Financial Impact of COVID-19

This column discusses the financial impact on INFORMS from the pandemic and the challenges we face looking forward. The good news is that INFORMS started 2020 in excellent financial health with a substantial reserve, and we have not needed to make any major cuts to any of our operations. The INFORMS Board of Directors committed to deficit spend through the pandemic to continue to both serve our membership and promote and advance our profession. As we emerge from the pandemic in 2021, we project that INFORMS will remain in great shape. Yet, as I’ll explain below, we face uncertainties in the years to come, and we should explore how to address these challenges soon.

Pre-pandemic Perspective

To provide some perspective, I’ll begin with INFORMS’ operating budget in 2019, which had a surplus of about $300,000 and total revenue of $12.7 million. Our main sources of revenues were publications ($5.6 million), meetings ($4.9 million) and membership dues ($1.2 million). Each of these sources provided an operating surplus: $2.4 million from publications, $2.2 million from meetings and $0.7 million from membership dues.

These operating surpluses funded the organizational infrastructure (e.g., information technology, customer service) of INFORMS, as well as a range of membership services and functions. This includes public affairs and marketing of the profession, professional recognition and awards, support for our subdivisions and societies, and various educational outreach activities. As a nonprofit organization, every dollar paid to INFORMS goes back into the organization to serve our members and the public.

To get a more complete picture of our financial status, we need to also look at our savings account. INFORMS maintains a Restricted Reserve that serves two purposes – as a financial safety net in case of emergency and as a repository for accumulating funds that can then be applied to new initiatives. In 2019, INFORMS funded $1.1 million of initiatives, including an advocacy program and a major upgrade to our customer management system. At the end of 2019, we had about $17 million in the Restricted Reserve. (This amount is in line with current guidance.)

The original budget for 2020 mirrored the financial results for 2019. We planned for an operating surplus of $200,000 with total revenue of $12.9 million. We also planned to expend more than $1 million on initiatives. Then the pandemic hit, and our plans changed.

COVID-19’s Hardest Hits

The biggest financial impact of COVID-19 has been on our meetings, with both the Analytics Conference and Annual Meeting going virtual in 2020. This affected attendance and registration fees, as well as increased our operating costs. With heroic efforts from the INFORMS staff and our volunteers, both major conferences happened and provided good experiences and opportunities for our membership. Nevertheless, in 2020 the estimated operating surplus from meetings was “only” $0.5 million, which is $1.7 million less than in 2019. This was money we rely on to cover the nonrevenue-producing mission-critical activities and services.

The pandemic has also had an impact on publications and membership. Revenue from publications went down slightly as institutions tightened their budgets and accelerated the shift from print to digital subscriptions. Membership has also dropped in 2020, some due to hardship, some due to not attending a conference, and some due to lapses (renewal notifications being sent to office addresses).

Overall, INFORMS experienced an operating deficit of $1.9 million in 2020. We were able to cover half of this deficit with a PPP (Paycheck Protection Program) loan, which has been forgiven in 2021. The other half was covered from our reserves. In addition, in 2020, INFORMS scaled back funding for initiatives from $1.1 to $0.8 million.

The Post-pandemic Year

This brings us to 2021. We currently project an operating deficit of $2.3 million for 2021. This is mainly due to financial pressure on our two main businesses, publications and meetings. We project that the operating surplus for publications will fall to $1.5 million due to increased costs from our journal growth, both in number of journals and pages published; and project an operating surplus of $1 million for meetings, albeit with a large amount of uncertainty. We again had a very successful, virtual Analytics Conference, but narrowly broke even. We plan to offer the Annual Meeting in October as a flexible meeting with both in-person and remote participation. This will be particularly expensive to run, as we will incur the fixed costs for both an in-person and virtual conference. Needless to say, there is also great uncertainty as to how many members will want to travel and attend an in-person event. In addition, the board approved continued funding of $0.8 million for our ongoing initiatives, including the advocacy program, DEI programs and a scholarship program.

Again, we can fund the 2021 shortfall. We have obtained a second PPP loan of more than $900,000, and we expect this to be forgiven in the future. INFORMS can draw on its Restricted Reserve to pay for initiatives and the remainder of the operating deficit.

So, in the short term, INFORMS is fine. However, as we look out to the future, we face significant uncertainties with our revenue sources:

• Publications: We expect there to be continued pressure on our subscription prices. Our institutional subscribers are primarily university libraries, which have tighter and tighter budgets for journals. In addition, the open access movement will continue to place downward pressure on subscription fees.
• Meetings: As previously noted, we cannot predict what the new normal will be for meetings. Will we return to in-person (only) meetings, and if so, when? Or will hybrid/flexible conferences become the norm? Will there still be any interest or demand for a virtual conference?

In both cases, it is hard to know what the future will bring. On one hand, we are in great financial shape and will still have a quite sizable Restricted Reserve as the pandemic comes to an end. On the other hand, we cannot continue for many years to operate with a structural deficit on the order of $2 million per year. Over the next couple of years, we will get a better glimpse into the future prospects for publications and meetings. Fortunately, our Restricted Reserve will provide us with some time to figure out how to adapt and modify our business model so that INFORMS can continue to advance and promote the science and technology of decision-making to save lives, save money and solve problems.

Please let me know of any thoughts, questions or suggestions. As implied earlier, INFORMS may need to explore some new revenue sources; if you have any ideas, please pass them along. This may be a good topic to share with the membership in a future column. Thanks, and be well.