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Outsourcing Task Force Presentation To The Board of Directors. September 22, 2010. Topics To Be Covered. Outsourcing in General Background and History in Ocean Pines Outsourcing Group (Task Force) Charge and Options Available Timeline of Activities From Inception in July

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Presentation Transcript
topics to be covered
Topics To Be Covered
  • Outsourcing in General
  • Background and History in Ocean Pines
  • Outsourcing Group (Task Force) Charge and Options Available
  • Timeline of Activities From Inception in July

to Sept. 15, 2010

  • Outsourcing Benefits to Ocean Pines Golf and Food and Beverage Operations
  • Conclusions
  • Recommendations
outsourcing
Outsourcing

What Is It?

  • Contracting with an independent party to perform certain functions, manage certain operations or segments of an entity’s business
  • A fee is paid to the management company for its services
  • The entity continues to be responsible for the success and effectiveness of the operations

What Is It Not?

  • It is not a lease
  • It is not transferring the risks and rewards of ownership to the management company (the bottom line profit and loss is retained)
  • It is not giving up control
outsourcing cont d
Outsourcing (cont’d)

Why Do It?

  • A management company is engaged because it has experience and resources which the contracting entity does not presently have, and can perform better than the client
  • The benefits are a better managed operation
  • The improvement in operations, either better performance or improved profitability, provides a greater benefit than the costs of the management company (fees and other costs)
background history in ocean pines
Background & Historyin Ocean Pines

Outsourcing in OP:

  • Food and Beverage (F&B)
    • Management Contract for Yacht Club F&B Operations:
      • 1986-1992 Marriott Corporation
      • 1993-1998 Canteen Corporation
  • Golf
    • Outsourcing Discussed Since at Least 2006
    • In 2006 Consultants to OP stated:

“Hiring an Outside Management Company at OPCC is a reasonable option.”

background and history cont d
Background and History (cont’d)

Sept. 2009 – Golf Task Force Mission: (Co-Chairs Dave Stevens and Marty Clarke) “Eliminate the operational deficit suffered by our golf operations. The Task Force is to explore and recommend specific actions, beyond those goals by generating revenues through increased play and sales.”

background history cont d
Background & History (cont’d)

Sept. 16, 2009- Golf Task Force states in its Report:

  • “The group chose to address options within the existing management framework although it was aware that there are golf management companies and that outsourcing is a possibility. However, the GTF believes that we can improve within the current framework and will leave it to others to pursue more radical alternatives.”

Jan. 26, 2010- At a Regular Board Meeting:

  • Director Bob Thompson questions why Outsourcing of Golf Operation has not been considered or evaluated.
background and history cont d1
Background and History (cont’d)

Feb. 17, 2010 – At Regular Board Meeting, following a presentation by Bob Thompson and a discussion of Outsourcing of Golf Operations, Board adopts the following Motion:

  • “Be it resolved that in an effort to stabilize our underperforming asset of golf facility, the Board of Directors act on the receipts from KemperSports and RDC, two outside Golf Course Management companies, unsolicited requests to come in and discuss the possibility to manage our golf course. The presentations should include their respective approaches, experience and past success in golf course management.”
background and history cont d2
Background and History (Cont’d)

April 16,2010

  • Casper Golf, KemperSports and RDG Golf make presentations to the Board and the Golf Advisory Committee (GAC)

April 2010

  • Two of presenting firms note their experience and capabilities in managing F&B Operations and interest in submitting a proposal. Approval given and proposals subsequently received
background and history cont d3
Background and History (cont’d)
  • April - GAC is requested to evaluate whether OP’s Golf Operation should be outsourced and how to proceed with the proposals received
  • June 2 - Private Clubs Associates makes presentation to a group comprised of several Directors and several GAC members.
  • June 23 –GAC votes to recommend to Board that OP Golf Operation be outsourced to a management company.
background history cont d1
Background & History (cont’d)
  • June 24 – Special Meeting of the Board to consider Outsourcing. Discussion of Outsourcing Golf and F&B Operations results in unanimous approval of the following Motion:

“. . . that the Board of Directors authorize the President and General Manager to undertake the necessary actions to select an organization, or organizations, with which to enter into a contract to manage the Association’s golf operation and food and beverage operations. The selection of the firm, or firms, and the resulting proposed contract, or contracts, will be subject to approval by the Board.”

background and history cont d4
Background and History (cont’d)
  • Week of June 28 –President Bill Rakow asked Director, Pete Gomsak to lead the effort to carry out the Board’s directive, and creates a small group to do so.
task force charge options available
Task Force Charge & Options Available
  • First week of July - Bill Rakow forms small group(Outsourcing Task Force)
  • Members

Pete Gomsak, Board Member

Joe Lynch, GAC Member

Jim Yates, Clubs Advisory Committee Member

Jim Beisler, Former BOGG President

Dan McCarthy, Owner/Operator of several restaurants (later withdrew due to time demands)

  • Chairs of GAC and Clubs Committee advised by Bill Rakow of Plan
  • Board advised by Bill Rakow of his plan to carry out Board’s directive
task force charge options cont d
Task Force Charge & Options (cont’d)
  • Clarification of Role and Options Available to it Requested from President Bill Rakow on July 13th
  • Role was Clarified and is Summarized as Follows:
    • Evaluate the Proposals Received
    • Select the Firm Best Suited to Enter into a Management Contract with OP to Manage the Golf and F&B Operations
    • (Alternatively, If one firm is better suited to manage Golf and another F&B, then select two firms)
    • Determine and Negotiate Contract Terms with the Firm, or Firms, Chosen
    • Make a Recommendation to the Board Regarding a Proposed Contract
task force charge and options cont d
Task Force Charge and Options (cont’d)
  • Options Available:
    • Expand Number of Firms Considered
    • Conclude that Outsourcing Is Not Beneficial for OP and Not Recommended
    • Conclude that both Golf and F&B Operations Should be Outsourced
    • Conclude that One Operation Should be Outsourced, but not the Other
    • Conclude that Outsourcing would be Beneficial, but the “Cost-Benefit” Relationship is such that Outsourcing is Not Recommended
timeline of activities from inception in july to sept 15 2010
Timeline of Activities FromInception in July to Sept. 15, 2010
  • July 8th – First Meeting
  • Week of July 12th
    • Decided to interview each firm under consideration
    • Developed specific questions for interviews
  • Week of July 19th
    • Interviewed three firms (Casper, Kemper & PCA)
    • Decided to not expand. Discussed and clarified role, objectives, and process
    • Decided to visit 2 clients each of Casper & Kemper
  • Week of July 26th

Two-day trip to visit:

Virginia Oaks Club (Gainesville,Va)

Heritage Hunt Club (Gainesville,Va)

Swan Point Club (La Plata,Md)

  • Week of August 2nd
    • Visited Colonial Heritage Club (Williamsburg, VA)
    • Pete returned to Gainesville, VA to meet with HHC Board Member involved in their search and contract negotiations
timeline of activities cont d
Timeline of Activities (cont’d)

Week of August 9th

  • Met with Marini Group re unsolicited offer to lease Yacht Club
  • Debriefed visits to four client locations
  • Concluded unanimously that both Golf and F&B Operations should be outsourced
  • Agreed that next major step was to conduct a “cost-benefit” analysis
  • Agreed to go forward with only 2 firms: Casper and Kemper
  • Agreed to request Casper & Kemper to develop 3-year pro forma financial info
timeline of activities cont d1
Timeline of Activities (cont’d)

Week of August 16th

  • Additional info provided to Casper & Kemper
  • Briefed OP Acting GM, Bill Rakow, and Bob Thompson, Incoming GM

Week of August 23rd

  • Additional visits by Casper and Kemper Representatives
  • Pro Forma Info received and distributed
  • Analysis and Summary of Pro Formas Prepared
timeline of activities cont d2
Timeline of Activities (cont’d)

Week of August 30th

  • Received and discussed Pro Forma Info
  • Updated Directors Unger, Terry and McLauglin on status
  • Further reference checking via phone discussions
  • Pre-arranged conference calls with Casper and Kemper re Pro Forma Info and Key Contract terms, including fees
timeline of activities cont d3
Timeline of Activities (cont’d)

Week of Sept. 6th

  • Discussion of Proposed Time-Line for Recommendations to Board
  • Developed and Submitted Follow Up-Questions and Received Formal Responses
  • Met with Bob Thompson and Tom Terry to Update
  • Met with Directors Stevens and Purcell, who had been out of town, to update
  • Met with Clubs Advisory Committee Chair, Bill Wentworth, and Member, Audrey Wahl, to update
timeline of activities cont d4
Timeline of Activities (cont’d)

Week of Sept. 13th

  • Met with new Director Rick Handelman to update
  • Also met with Bill Hickey, Chair of BOGG and GAC Member, to update. (Chair was not available.)
  • Approved Incentive Fee Formula, Providing for a Sliding Scale
  • Decided to Submit our Recommendations to Board at Sept. 22nd Meeting, due to need to make a decision soon
  • Unanimously agreed on Selection of one firm to recommend OP enter into contract with to manage both the Golf and F&B Operations. Recommend contract be executed ASAP, but not later than end of Oct.
  • On Sept. 15th, Finalized Outsourcing Task Force Report to Board and personally Distributed to Board Members on Sept. 6th.
benefits applicable to both golf and f b
Benefits Applicable toBoth Golf and F&B
  • Experience and Proven Success of Management Firm
  • Extensive and Sophisticated Marketing
  • Comprehensive Employee Training
  • Human Resource Management – Evaluations, Motivation, etc.
  • Physical Facility Improvements
  • Systems and Controls
benefits cont d
Benefits (cont’d)
  • Broad Support Resources
  • Enhanced Communications (Member, Employees, Outside World)
  • A Strategic Focus
  • National Purchasing Programs (Better Pricing)
  • Career Advancement Opportunities for Employees
  • Improved Financial Performance
golf specific benefits
Golf Specific Benefits
  • Extensive Golf Course and Maintenance Experience
  • Agronomy Expertise and Resources
  • Cross Marketing Potential – From Other Clients
  • Name Recognition and National Reputation – More Play
food beverage specific benefits
Food & Beverage Specific Benefits
  • Extensive Experience in Restaurant Operations
  • Improved Quality of Food and Service
  • Broader Range of Menu Selections and Price Points
  • More Effective Management of Staff
  • Market Research Capabilities – Determine What Members Want
  • Creative and Effective Marketing
conclusions1
Conclusions

We See Significant Benefits to Entering into a Contract to Manage both the Golf and Food and Beverage (F&B) Operations of the Association

  • Initial Focus was on the Benefits for the Golf Operation
  • Initial Skepticism about the F&B Benefits
  • Visits to Client Locations and Discussions with Members was Invaluable
  • Concluded that Linking both Golf and F&B was Highly Desirable
  • Further Concluded that for OP the Potential Benefits of Outsourcing F&B Were Greater Than for Golf
  • Many of the Benefits to be Derived from the Knowledge and Experience Are Common To Both Operations
conclusions cont d
Conclusions (cont’d)

The Financial Cost of Outsourcing Only One of the Two Operations Results in a Limited Net Financial Benefit

  • Whether the Contract covers one or both functions, a management firm General Manager would be in place
  • The additional management fee to include the second operation is fairly modest
  • Contracting for Golf only would result in costs which would approximate the expected improvement in operational financial results in the first two years of a contract.
  • Contracting both results in better “cost-benefit” relationship
conclusions cont d1
Conclusions (cont’d)
  • A 3-Year Contract should be entered into with terms including a Base Fee and an Incentive Fee, based on financial performance and a qualitative assessment of performance
  • The Reporting Relationship should provide the Management Firm’s on-site, full-time General Manager to report to the Association’s General Manager
  • There should be a small group working with OP’s General Manager to, periodically and annually, evaluate performance and meet with Management Firm Representatives
conclusions cont d2
Conclusions (cont’d)
  • One firm is a better choice for Ocean Pines than the other firm
  • The effective date of the Contract should be no later than Oct. 31st and earlier would be better
  • Contract draft has to be negotiated completely
  • OP process will involve separate reviews by Contract Review Committee and Legal Counsel
  • 2011 Golf Season requires finalization of rates, and decisions on marketing strategies for “Package Play” in November
  • Positively impacting F&B Operations ASAP would be beneficial
recommendations
Recommendations
  • We strongly recommend that the Board of Directors authorize and direct the President to enter into a Management Contract with Billy Casper Golf to manage the Association’s Golf Operations and Food and Beverage Operations (All Locations)
  • We further recommend that the Contract incorporate the key provisions set forth in our Report to the Board of Directors dated September 15, 2010, and be executed and made effective as soon as possible, but not later than October 31st.
timeline of current consideration of outsourcing
Timeline of CurrentConsideration of Outsourcing
  • 2006 – Considered Outsourcing Golf, But No Action Taken
  • Sept. 2009 – Decision Made by Golf Task Force not to consider Outsourcing, but rely on Current Model, and add a part-time position for Marketing, primarily focused on “Package Play”
  • Jan. 2010 – Outsourcing Golf possibility raised at Board meeting by Director, Bob Thompson
  • Feb. 2010 – Board approved evaluating Golf outsourcing
  • April 2010 – Received several proposals from management companies to manage both Golf and F&B
timeline cont d
Timeline (cont’d)
  • May-June – Golf Advisory Committee evaluates Outsourcing Golf
  • June 23 – GAC makes recommendation to Board to outsource Golf
  • June 24 – Board authorizes President and GM to select firm and negotiate contract for management of Golf and Food and Beverage Operations, subject to approval by Board
  • July 1 – Outsourcing Task Force Organized by President Bill Rakow
  • July 8 – Sept. 15 – Task Force evaluates outsourcing options; interviews management companies and performs due diligence, including visits to client locations; develops information on costs and benefits of outsourcing; evaluates proposals received; and negotiates basic terms with management companies
  • Sept. 15 – Task Force completes Report to Board
  • Sept.16 -- Personal distribution of Report to Board Members