations: A careful reading of the governing documents is required gain clarity on the ownership and maintenance responsibility for unit components. What is the Association’s authority per its governing documents and prevailing law? What liability considerations exist? These factors will play a part in how a resolution establishing the program is worded. Review with Association Counsel.

Implementing the Program

1. Using the 4-Point Analysis, decide on the intensity of the program. The scope could be as simple as an inspection followed by a report of findings to owners. This could also be an opportunity to check the condition of balconies and for early evidence of water damage from exterior sources a resident may not have noticed. Or it could be more extensive to include the performance of maintenance tasks such as filter changes, toilet flapper replacement, smoke detector replacement, or water alarm sensors.

2. Document the program as a policy (legal assistance is strongly recommended), and include inspections list and procedures.

3. Communicate, communicate, communicate the plan and its implementation. Highlight the reasons for, and benefits of, the program. Please do NOT send the message that this as a rule that must be followed. That would blow the opportunity for a very positive message.

4. A plan for following up is vital. The Board should decide in advance how to handle non-compliance.

Bonus Points

Some Community Associations have mitigated risk by implementing a policy to clarify and define unit owner maintenance responsibilities. The Association may be able to require the use of components that control loss. A braided ice-maker line is far less likely to fail than a plastic one. Heavy duty clothes washer hoses are less likely to burst than standard hoses. The Association may be able to require proactive replacement of high-risk components based on age of the component, such as for water heaters. Once you’ve identified the components in units at your community, consult with Association Counsel to craft the resolution. There may be pushback from some owners. Here again, communicating from the perspective of benefit to the owners and highlighting the benefit to all makes all the difference.

Too Much Work?

It may seem like adopting a comprehensive in-unit risk management program is too much work. But think about this – what can happen if you don’t do it? How much administrative and maintenance staff time is sucked up when emergencies happen? What happens to master insurance premiums when the loss history is littered with water or other damage? How many unit owners or their tenants have an awareness of how the components of their units work or should be maintained? Thinking about these factors when conducting your 4-Point Analysis may help you to see this as an opportunity to benefit members, the Association, and staff. If so, it’s not an expense. It’s an investment.


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business life, Goals, Professional Development

The Role of Goals

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I read a Linkedin post from Ursula Burgess the other day.  I am quite sure I’ll never listen to the tune that inspired her thoughts. But her ponderings on opportunities, complacency and resilience got me thinking.

It is way too easy to stay busy yet get nowhere. Activity is fabulous at masquerading as productivity and progress. Opportunities get lost in the flood of information and other attention-grabbing stimuli, both internal and external.

Complacency

Knowing that there will likely be another opportunity tomorrow can cause complacency today. Once the pattern sets in, days become weeks, then months, then years, even decades. Goals, hopes, and dreams go unfulfilled.

It seems to me the key word in the last paragraph is “pattern.” Complacency is a passive pattern. It has the same effect as having a victim mentality in time management – the important stuff doesn’t get done. “Being intentional” is starting to feel a little like an overused cliché to me. But it is at the heart of establishing a pattern that breaks a cycle of complacency. While it should help in the effort to attain goals, intentionality starts with little things.

Little Things to Build Patterns

Here are just a few ideas for little daily actions that can help to build patterns that forge an intentional mindset and make a significant difference over time. They work because they feed both mind and heart. They work because they not only create opportunity, they make it easier to act on opportunities.

• Do a little more than you think you can do
• Do a little more than you have to do
• Do something for someone with zero expectation of return
• Commit to 1% improvement (thank you James Clear)
• Help someone who can do nothing for you
• Learn something or remind yourself of something you already know
• Stop and think for a minute to remember your Why
• Find awe
• Say thanks
• Start a list of the things and people you are grateful for and add to it daily

Goals

Goals are useful for setting direction, but should never define us. They are a means to an end, not the other way around. As Jim Rohn said, “Choose a goal for what it makes of you.” Defining yourself by your goals limits you and may set you up for failure. You may not achieve your goal for reasons beyond your control. Or you may decide to change your goals along the way. Do either make you a failure? You are more than what you achieve. You are the product of the effort it took to get there, what you learned, and the relationships you built along the way.

“Success doesn’t lie in the achievement of a goal, although that’s what the world considers success; it lies on the journey toward the goal. We’re successful as long as we’re working towards something we want to bring about in our lives. That’s when the human being is at his or her best.” 

         – Earl Nightingale

Being myopically goal-oriented may be damaging. In sports, winning is a goal. In business, profit is a goal. Coaches and CEOs that focus only on those goals without regard to the work required to reach them may succeed for a while, but it is rarely sustainable. Sooner or later, they crash and burn. Coaches that help their teams focus on playing the game well build legacies of winning. Business leaders who build cultures that stress fundamentals and taking care of people are more likely to be profitable over time. The lesson? A goal, whether it is winning, profit, or any other worthy objective, is a natural byproduct of doing the things necessary to attain them.

Context

Values, processes, systems & habits are the key. They help to set and attain meaningful goals. They set the table for progress with daily, intentional actions and it all adds up. It becomes who you are, and you continue to grow. Some days you’ll fall down. It happens. That’s where resiliency comes in. My definition of resiliency: The ability to bounce instead of splatting when you fall. The deeper the pattern of intentional action, the quicker you’ll bounce back up.

If you have any items you would add to the list of little things that help build your intentional mindset, please share!

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Useful stuff for community association leaders and the professionals who serve them