Coleman Art Museum Case Analysis

Coleman Art Museum Case Analysis

Major Issue: The Coleman Art Museum recorded its third consecutive annual loss in 2004. Ashley Mercer, director of development and community affairs at the Museum, and Donald Smith, director of finance and administration at the Museum met to discuss what recommendations they should make to the Museum’s Board of Trustees that would reverse the current financial situation. The major issue is what recommendations should Mercer and Smith make?

Alternative 1: Mercer and Smith should recommend a 10% reduction of personnel and administrative expenses. Personnel expenses have increased $877,000 or about 82% from 2003 to 2004 and administrative expenses have increased $432,000 or about 13% from 2003 to 2004, for a combined increase of $1.3 Million or 30%. The annual loss in 2004 was $383,000 so if personnel and administration expenses had maintained 2003 levels the museum could have easily turned a great profit (even though turning a profit is not their goal). They most probable way to reduce these expenses is to downsize and reduce non-critical staff.

Advantages:

1) The advantage of reducing personnel and administrative expenses by 10% is reaching break-even point much quicker. A 10% reduction would amount to $575,000. With the current annual loss of $383,000 it is clear that this alternative would get the museum to break-even point much quicker.

2) With the decrease in appropriations from Fannel County by almost $400k, cost cutting will definitely be needed. The likelihood of finding other sources of revenue that can absorb the current annual loss and the decrease in county appropriations is very unlikely. Any strategy will need to look at the expense side and this is a good first step in that direction.

3) The organization will be leaner and less bureaucratic. It will be much easier to manage and the current staff will be forced to look for more efficiency and be more creative as work will be spread among fewer...