Environmental Analysis

Environmental Analysis

Introduction

This analysis will consist of the identification of the industry in which my organization operates. It is important to identify key macroeconomic variables and their direct effect on the industry. This analysis has two charts that identify the relationship between two main macroeconomic variables and the corresponding industry variables over the last five years. I will also identify operating challenges and opportunities for the industry my organization is involved in.

I work for an organization specializing in offering foster care, adoption, counseling and information workshops to individuals in the community. The organization focuses on finding a stable foster or prospective adoptive home for abused and neglected children and their siblings. Although the agency is part of a non-good producing market, it does have a few products available to the public; the concentration however, is on providing services for their families, placing them in the nonprofit social service industry.

Macroeconomics is defined by McConnell (2004) as the examination of the economy as a whole or its aggregates (collection of units). These units are also known as macroeconomic variables. There are several key macroeconomic variables that affect the industry in which I work; inflation, high interest rates, and unemployment. My organization is nonprofit and relies on funding from the government, in the form of grants as well as donations from the community and private individuals. When receiving funds in this manner, variables such as inflation and high interest rates will affect the social service industry. When inflation occurs government spending and budgets are cut. For the most part, the social service industry is one of the areas directly affected by these fluctuations. There is less money available to sustain these programs and therefore nonprofit organizations have to decrease the services available. High interest rates also affect the money contributed to the organization. Borrowers are less inclined to pursue loans when interest rates are higher, whether the money goes for business or personal reasons. Sometimes, nonprofit organizations will contract with outside agencies for services; higher interest rates mean those agencies have less of a money supply, affecting the amount of business between the two entities. Tied into the above mentioned variable is also unemployment. There are two ways in which the agency is affected by unemployment. When there is less money available for the organization, there is less money to hire new personnel, which directly affects the turnover rate within the industry. The social service field has a high level of turnover; unfortunately, the paychecks do not match the amount of work and responsibility involved in this line of work. When the agency doesn’t have enough funding, it adds responsibilities to the job descriptions of the current employees. Someone responsible for one department is expected to handle three departments. Social workers whose typical caseload is 10 families are required to carry 15-20 families. The amount of work involved in ensuring the daily success of the children within the organization is extreme; the amount of pressure doubles when the agency is suffering from budget cuts and therefore, employees choose to leave.

When unemployment is high, the agency begins to have trouble recruiting prospective foster or adoptive families, which directly affects the amount of money the agency receives from the government. Families dealing with unemployment are less inclined to accept a child into their home whether it is through foster care or adoption. They are unwilling to make themselves responsible for providing medical attention, clothing, food, etc. to another household member, for fear there is not enough income coming in. The government expects the nonprofit agency to maintain a certain amount of families they serve; unemployment lowers these numbers, which significantly decreases the amount the agency receives.

The following charts are representative of the two macroeconomic variables I found most important to my organization, unemployment and inflation, and the corresponding industry variables.

Year Unemployment Rate Unemployment Rate Change

2002-2003 6.7 6.8 0.1

2003-2004 6.8 6.2 -0.6

2004-2005 6.2 5.4 -0.8

2005-2006 5.4 4.9 -0.5

2006-2007 4.9 5.4 0.5

Year Inflation Rate Inflation Rate Change

2002-2003 1.59% 2.27% 0.68%

2003-2004 2.27% 2.68% 0.41%

2004-2005 2.68% 3.39% 0.71%

2005-2006 3.39% 3.24% -0.15%

2006-2007 2.85% 3.24% 0.39%

Unemployment/Inflation Rates 2002-2007

Year Unemployment Rate Unemployment Rate Change

2002-2003 6.7 6.8 0.1

2003-2004 6.8 6.2 -0.6

2004-2005 6.2 5.4 -0.8

2005-2006 5.4 4.9 -0.5

2006-2007 4.9 5.4 0.5

Year Inflation Rate Inflation Rate Change

2002-2003 1.59% 2.27% 0.68%

2003-2004 2.27% 2.68% 0.41%

2004-2005 2.68% 3.39% 0.71%

2005-2006 3.39% 3.24% -0.15%

2006-2007 2.85% 3.24% 0.39%

Unemployment/Inflation Rates 2002-2007

Social Services Industry