Trustees' role in financial decisions

To compensate for the uncertainty inherent in financial decision making and alleviate the problem of information clutter, trustees can take three steps to ensure that their decisions promote the organization's well-being: Mandate a minimum standard of performance. Identify and raise questions about critical variables. Monitor performance of proposals undertaken. Achieving a minimum rate of return allows fund balances to grow at a rate consistent with asset growth; thus the standard is consistent with survival. As a guide, trustees can use market interest rates on U.S. government bonds, which reflect investors' expectations of the economy's real growth rate as well as the future inflation rate. Questioning a proposal's authors is a powerful means to clarify assumptions about the critical variables underlying their cash flow estimates. Monitoring performance after financial decisions are undertaken is an important way to improve the information that accompanies proposals yet to be presented. Although monitoring cannot undo the damage of having undertaken a flawed proposal, it likely will lead to more careful refinement of the assumptions made in calculating future proposals.