W e are thinking about doing piano quintets next year. We realize that it will increase our expenses. And the logistics will get more complex by adding another member to the group. We have a vague idea that there must be ways to calculate and anticipate quantitatively what the advantages and disadvantages would be, financially. But none of us really has any background in that. Is there anyplace we should look, for pointers on how to figure that out?”Many ensembles’ formation can be credited to organic causes—shared “motives, means, and opportunities” the founding members have, that incline them to commit a certain species of musical ‘crimes’ together; similar personalities and temperaments; compatible work schedules and living arrangements, enabling convenient rehearsals and coordinated travel to performance locations. Other ensembles’ origins are more tactical or happenstantial—having to do with chance availability to collaborate in a particular configuration; a viola or a cello is needed and what was imagined at the outset to be transient grows into something enduring.
But increasingly ensembles look to add repertoire that will enhance the group’s repertory breadth, and provide timbral contrast and broadened ‘curb’ appeal. Frankly, the latter probably has more to do with creating market differentiation in a classical music competitive environment that is more crowded and fragmented than ever before. For presenters hungry for artists who will perform exciting, seldom-performed literature, it’s a way to construct a [yet-more-] special ‘experience’ that will attract attendees who do not ordinarily subscribe, and bond [yet-more-] tightly with regular patrons.
Easier said than done, though. Each change in programming or personnel brings marginal (incremental) income and marginal (incremental) expenses. Logistics inevitably become more complex if the ensemble grows or the repertoire involves auxiliary members. Unless your ensemble has a member already whose skills and natural propensities lean toward finance and operations, quantitatively planning and managing those incremental changes can be daunting. [For those of you who are so inclined, there are several decent non-profit management books below that you will find helpful.]
In my view, the far more difficult aspect is figuring out what the options are that you can do and that have market appeal and address an unmet need that nobody else is filling. You start with the chicken, or you start with the egg. In smaller cities / college towns, you may have the colleague (egg) at hand—the one whose instrument and playing and preferred repertoire and personal tendencies are well-known to you—and you try to devise a way of integrating that person into your ensemble or add repertoire to specifically utilize that resource as auxiliary to the regular ensemble. In larger cities, you may have the concept and the repertoire to realize that concept well in mind (chicken)—and you try to locate a copascetic colleague to help make it happen.
But it’s probably harder to find and integrate a copascetic violist into a piano trio (piano, violin, cello) than adding a pianist to three-quarters of a string quartet (violin, viola, cello). [Supply and demand! Demographics, by instrument! Sociology, of those who self-select to play each instrument! Asymmetric versatility, based on size and diversity of literature various instruments force performers to assimilate. Instruments’ ‘personalities’! Acyclic directed-graph theory, to account for all of the above! Arggh!]
Aspects regarding particular ensemble instrumentations are nicely covered in the new second edition of the Maurice Hinson - Wesley Roberts book . I’ve had a used copy of the excellent 1977 first edition on my shelf but had not seen the new edition until recently. It’s a wonderful book for many reasons, not least of which is the treatment it provides of ‘unusual’ ensembles. Admittedly, it addresses this from the perspective/premise ‘ensembles-one-member-of-which-is-piano’, and the repertoire cited is exclusively that which has the prerequisite piano part, but the principles and discussion readily generalize to other ensembles that are piano-less.
In a way, adding a member, even as an occasional or auxiliary to your regular ensemble, is a kind of ‘security infrastructure’, to help protect the market viability of the ‘product’ your ensemble is offering. And the return-on-investment (ROI) for infrastructure of any kind can be difficult to quantify. Some companies don’t even try to quantify ROI for infrastructure, and go ahead and implement it based more or less on instinct or qualitative argments.
Here is a very basic equation for calculating the ROI, one that neglects the time-value-of-money (applicable interest rate):
ROI% = [(Payback - Investment)/Investment)]*100
The payback is the total amount of incremental money earned from your investment in your ensemble. Investment is the incremental amount of expense incurred, to generate the payback. (Of course, if payback is less than your investment, then ROI can be negativenot a good thing.)
At some point, calculating the ROI for ‘infrastructure’ becomes unnecessary, because the capabilities the infrastructure enables are both mission-critical and readily understood by others. For example, when is the last time any commercial business required an ROI analysis to decide whether or not to invest in enabling infrastructure such as computers or e-mail? The same might be said for your decisions about ensemble repertoire or personnel adjustments. Quantitative ROI for EOUS can be viewed as somewhere between ‘very difficult’ and ‘not necessary’, between a leap of faith and a matter of course.
If, however, your ensemble’s operating expenses are underwritten by a foundation or other sponsor who requires a quantitative financial analysis from you, you may find yourself forced to justify the marginal expenses in terms of the marginal income that will be generated—in terms of the improved operating ratio that your proposed ensemble personnel changes make possible. If you are in such a situation, have a look at the books in the link list below. Your cost estimates should be captured for a reasonable period of time, typically two to three years. Put those in your pro forma financial statement—your Excel spreadsheet [click link to open example template sheet] showing rows of income items and expense items and columns for each year. In considering a variable-ensemble framework, however, here are three obvious, but important, caveats:
- Use incremental analysis. ‘Total Cost of Ownership’ (TCO) calculations [‘ownership’ of the EOUS ‘asset’ that your modified ensemble and its expanded repertoire represents] should include only those investments that are incremental to those that have already been made and that are directly attributable to the EOUS ‘asset’.
- Use the line-item veto. Variable ensemble configurations with thematically-varied or period-varied repertoire is a sophisticated approach with many available options, and obviously not all options are required for each season. If a particular cost element doesn’t apply to a particular season within your pro forma planning horizon, don’t include it. Structure your plan with a ‘Plan B’ and a Plan C’ so that you can gracefully accommodate contingencies that may arise, with reduced impact on the ensemble’s overall market and income and with minimal risk to the financial health of the core ensemble.
- Keep costs in perspective. TCO is a perfectly appropriate metric for ROI calculations if one or more of the sources of your funding requires you to prepare a financial justification for the programming you wish to undertake, but cost is certainly not the sole criterion for vetting what repertoire you will offer. Qualitative justification, in terms of social diversity or other arguments, may be equally persuasive depending on the mission and remit of the funding organization or state. Your regular management agency should be able to assist with ‘qualitative’ justifications—it is within the scope of management, servicing, and public relations services that are the routine province of managers.
- DeThomas A, Grensing-Pophal L. Writing a Convincing Business Plan. Barron's, 2001.
- BusinessCase.com pro forma financial statement templates
- Hinson M, Roberts W. The Piano in Chamber Ensemble: An Annotated Guide. 2e. Indiana Univ, 2006.
- Malvern J, McCarthy J, Shelmon N. Financial and Accounting Guide for Not-for-Profit Organizations. 7e. Wiley, 2008.
- McDavid J, Hawthorn L. Program Evaluation and Performance Measurement: An Introduction to Practice. Sage, 2006.
- Poister T. Measuring Performance in Public and Nonprofit Organizations. Jossey-Bass, 2003.
- Stowell R. Cambridge Companion to the String Quartet. Cambridge Univ, 2003.
- Berklee College of Music MB-201 Principles of Business Management.
- Batts S. Rodents of Unusual Size (ROUS) Exist! Retrospectacle Scienceblog 18-DEC-2007.