Chapter 20 Vehicle Maintenance Equipment And Security: Fill & Download for Free

I am currently putting together a small primer for the same on the UoQ blog. 3 chapters have been complete; more in the coming days.Structure:Chapter 1: The "risk-return tradeoff", and the need for diversificationChapter 2: The time value of moneyChapter 3: Investment criteria (NPV, IRR, Payback), and Capital rationing1. Chapter 1: The "risk-return" tradeoffFour of the most common words/phrases in Finance are interlinked. You will find people from all walks of the Financial world - be it traders, brokers, investment analysts, wealth managers, insurance agents - talking about risk, return, risk-return tradefoff, and diversification.Basic definitionsRisk: Risk is negative. It is the potential loss that can occur when you undertake any initiative. It is the uncertainty in the expected outcome of your initiative.Risk is everywhere - you risk losing all your savings if the bank goes bankrupt, or if the price of your property suddenly plummets due to a bubble burst, or your startup fails costing you your entire capital and time invested till date.Usually, instruments backed by governments (bonds, T-bills) or by large corporations (like stocks, savings accounts) are low on risk.Risk is usually measure using Standard deviation of the portfolio return.Return: Return is positive. It is the reward you get for your efforts.It can be the interest you earn from your deposits in a savings account, the dividend from a stock, the capital gain from selling a property at a price higher than you purchased it for.Risk-return trade-off: The relationship between risk and return is a fairly simple direct relationship.The higher the return desired, the higher should be the risk appetite. If there was an option where the risk was low for a high-return investment opportunity, everyone would flock to it, thus driving up its demand and lowering the return.(For relationship between supply, demand, and price, see: Supply and Demand)Basically, "no pain, no gain".Diversification: Diversification is the finance way of saying "Do not put all your eggs in the same basket".If you invest in a single financial instrument (security, stock, bond, derivative), you risk losing all your investment. However, with judicious selection of different investment vehicles and allocating your funds in an optimal manner, you can maximize your returns without increasing your risk or exposure.Portfolio: A portfolio is nothing but a collection of your various investments.So if you have $100 and you put $40 in your savings account, buy $30 worth of a 10-year bond, and buy Google stocks worth the remaining $30, those 3 will comprise your portfolio.Measuring riskLet's play a game. You invest $100. You roll a dice; based on the outcome, you get/lose some money.Roll 1: Lose 10%Roll 2: Get 20%Roll 3: Lose 30%Roll 4: Get 40%Roll 5: Lose 50%Roll 6: Get 60%Since the chances of each are equal (=1/6), the expected return (or payoff) is just a probability-weighted average.= [math] 1/6*(-10+20-30+40-50+60) [/math]= 5%However, the risk is the standard deviation,= [math] \sigma = \sqrt{\frac{1}{6} {\sum(r(e)-r(i))^2}} [/math]= [math] 38.62% [/math]The same method can be used for calculating the return and risk of any asset.Consider you invested 100 rupees in a stock on Jan 1, 2010. The value of the stock now (as of Jan 1, 2015; 5 year period) is 150. Moreover, the below is the returns on the 1st of January each year starting 2010.Jan 1, 2010: 100Jan 1, 2011: 110Jan 1, 2012: 115Jan 1, 2013: 130Jan 1, 2014: 145Jan 1, 2015: 150Since returns are compounded, you can use the formula to calculate the rate of return:[math] a*(1+r)^n = A [/math]where,a = initial investment = 100r = rate of returnn = number of years (or time periods)A = final value = 150[math] 100*(1+r)^5 = 150 [/math][math] (1+r) = \frac{150}{100}^\frac{1}{5} [/math][math] (1+r) = 1.0844 [/math][math] r = 0.0844 = 8.44% [/math]This is the average rate of return. However, the individual rates are not the same.2011: 110/100 = 10%2012: 115/110 = 4.55%2013: 130/115 = 13.04%2014: 145/130 = 11.54%2015: 150/145 = 3.45%The risk (variance) is:= [math] \sigma = \sqrt{\frac{1}{5} {\sum(8.44-r(i))^2}} [/math]= [math] 3.83% [/math]Note: Until you invest in an asset that guarantees a fixed return (fixed deposit etc), the return is never guaranteed. Most of the times, it is derived by extrapolating the historical data, and correcting it with intelligent assumptions regarding the future trajectory.Calculating the return risk of a portfolioIn the earlier section, we learnt how to calculate the risk of a single financial asset. Calculation of the risk of a portfolio containing multiple assets is slightly more complicated.Consider the following portfolio:Total = $100$30 - Facebook stocks - (expected return, risk) = (15%, 25%)$70 - Google stocks - (expected return, risk) = (12%, 20%)The expected return of the portfolio is simply a weighted average of the expected returns of the two investments.= [math] 0.3*15% + 0.7*12% [/math]= [math] 12.9% [/math]The risk however, is again slightly more complicated and is given by the formula:[math] \sqrt{(x^2*A^2) + (y^2*B^2) + 2*(x*A*y*B*{\rho})} [/math]where,x and y are the percentage share of the two stocks in the portfolioA and B are their respective risksand [math]\rho[/math] is a variable called covariance coefficient.Covariance coefficient is nothing but the degree of interdependence between the two assets. For example, if you buy stocks in 2 oil companies, there will be a high degree of covariance as they are both in the same industry and their prices might move in tandem (to the degree to which the prices are influenced by external factors, which will remain more or less same for both the companies).Covariance coefficient lies between -1 and 1. -1 for assets whose prices move completely in opposite directions (increase in 10% in one leads to decrease in 10% for another), 0 for assets whose prices are independent, and 1 for assets whose prices move in tandem in the same direction.Since Facebook and Google are both in the technology space, there covariance coefficient will be between 0 and 1 (let us say 0.4).Risk of portfolio:= [math] \sqrt{(0.3^2*25^2) + (0.7^2*20^2) + 2*(0.3*25*0.7*20*0.4)} [/math]= [math] \sqrt {336.25} [/math]= [math] 18.33% [/math]Modern portfolio theoryJust because you are willing to take more risk, does not mean that you will get higher returns. You can make a really stupid choice and invest in send money to The Nigerian Prince in hopes of receiving a multi-million dollar inheritance or promise of royalty, but that would not be a sound business decision.Modern Portfolio Theory attempts to maximize your returns for a certain level of risk you are willing to undertake.Consider the following portfolios (each dot represents one portfolio, and can be identified using just 2 parameters (expected return (y-axis), and risk (x-axis)).As you can see, the ones in the red represent sort of a boundary, or a limit. All the portfolios in red are Pareto-optimal portfolios. That means, for that amount of risk, they give you the best return.(to see this, just draw any line perpendicular to the x-axis, and see that the highest point it touches along the y-axis is the pareto optimal portfolio (highest return).A broader discussion is out of the scope of the current exercise.Diversification - what it means, and why is it needed.Diversification is nothing but spreading your investments across asset classes, industries and geographies, to disperse your risk.If you invest in a Saudi oil company, a US tech company, and a Japanese bank, you have shielded your investments both in terms of industry and geography. Political turbulence in Saudi won't affect the other two stocks; similarly a tech bubble burst will have little effect on the other two.To diversify, you will need to create a portfolio of stocks with 0 or negative covariance coefficient. Also, using the Modern Portfolio Theory, you can optimize your portfolio to get the best return.Example (from: Investing 101: How Diversification Reduces Risk)Let’s look at the returns of three mutual funds from 30 June 1989 to 30 June 2009: The Fidelity Intermediate Bond Fund (FTHRX), which holds bonds that mature in five or so years; the Vanguard 500 (VFINX), which very closely mimics the performance of the Standard & Poor’s 500 index of large U.S. stocks; and the T. Rowe Price International Discovery Fund (PRIDX), which invests in small companies from all over the world.We can make a few observations about these returns:Compounding is cool. Even by just earning approximately 6% a year, the initial investment more than tripled over two decades. Earn a bit over 9%, and you could almost sextuple your investment (and have fun saying “sextuple” to your friends).Higher return comes with higher risk. Yes, the T. Rowe Price fund posted the best long-term performance, but its worst years were really worse.You don’t always get that higher return. While the Vanguard 500 beat the Fidelity bond fund, that was due to the extraordinary returns of stocks in the 1990s. Over the past decade, U.S. large-company stocks actually have lost to bonds. (In fact, as I wrote over at The Motley Fool, the return on such stocks from 1999-2008 was even worse than the 10-year returns during the Depression.)Earning a little bit more can lead to big bucks. The annualized return of the Vanguard 500 was just 1.52% more than the annualized return on the Fidelity bond fund. Yet the difference in the amount $100,000 grew to after 20 years was huge; the Vanguard 500 earned an extra $108,568, 33% more than what an investor earned in the bond fund. I’ve said it before, and I’ll say it again: That’s the power of earning a little bit more — or paying a little bit less — over the long term. (It is pure coincidence that the difference between the returns of the two funds, or 1.52%, is very close to the average expense ratio charged by actively managed mutual funds. But it’s a telling illustration: If you’re paying that much annually to invest in a mutual fund, but not getting superior results in return, you could be giving up tens of thousands of dollars.)Investing one-third of the portfolio into each of those funds and rebalancing annually. What do you think the annual return would be?You might pick a number that is the average of the annualized returns on those funds, which would be 7.67%. But here are the actual numbers:Well, looky there. You got a return that beat the arithmetic average of the three returns. It significantly outperformed the S&P 500, and it did so with a lot less volatility (as indicated by its worst years not being as bad). By owning assets that move in different directions at different degrees and at different times, along with some regular rebalancing, you get a return that beats the average returns of the investments in the portfolio. The whole is greater than the sum of its parts.2. Chapter 2: The time value of money"A dollar today is worth more than a dollar tomorrow"The above statement portrays one of the basic sentiments of Finance, also called the "Time value of money".It basically has to do with the Opportunity cost of investment. If given the choice to take $100 now vs $100 a year later, you should always go for the 1st option. Because then you can invest the $100 for a year in your bank account which pays 5% interest per year, and the end of 1st year, you will have $105.Basically, even if offered a choice between $100 now vs $104.99 a year later, go for the 1st option (given that the Risk-free interest rate is at least 5%).A. Future value (FV)Suppose you have [math] $X [/math] right now. What will be the value of your investment [math] n [/math] years later?Assume that the risk-free interest rate is [math] r% [/math] (and is constant). The FV of your investment after [math] n [/math] years is [math] $Y [/math].Taking the compound interest formula,[math] Y = X(1+r)^n [/math]A general formula will be:[math] Y = X(1+r_1)(1+r_2)(1+r_3)..(1+r_n)[/math]where [math](1+r_i)[/math] is the risk free interest rate in the [math]i^{th} [/math] year.All of the above is obviously assuming annual compounding.If interest is compounded continuously, the formula becomes,[math] Y = Xe^{(nt)} [/math]B. Present value (PV)The same formula can be tweaked to get the PV of any future cash flows from investments.B.1. Single cash flow in future:Taking the same example as above, suppose you get [math] $Y [/math], [math] n [/math] years from now, and [math] r [/math] is the risk-free interest rate, the PV of the cash flow is:[math] X = \frac{Y}{(1+r)^n} [/math]B.2. Series of equal cash flows:Suppose you have leased your house for [math] n [/math] years and you will be getting [math] $Y [/math] per year. The PV of the total [math] n [/math] cash flows will be:[math] X = \frac{Y}{(1+r)} + \frac{Y}{(1+r)^2} + \frac{Y}{(1+r)^3} + ... + \frac{Y}{(1+r)^n} [/math]Which is nothing but an geometric progression with multiplier = [math] \frac{1}{1+r} [/math][math] X = \frac{Y}{(1+r)} \frac{(1-\frac{1}{(1+r)^n})}{1-\frac{1}{(1+r)}} [/math][math] X = Y(\frac{1}{r} - \frac{1}{r(1+r)^n}) [/math]B.3. Series of cashflows (not equal):A more general formula that considers different cashflows, [math]C_1[/math], [math]C_2[/math], ... , [math]C_n[/math] and different rates of return [math]r_1[/math], [math]r_2[/math], ... , [math]r_n[/math] for the n periods is:[math] X = \frac{Y_1}{(1+r_1)} + \frac{Y_2}{(1+r_2)^2} + \frac{Y_3}{(1+r_3)^3} + ... + \frac{Y_n}{(1+r_n)^n} [/math]C. Perpetuities and annuitiesThe example in B.2. is what is called an annuity.A perpetuity is a special case of an annuity that pays a fixed sum every year for eternity.which is nothing but,[math] X = Y(\frac{1}{r} - \frac{1}{r(1+r)^n}) [/math][math] X = \frac{Y}{r}(1 - \frac{1}{(1+r)^n}) [/math]with n [math] \rightarrow \infty [/math]Now as n [math] \rightarrow \infty [/math] , [math]\frac{1}{(1+r)^n}[/math] [math] \rightarrow [/math] [math] 0 [/math]So, we get[math] X = \frac{Y}{r} [/math]Interesting observation: An n-year annuity is nothing but the difference between two perpetuities, one starting right away, and one starting from [math](n+1)^{th}[/math] year.Proof: A perpetuity starting from year 1 is given by:[math] X = \frac{Y}{r} [/math]So a perpetuity starting from year (n+1) is given by.[math] X = \frac{Y}{r(1+r)^n} [/math]Diff of the two is:[math] X = \frac{Y}{r} - \frac{Y}{r(1+r)^n} [/math]which is nothing but the annuity formula from B.2.For more details, check out: Present value, Future value, Principle of value additivity, Net present value, Perpetuities and annuitiesD. Growing PerpetuitiesTakingthe same example as in B.2, with one exception:The payout increases at the rate [math] g [/math], where [math] g. The formula for this perpetuity is: [math] X = Y\frac{(1+g)}{(1+r)} + Y\frac{(1+g)^2}{(1+r)^2} + Y\frac{(1+g)^3}{(1+r)^3} + ... [/math]or, [math] X = \frac{Y}{(r-g)} [/math]Of course, if [math]g=r[/math], or [math]g>r[/math], the series is an infinite, non-converging series, that does not have a sum.E. Problems and other resourcesPage on westga.eduPage on econ.yorku.caPage on jmu.eduPage on uncw.eduPage on csun.edu3. Chapter 3: Investment Criteria and Capital RationingThis chapter will deal with investment decisions, i.e., how and when to say YES or NO to a proposal. There are many ways to evaluate the same.A. NPV (Net Present Value)In the previous chapter, we saw that the PV of a series of cashflows is given by:[math] X = \frac{Y_1}{(1+r_1)} + \frac{Y_2}{(1+r_2)^2} + \frac{Y_3}{(1+r_3)^3} + ... + \frac{Y_n}{(1+r_n)^n} [/math]While investing, you will have to put in money at the beginning of the venture. This is a 'negative' cash flow for you.So,[math] NPV = Y_0 + \frac{Y_1}{(1+r_1)} + \frac{Y_2}{(1+r_2)^2} + \frac{Y_3}{(1+r_3)^3} + ... + \frac{Y_n}{(1+r_n)^n} [/math]Where [math]Y_0[/math] is the initial investment that you need to make, and will be negative.Investment criteria:[math] NPV > 0 [/math]Example: (from: Net present value (NPV) method)The management of Fine Electronics Company is considering to purchase an equipment to be attached with the main manufacturing machine. The equipment will cost $6,000 and will increase annual cash inflow by $2,200. The useful life of the equipment is 6 years. After 6 years it will have no salvage value. The management wants a 20% return on all investments.We have:[math] Y_0 = -$6000 [/math][math] Y_i = $2200 [/math][math] n = 6 [/math][math] r = 20% [/math][math] \therefore NPV = -6000 + \frac{2200}{1+0.20} + \frac{2200}{(1+0.20)^2} + ... + \frac{2200}{(1+0.20)^6} [/math]= [math] 1,317 [/math]which is [math] >0 [/math]Hence, the investment is a sound decision.Notice the term, salvage value. In this case it was 0; however, in most normal day cases, you can salvage some amount by selling the equipment at the end of its lifecycle.In this case, the NPV will increase by an amount,[math] \frac{Y_s}{(1+r)^n} [/math]where, [math] Y_s[/math] is the salvage value.B. IRR (Internal rate of return)Definition: IRR or The DCF (Discounted Cash Flow) rate of return is the rate at which the NPV of the project becomes zero, i.e.[math] NPV = Y_0 + \frac{Y_1}{(1+r_1)} + \frac{Y_2}{(1+r_2)^2} + \frac{Y_3}{(1+r_3)^3} + ... + \frac{Y_n}{(1+r_n)^n} =0 [/math]Calculation of NPV is a slightly tricky method. It is usually done by trial and error. You have the cashflows, you take a good guess for the IRR and calculate the NPV. If the NPV > 0, the actual IRR should be greater than your guess (and vice-versa). Repeating this process will narrow down the range of your IRR.Investment criteria:[math] IRR > (Opportunity cost of capital) [/math]However, IRR, as a method also has some drawbacks:#1. It can give results that directly conflict with the NPV method.From: Advantages and Disadvantages of the NPV and IRR MethodsAssume once again that Newco needs to purchase a new machine for its manufacturing plant. Newco has narrowed it down to two machines that meet its criteria (Machine A and Machine B), and now it has to choose one of the machines to purchase. Further, Newco has assumed the following analysis on which to base its decision:Figure 11.6: Potential Machines for NewcoAnswer:We first determine the NPV for each machine as follows:NPVA = ($5,000) + $2,768 + $2.553 = $321NPVB = ($10,000) + $5,350 + $5,106 = $456According to the NPV analysis alone, Machine B is the most appropriate choice for Newco to purchase.The next step is to determine the IRR for each machine using our financial calculator. The IRR for Machine A is equal to 13%, whereas the IRR for Machine B is equal to 11%.According to the IRR analysis alone, Machine A is the most appropriate choice for Newco to purchase.The NPV and IRR analysis for these two projects give us conflicting results. This is most likely due to the timing of the cash flows for each project as well as the size differential between the two projects.#2: There can be multiple rates of return for a single project.This happens when there is a combination of outflows and inflows during the lifetime of the project (a common scenario).From: Internal Rate Of Return Unconventional cash flows are common in capital budgeting since many projects require future capital outlays for maintenance and repairs. In such a scenario, an IRR might not exist, or there might be multiple internal rates of return. In the example below two IRRs exist - 12.7% and 787.3%.This is due to the fact that there are more than 1 sign change (once from -ve to +ve (Year 0 - Year 1) and then from +ve to -ve (Year 1 - Year 2).As a rule of thumb,total number of sign changes = number of rates of returnFurther reading: Internal rate of return: A cautionary taleC. Payback PeriodPayback period is the number of years in which the initial investment is recovered via the cash flows from the project.It is fairly simple to calculate.Consider the example above:[math] Y_0 = -$6000 [/math][math] Y_i = $2200 [/math]The cash flow after year 3 will be [math] 2200*3 = 6,600 [/math], which is greater than the initial investment of [math] 6000 [/math].Hence [/math] Payback_period = 3 [/math]which is [math] <4 [/math], and hence the investment is a sound one.Investment criteria:[math] Payback\:Period < N [/math]where [math] N [/math] is the cutoff decided by the firm or the individual. For example, if a company wants all of its investments to breakeven before 4 years,[math] N = 4 [/math]Discounted payback:In calculating payback period, we only considered the cash flows; however, we must discount them at the appropriate rate of return. Since the company decided on 20%, we will use that:The discounted cashflows are:[math] Y_i = \frac{2200}{(1+0.20)^i} [/math]or [math] 1833.33, 1527.78, 1273.15, 1060.96, 884.13, 736.77 [/math]Now after year 3, total discounted cash flow is [math] 4634.26 [/math] which is [math] < 6000 [/math]After year 4, it is [math] 5695.22 [/math], still less than the initial investment. Only after year 5, does it exceed [math] 6000 [/math] ( [math] 6579.35 [/math]).So, [math] Discounted\:Payback\:Period = 5 [/math], which is [math] >4 [math].Hence, the investment should not go forward.D. Capital rationingYou always do not have enough money to invest everywhere. The same is the case with companies.Definition: Capital rationing is the process of allocating your limited resources in a way to maximize the return (optimal allocation problem).From: Capital Rationing ExampleAn Example: (Firm’s Cost of Capital = 12%)Independent projects ranked according to their IRRs:Project Project Size→ IRRE $20,000→ 21.0%B 25,000 →19.0G 25,000→ 18.0H 10,000→ 17.5D 25,000 →16.5A 15,000→ 14.0F 15,000 →11.0C 30,000 →10.0No Capital Rationing - Only projects F and C would be rejected. The firm’s capital budget would be $120,000.Existence of Capital Rationing - Suppose the capital budget is constrained to be $80,000. Using the IRR criterion, only projects E, B, G, and H, would be accepted, even though projects D and A's IRR is higher than our cost of capital but we can not include because of our capital budget is limited upto $ 80000.However, this is not the best method. Ordering the options in decreasing order of return might not always give the optimal allocation. For that, you will need to construct all possible combinations of investments (investment portfolios) and check their total return.Let's say you have 7 optionsOption 1: Investment $5, NPV $10Option 2: Investment $5, NPV $9Option 3: Investment $1, NPV $6Option 4: Investment $1, NPV $5Option 5: Investment $1, NPV $4Option 6: Investment $1, NPV $3Option 7: Investment $1, NPV $2Now if your total budget is $10, and you see the ranked list of investment options, you will select {Option 1 + Option 2}, for a total NPV of $19.However, you could have done better by selecting {Option 1 + Option 3 + Option 4 + Option 5 + Option 6 + Option 7}. In this case your total NPV is $30.Further reading:Page on university.akelius.dePage on kfupm.edu.saPage on www.economics-sociology.euhttp://wps.aw.com/wps/media/objects/222/227412/ebook/ch09/chapter09.pdfExtra. Reading materialFinancial Markets (2011) with Robert Shiller (23 part lecture series from Nobel-prize winning economist)Financial Theory with John GeanakoplosTutorials | InvestopediaFinancial Concepts: Introduction | Investopedia

Definitely. The individual is a target. This goes for vehicles too.In the military it a part of Pursuit.“Chapter 7PursuitIn pursuit you must always stretch possibilities to the limit. Troops having beaten the enemy will want to rest. They must be given as objectives, not those that you think they will reach, but the farthest they could possibly reach.Field Marshal Viscount Allenby of Meggido, Order to XXI Corps, 1917A pursuit is an offensive operation designed to catch or cut off a hostile force attempting to escape, with the aim of destroying it (JP 1-02). Pursuit operations begin when an enemy force attempts to conduct retrograde operations. At that point, it becomes most vulnerable to the loss of internal cohesion and complete destruction. A pursuit aggressively executed leaves the enemy trapped, unprepared, and unable to defend, faced with the options of surrendering or complete destruction. The rapid shifting of units, continuous day and night movements, hasty attacks, containment of bypassed enemy forces, large numbers of prisoners, and a willingness to forego some synchronization to maintain contact with and pressure on a fleeing enemy characterize this type of offensive operation. Pursuit requires swift maneuver and attacks by forces to strike the enemy's most vulnerable areas. A successful pursuit requires flexible forces, initiative by commanders at all levels, and the maintenance of a high operational tempo during execution.CONTENTSOrganization of ForcesFrontalCombinationControl MeasuresPlanning a PursuitExecuting a PursuitGain and Maintain Enemy ContactDisrupt the EnemyFix the EnemyManeuverFollow Through7-1. The enemy may conduct a retrograde when successful friendly offensive operations have shattered his defense. In addition, the enemy may deliberately conduct a retrograde when—He is reacting to a threat of envelopment.He is adjusting his battlefield dispositions to meet changing situations.He is attempting to draw the friendly force into fire sacks, kill zones, or engagement areas.He is planning to employ weapons of mass destruction.Therefore, the friendly force must always consider the enemy's actions whenever it sees an opportunity to conduct a pursuit.7-2. Division is the lowest echelon equipped with the intelligence assets to determine if the enemy is conducting a retrograde under Army of Excellence tables of organization and equipment. When faced with enemy attempts to break contact, lower echelons act to maintain contact until a division or corps commander directs them to initiate a pursuit operation.7-3. Unlike an exploitation, which may focus on seizing key or decisive terrain instead of the enemy force, the pursuit always focuses on destroying the fleeing enemy force. This is seldom accomplished by directly pushing back the hostile forces on their lines of communication (LOCs). The commander in a pursuit tries to combine direct pressure against the retreating forces with an enveloping or encircling maneuver to place friendly troops across the enemy's lines of retreat. This fixesthe enemy in positions where he can be defeated in detail. If it becomes apparent that enemy resistance has broken down entirely and the enemy is fleeing the battlefield, any type of offensive operation can transition to a pursuit.7-4. Conducting a pursuit is a calculated risk. Once the pursuit begins, the commander maintains contact with the enemy and pursues retreating enemy forces without further orders. The commander maintains the pursuit as long as the enemy appears disorganized and friendly forces continue to advance. Like exploitation, pursuit tests the audacity and endurance of soldiers and leaders. In both operations, the attacker risks becoming disorganized. Extraordinary physical and mental effort is necessary to sustain the pursuit, transition to other operations, and translate tactical success into operational or strategic victory.7-5. The commander must be aware of any approaching culmination point. The enemy is usually falling back on his supply base, and potentially on fresh units, while friendly forces become less effective as they expend resources faster than they can be replaced. Reasons to discontinue the pursuit include the presence of fresh enemy forces, greatly increased resistance, fatigue, dwindling supplies, diversion of friendly units to security missions, and the need to contain bypassed enemy units.7-6. Those plan, prepare, and execute concepts introduced previously continue to apply during a pursuit. Assessment concepts described in FM 6-0 and FM 6-22 also apply. The commander modifies them as necessary to account for the specific existing factors of METT-TC.ORGANIZATION OF FORCES7-7. Normally, the commander does not organize specifically for a pursuit ahead of time, although he may plan for a pursuit as a branch or sequel to his offensive operation. Therefore, he must be flexible to react when the situation presents itself. The commander's maneuver and sustainment forces continue their ongoing activities while he readjusts their priorities to better support the pursuit. He acquires additional support from his higher headquarters in accordance with the factors of METT-TC. For most pursuits, the commander organizes his forces into security, direct-pressure, encircling, follow and support, and reserve forces. The commander can employ available airborne and air assault units as part of his encircling force because of their ability to conduct vertical envelopments. Given sufficient resources, there can be more than one encircling force. The follow and support force polices the battlefield to prevent the dissipation of the direct-pressure force's combat power. Appendix B addresses the duties of a follow and support force. The reserve allows the commander to take advantage of unforeseen opportunities or respond to enemy counterattacks.7-8. There are two basic organizational options in conducting a pursuit; each involves a direct-pressure force. The first is a frontal pursuit that employs only a direct-pressure force. The second is a combination that uses a direct-pressure force and an encircling force. The combination pursuit is generally more effective. Either the direct-pressure force or the encircling force can conduct the decisive operation in a combination pursuit.FRONTAL7-9. In a frontal pursuit, the commander employs only a direct-pressure force to conduct operations along the same retrograde routes used by the enemy. (See Figure 7-1.) The commander chooses this option in two situations. The first is when he cannot create an encircling force with enough mobility to get behind the enemy force. The second is when he cannot create an encircling force capable of sustaining itself until it links up with the direct-pressure force. Either situation can occur because of restrictive terrain or because an enemy withdraws in a disciplined, cohesive formation and still has significant available combat power.Figure 7-1. Frontal PursuitCOMBINATION7-10. In the pursuit, the most decisive effects result from combining the frontal pursuit with encirclement. (See Figure 7-2.) In the combination pursuit, the direct-pressure force initiates a frontal pursuit immediately on discovering the enemy's initiation of a retrograde operation. This slows the tempo of the enemy's withdrawal (or fixes him in his current position if possible), and may destroy his rear security force. The direct-pressure force's actions help to set the conditions necessary for the success of the encircling force's operation by maintaining constant pressure. The encircling force conducts an envelopment or a turning movement to position itself where it can block the enemy's escape and trap him between the two forces, which leads to complete annihilation.Figure 7-2. Combination Pursuit7-11. The direct-pressure force conducts hasty attacks to maintain contact and apply unrelenting pressure until it destroys the enemy force. The direct-pressure force prevents enemy disengagement and subsequent reconstitution of the defense and inflicts maximum casualties. It forces the enemy to deploy frequently to delay the direct-pressure force and restricts his ability to disengage and rapidly move away. The direct-pressure force must be at least as mobile as the enemy. Heavy forces are ideally suited to this role, but the commander can employ light forces if the enemy is also foot-mobile. The direct-pressure force organizes to conduct a movement to contact and must be able to conduct a series of hasty attacks. It must be powerful enough to defeat enemy rear guard actions and maintain pressure on the enemy's main body.7-12. The mobility of the encircling force must be equal—preferably superior—to the withdrawing enemy. If there is no inherent mobility differential, the commander must create one. This differential can also result from the direct-pressure force forcing the enemy to deploy. The commander can enhance, and sometimes create, this mobility advantage by conducting countermobility operations against the enemy, specifically targeting locations such as choke points or bridges that will hinder the fleeing enemy's withdrawal. Heavy, air assault, and airborne forces are well suited for this mission. Attack helicopters are also effective when used as part of the encircling force. The encircling force must be strong enough to protect itself from the enemy's main body and slow or stop it until the friendly direct-pressure force can combine with the encircling force to destroy the enemy. It must be capable of mounting a hasty defense without placing itself at risk of annihilation. The encircling force must be self-contained since it normally operates out of supporting range of friendly indirect-fire systems. Therefore, it frequently has its supporting artillery attached. The primary mission of the encircling force is to prevent the enemy's escape by trapping him between the encircling force and the direct-pressure force. The commander can assign other missions to the encircling force, such as—Destroying the enemy's weapons of mass destruction and their delivery means.Linking up with airborne or air assault forces in their airheads.Reporting terrain conditions and other combat information beyond that normally addressed in the unit standing operating procedures.The commander can assign the encirclement mission, wholly or in part, to available airborne or air assault units because their vertical envelopment capabilities allow friendly forces to be inserted deeper into enemy-controlled territory than would be possible with ground operations. The time required to plan airborne operations and stage airlift platforms impacts on the utility of airborne forces in small-scale pursuit operations.7-13. The direct-pressure and encircling forces require engineer support to create lanes through obstacles, which enables them to move rapidly and continuously. The commander should place his engineers well forward in his movement formations to quickly breach any obstacles that cannot be bypassed. Engineers accompanying the encircling force must also be prepared to conduct countermobility and survivability tasks.CONTROL MEASURES7-14. The commander uses control measures to retain his tactical options to converge on the most important axis or to redirect his pursuit effort on a new axis. These control measures should be flexible and capable of rapid adjustments to reflect changing conditions. This flexibility is also necessary when engaging advancing enemy reserves or counterattack forces.7-115. Centralized planning and decentralized execution characterize the pursuit. The commander balances the need to prevent fratricide with the need to allow subordinates to take advantage of fleeting opportunities in a pursuit with rapidly moving forces and a rapidly changing situation. The commander designates an area of operations (AO) for each maneuver unit involved in the pursuit. He establishes few control measures for the direct-pressure force other than phase lines and checkpoints because of the pursuit's nature. He uses these phase lines to designate a forward and rearward boundary for the direct-pressure force. The forward boundary relieves the direct-pressure force of any responsibility beyond the forward boundary. It also gives the higher headquarters flexibility to deal with the encircling force and enemy elements located beyond that forward boundary. The rear boundary becomes the boundary between the direct-pressure force and the follow and support force.7-16. If the encircling force is a ground element, the control measures are almost identical to those of an envelopment. The commander must designate a route, an axis of advance, or an AO adjacent to that of the direct-pressure force to allow the encircling force to move parallel to and eventually get ahead of the fleeing enemy force. He designates a terrain objective as a guide for the encircling force. (See Objective HAWKE in Figure 7-3.) However, he may change this objective rapidly and frequently, based on the progress of the encircling force and the enemy. The objective should be a piece of ground that provides the encircling force good, defensible terrain that the enemy cannot easily bypass. The commander often selects choke points, such as defiles and bridges, as objectives for his encircling force.Figure 7-3. Pursuit Control Measures7-17. The commander establishes a boundary or a restricted fire line between the encircling force and the direct-pressure force before the encircling force reaches its objective. He establishes other fire support coordinating measures (FSCM) around the area currently occupied by the encircling force to relieve it of unnecessary fire support coordination responsibilities. He directs security operations beyond the encircling force, allowing it to engage the withdrawing enemy without devoting resources to flank and rear security. The commander establishes additional control measures to control the convergence of both elements of the friendly force, such as phase lines and contact points.PLANNING A PURSUIT7-18. The commander anticipates an enemy retrograde operation as either a branch or a sequel to the plan. The plan should identify possible direct-pressure, encircling, follow and support, and reserve forces and issue on-order or be-prepared missions to these forces. The commander should employ the maximum number of available combat troops in the pursuit. He bases the details of his plan on the enemy's anticipated actions, the combat formation of the attacking troops, and the amount of planning time available. The commander also considers—Possible routes the enemy might use to conduct his retrograde operations.Availability of his intelligence, surveillance, and reconnaissance assets to detect enemy forces and acquire targets in depth.Scheme of maneuver.Availability and condition of pursuit routes.Availability of forces to keep the pressure on the enemy until his destruction is complete.Critical terrain features.Use of reconnaissance and security forces.Allocation of precision-guided munitions and aviation support.Availability of CS and CSS resources.Pursuit planning must address the possibility of defending temporarily during operational pauses while making preparations to continue the pursuit or to consolidate gains. However, the use of an operational pause generally results in the abandonment of the pursuit because the enemy is able to use that time to organize a coherent defense.7-19. The commander must specifically address how to detect the enemy retrograde operations; otherwise, the enemy may succeed in breaking contact. The commander relies on active reconnaissance, an understanding of enemy tactics, and knowledge of the current tactical situation. He must watch for signs that indicate the enemy is preparing to conduct a retrograde, such as when the enemy—Lacks the capability to maintain his position or cohesion.Conducts limited local counterattacks.Intensifies his reconnaissance and intelligence efforts.Increases the amount of rearward movements and changes the type of elements conducting them, especially by fire support and reserves.Prepares his facilities, installations, equipment, and supply stock-piles for demolition and destruction.Decreases fire in intensity and effectiveness through the AO.Increases his fires in one or more individual sectors of the front, which does not appear to be in accordance with the developing situation, and at a time when the amount of defensive fires seems to be decreasing.The presence or absence of any of the above signs may not necessarily indicate the start of a retrograde operation. The enemy could be attempting to draw friendly forces into an ambush or setting up a counterattack as part of his defense. The decision of when to start a pursuit is part of the art of tactics.7-20. When the commander initiates a pursuit, he often creates the encircling force from uncommitted or reserve elements. Normally, these forces do not have fire support assets allocated to them. The commander must plan how to redistribute his fire support assets to properly support the encircling force. Attack helicopters and close air support are well suited to support the encircling force.7-21. Engineer mobility and countermobility assets are instrumental in sustaining the rate of advance and hindering the enemy's withdrawal. Engineers prepare the route of advance and support the lateral dispersion of units transitioning to the pursuit and the movement of the reserve. During the pursuit, the commander must plan for his engineers to provide assault bridging and emergency road repairs to sustain the tempo of the pursuit. The commander also plans to use his engineer assets to block any bypassed enemy's withdrawal routes by using antitank and command-operated mines, demolitions, and obstacles.7-22. Logistics units should plan for increases in the demand for fuel and maintenance as the tempo of operations increases. In the pursuit, priority of logistics normally goes to units having the greatest success. Logistics planners need to anticipate success since the depth of the pursuit depends on the capability of logistics assets to support the operation. The logistics elements supporting the pursuing force should be as mobile as possible. Logistics planners are particularly concerned with supporting the encircling force, such as casualty evacuation over possibly unsecured LOCs. The commander may need aerial resupply or heavily guarded convoys to support this force. Security for logistics convoys and LOCs are major planning considerations.7-23. The commander uses all available logistics assets to provide essential support to the force pursuing the enemy. His pursuit plan must result in a force prepared to conduct wide-ranging operations using all available maneuver assets throughout his AO to complete the destruction and morale collapse of the enemy force.EXECUTING A PURSUIT7-24. The decisive operation in a pursuit destroys the withdrawing enemy. This generally occurs as a result of encircling the enemy between the direct-pressure and the encircling forces or a major geographic barrier—such as an unfordable river—and his defeat in detail. The timely and correct decision to initiate a pursuit is critical to its success. If the enemy begins a retrograde undetected, he avoids the constant pressure that results in disrupting that operation. The commander expects the enemy forces to conduct retrograde operations at times advantageous to them—usually at night or during bad weather.7-25. A pursuit is often conducted as a series of encirclements in which successive portions of the fleeing enemy are intercepted, cut off from outside support, and captured or destroyed. (Appendix D discusses encirclement operations.) The direct-pressure force conducts a series of hasty attacks to destroy the enemy's rear security force, maintain constant pressure on the enemy's main body, and slow the enemy's withdrawal. At every opportunity, the direct-pressure force fixes, slows down, and destroys enemy elements, provided such actions do not interfere with its primary mission of maintaining constant pressure on the enemy's main body. The direct-pressure force can bypass large enemy forces if it can hand them off to follow and support units, or if they do not pose a risk to the direct-pressure force.7-26. As soon as the commander designates a unit as the encircling force and directs its actions, the force moves as swiftly as possible by the most advantageous routes to cut off the enemy's retreat. If the encircling force cannot move farther and faster than the enemy, it attacks the enemy's main body from the flank. When this occurs, the commander should constitute and dispatch a new encircling force.GAIN AND MAINTAIN ENEMY CONTACT7-27. At the first indication of an enemy retrograde, the brigade or lower-echelon commander who discovers the enemy's rearward movement acts to maintain contact with the enemy across a wide area without waiting for orders from higher headquarters. This ensures that the enemy does not break contact and conduct an orderly retirement. These forces in contact constitute the nucleus of the direct-pressure force. As the situation permits, they reform into a movement column with reconnaissance and security elements in the lead and, if necessary, to the flank.7-28. During a pursuit, the reconnaissance effort is intensive. Reconnaissance elements concentrate on all routes the enemy could use when conducting a retrograde operation. These elements provide information on the disposition of retreating enemy formations and on the forward movement of his reserves as the pursuit develops. The tactical situation during a pursuit may become obscure because of its potential depth. Much of the combat information needed during a pursuit is located behind the fleeing enemy force. Therefore, air reconnaissance, backed by technical intelligence systems, is vital to the overall reconnaissance effort. It can determine—The beginning of the rearward movement of enemy sustainment forces.The composition of retrograding forces and their direction of movement.The composition and direction of enemy reserve forces moving forward.The nature of obstacles and intermediate defensive positions.Information about fresh enemy reserves and prepared positions is vital at the stage when a pursuit force may be approaching a culminating point; it may be the basis for terminating the pursuit.7-29. The primary mission of the encircling force's reconnaissance assets is to find routes for the encircling force to allow it to move behind withdrawing enemy units and establish blocking positions. This mission may force these reconnaissance assets to operate outside the supporting range of the main body as they try to maneuver behind the retrograding enemy force. The encircling force avoids combat when possible until it reaches its assigned objective area. However, en route to its objective, it overruns any small enemy positions while bypassing larger enemy units. Forward security elements of the encircling force conduct activities to prevent the enemy from interfering with the forward movement of the encircling force's main body. These security elements move rapidly along all available roads or routes and overrun or bypass small enemy pockets of resistance. If they encounter strongly held enemy positions, they attempt to find routes around or through these positions. The encircling force can then avoid these enemy positions and occupy blocking positions before withdrawing enemy forces can reach them. If necessary, the encircling force organizes a hasty defense behind the enemy to block his retreat.DISRUPT THE ENEMY7-30. Keeping the enemy from reconstituting an effective defense is critical to success. Constant pressure by direct-pressure forces and echelon fire support systems disrupts and weakens the enemy. The commander uses lethal and nonlethal direct and indirect fires to keep pressure on the enemy. The enemy commander must not be allowed to freely adjust his dispositions to counter the actions of the friendly force. Artillery fire and air strikes harass and disrupt the enemy's attempts to move engaged forces to the rear or bring previously uncommitted forces into action. In a pursuit, decisive operations may include the ground maneuver of the direct-pressure or the encircling force. Fire support targets in a pursuit include fires on enemy columns and troop or vehicle concentrations at road junctions, defiles, bridges, and river crossings. They also include the repulsion of enemy counterattacks, destruction or delay of enemy reserves, and destruction of the enemy's fire support means. The commander conducts offensive information operations against the enemy's command and control (C2) system as an integral part of this disruption process, with emphasis on destroying or degrading the enemy's capability to reconstitute and synchronize an effective defense.FIX THE ENEMY7-31. Using movement and fire effects or fire potential, the commander fixes a withdrawing enemy. If the direct-pressure force disrupts the enemy's C2 system, his ability to counter friendly efforts is significantly degraded, and the goal of fixing the enemy is much easier to accomplish.7-32. The enemy attempts to use his reserves to restore the integrity of his defenses or prevent his withdrawing force from being overrun. Fixing enemy reserves is essential to the pursuit's success and is normally the focus of echelon shaping operations. The direct-pressure force fixes enemy reserves in place or slows them down so that they remain outside supporting distance until the withdrawing enemy force is completely annihilated.MANEUVER7-33. To execute the pursuit, the commander normally combines a frontal pursuit with an encirclement. The direct-pressure force conducting the frontal pursuit advances in a column formation as quickly as possible. After a penetration, existing gaps between the different units of the direct-pressure force are likely to increase in size. Aware of the vulnerability of his open flanks in this situation, the commander must deploy his reserves where they can respond to dangers on his flanks. He does not expect a uniform rate of advance on all axes. Some columns may move rapidly while others are still engaged in penetrating the enemy's rear guard defensive positions or meeting enemy counterattacks.7-34. The actions of the direct-pressure force should facilitate the commitment of an encircling force that moves parallel to the rearward-moving enemy. The depth of the pursuit depends on the size of the forces involved. It takes a division-level or higher commander to make the decision to initiate a pursuit because of the resources necessary to conduct a pursuit. The commander directing the initiation of a pursuit informs his higher commander of his intentions. This allows even greater resources to be devoted to the pursuit and avoids desynchronizing the higher headquarters' major operation or campaign.7-35. The direct-pressure force normally employs an advance guard to prevent the enemy from ambushing the main body of the direct-pressure force and to overrun or bypass small enemy forces. The security element moves on multiple avenues of advance. If it encounters enemy units beyond its capacity to defeat, it conducts actions on contact to develop the situation. The commander uses combat information provided by these actions on contact to guide the main body of the direct-pressure force to destroy withdrawing enemy forces. These actions of the direct-pressure force may or may not be in conjunction with the actions of any encircling force.7-36. The commander does everything possible to place his encircling force behind the withdrawing enemy and trap the bulk of that enemy force between the encircling force and the direct-pressure force. The direct-pressure force maintains enough pressure on the withdrawing enemy force so the encircling force can envelop it. To perform this task, the direct-pressure force must be strong enough to overcome any enemy rear guard before the enemy's main body can make a successful withdrawal. Once in position, the encircling force defends or attacks as necessary, responding to the enemy's actions and those of the direct-pressure force to complete the enemy's encirclement.7-37. The pursuing force must not give the enemy time to reorganize for an all-around defense after it is encircled. If the enemy forms a perimeter, the pursuing commander must repeatedly split it into smaller elements until he destroys the encircled enemy force. If time is not critical, the commander can keep the encirclement closed, defeat enemy breakout attempts, and weaken the enemy by fires alone. He can greatly accelerate the collapse of a large, encircled enemy force by using psychological operations, precision-guided weapons, and improved conventional munitions in mass. (Appendix D addresses the reduction of an encircled enemy force.) If the resulting encirclement does not destroy the withdrawing enemy force, the commander conducts additional pursuit operations until the enemy is destroyed.FOLLOW THROUGH7-38. Once the commander initiates a pursuit, he continues pursuing the enemy until a higher commander terminates the pursuit. Conditions under which a higher commander may terminate a pursuit include the following—The pursuing force annihilates or captures the enemy and resistance ceases.The pursuing force fixes the enemy for follow-on forces.The high commander makes an assessment that the pursuing force is about to reach a culminating point.7-39. A pursuit often transitions into other types of offensive and defensive operations. If the enemy attempts to reorganize, forces conducting a pursuit execute hasty attacks. They conduct an exploitation to capitalize on the success of these attacks and then move back into pursuit. Forces conducting a pursuit may also transition into a defensive operation if the pursuing force reaches a culminating point. This usually occurs when the enemy introduces strong reinforcements to prepare for a counteroffensive.”FM3-90 Chapter 7 Pursuit

Endowments offer benefits to the nonprofit organization, to the donor, and the fundraiser.An excerpt from Diana Newman’s book Nonprofit Essentials, Building EndowmentTo The Organization:There are advantages of a significant and growing endowment to the board of directors, CEO, officers, fundraisers, and staff members of the nonprofit organization. Here is a list of at least some of the benefits:▪ Creates an ongoing source of income. Because a permanent endowment is an invested pool of money that provides a reliable source of income in perpetuity, the organization can count on annual distributions for its charitable work. Funds may be designated for endowment by the donor or by the board of directors. With appropriate investment and spending policies, the endowment’s purchasing power will be preserved. Thus, a fund that generates income to operate a reading recovery program for elementary students today can be designed to produce income to run the same program 20 years from now and beyond. The endowment also grows over time with additional gifts from multiple donors.▪ Enhances stability and prestige. A well-managed endowment sends a message of planned long-term stability, fiscal responsibility, and financial viability. It enhances the organization’s prestige and credibility.▪ Relieves pressure on the annual fund. Annual fund goals tend to rise right along with the cost of providing services and operating the organization, but the ability of the annual fund to meet increasing demand is not limitless. An endowment can provide annual support for the organization’s operating budget.▪ Allows program expansion. Program expansion can be funded with distributions from endowment funds used for scholarships, faculty chairs, staff positions, lecture series, research, facility maintenance, equipment and supplies, and for any other purpose designated by the donor or by the board of directors.▪ Provides independence. Endowment contributions designated for specific purposes can provide a measure of independence from economic, governmental, and political forces. For example, an Indiana retirement community was in danger of losing its chaplain when the board resolved to terminate all programs except those that generated enough income to be self-sustaining. The chaplaincy program survived, however, after a concerned donor made a gift of endowment funds that were sufficient to support the program. The program continues and also enjoys a measure of independence from the need to generate income to support itself.▪ Offers flexibility for management. Endowments offer options to meet new challenges by providing greater financial flexibility and self-sustaining income streams. Endowments can augment uncertain income sources, broaden the overall revenue mix, improve the income statement, and provide leverage for bond-rating capacity and loans for new facilities.▪ Builds pipeline of future gifts. A growing endowment builds a pipeline of gifts that will mature in the future, because many endowment gifts are designed to be used at a future date, often upon the death of the donor. An organization that attracts deferred gifts enhances its future financial security and positions itself to enjoy increasingly larger gifts in the future.▪ Encourages outright gifts. Outright gifts as well as other kinds of planned gifts are encouraged by building an endowment. Donors who have decided to make an endowment gift to the organization are likely to make gifts to the organization’s annual and capital campaigns as well. After all, they have already made a commitment to the organization’s futureTo the Donor Endowment contributions—both those that create new funds and those that add to existing funds—provide numerous benefits to donors, which the development staff must understand and be able to articulate to prospective contributors and to their financial and legal advisors.To The Donor:Endowment contributions—both those that create new funds and those that add to existing funds—provide numerous benefits to donors, which the development staff must understand and be able to articulate to prospective contributors and to their financial and legal advisors.▪ Perpetuates the donor’s values and priorities. An endowment gift can perpetuate the donor’s values in the wake of change; it can provide assurance that programs that are important to the donor will survive. By creating or adding to a permanent endowment for a designated purpose, the donor seeks to enable and obligate the organization to carry out his or her expressed wishes, so long as it is practical and possible to do so. A restricted endowment can ensure organizational support for the donor’s priorities.For example, the Indiana donor who established the chaplaincy endowment at the retirement community did so because he valued the chaplain’s services during his wife’s stay at the center, and he wanted to ensure that the program would continue even during budget crises at present or in the future.▪ Creates a sense of immortality. Because an endowment gift will be invested permanently, it can serve as a permanent tribute to the donor and extend the donor’s values for future generations. It can offer the donor a sense of immortality, a way to define the donor’s place in the cosmic scheme of things through support of an important cause.▪ Makes significant investment in the future. Many donors make larger endowment gifts, often through planned giving vehicles, than they dreamed were possible. Endowment gifts are sometimes the donor’s last (and largest) gift to the organizations they value most. Donors can receive great satisfaction from making a significant contribution from assets accumulated over their lifetimes. In the case of deferred planned gifts, the gifts may be the donors’ final acts of contributing to the organization or the work that they find most valuable.▪ Endows annual gifts. An endowment gift gives donors the option to perpetuate their annual gifts. For example, the $100 per year donor might make a $2,000 endowment gift in order to continue annual gifts of $100 to the organization in the future. This concept is often appealing to the consistent older donor. For example, an 82-year-old woman who had given $1,200 to her local chapter of the Multiple Sclerosis Society each year since her husband was diagnosed with multiple sclerosis 15 years earlier found comfort in creating a $25,000 deferred endowment, which, at 5%, generated the same $1,200 annually for the Society following her death.▪ Allows incremental funding. Some donors do not want to give away their assets during their lifetimes, yet they want to see the benefits of the gift immediately. They establish endowment gifts through bequests or other gift vehicles that take place after their lifetimes. Then they make gifts annually that represent the amount that would have been distributed from the endowment if their gift had already been received. In this way, their annual gifts can provide the support currently that their planned gift will provide eventually.▪ Provides lifetime income. Some kinds of endowment gifts—split interest gifts—pay income to the donor for life, with the remainder going to the charity’s endowment after the donor’s death. These kinds of gifts can provide stable income to the donor during retirement or can help the donor meet family obligations.▪ Alleviates management burden. Some donors, particularly as they become older, are uneasy with managing their assets and making investment decisions. A split interest gift enables the donor to receive regular income for life without the burden or cost of managing investments.▪ Permits additions at a later time. An endowment fund can be added to later. The donor, or the donor’s friends and family, can add to a named fund from time to time by simply identifying the fund as the object of the gift. It makes a handy vehicle for people, especially family members, who wish to make meaningful gifts to people who already have enough “stuff.”To The Fundraiser:The fundraising professional who is charged with overseeing the growth of the endowment—and all other fundraisers on the staff—must understand the advantages of a large and growing endowment from their standpoint if they are to make endowment building a priority.▪ Protects against ever-increasing annual fund goals. Endowments can protect against unreasonable, ever-increasing annual fund goals. Many organizations attempt to balance their budgets by increasing annual fund goals, even when the goals are not realistic or attainable. A significant endowment offers the opportunity to mitigate difficult economic circumstances and even out the organization’s inclination to focus solely on short-term annual fundraising goals.▪Offers options to donors. Increasingly, sophisticated donors expect endowments as an option. Fundraisers want and need to have a full array of giving opportunities to offer donors. Endowments are attractive for all of the reasons described previously and, often, because they do not have as much pressure of immediacy that exists with annual or capital gifts.▪ Devotes resources toward it. Once endowment building is institutionalized, the organization’s resources—staff, board, money, time—are consistently devoted to it. Fundraisers at organizations committed to growing endowments spend at least a portion of their time with prospective endowment donors and talk about the endowment routinely with all prospective donors. Small and midsized organizations may have limited staff and other resources, but they can still carry out a strategic endowment program, even if it is scaled back. Organizations with large staffs make endowment building the full-time responsibility of one or more staff members. The development program, regardless of the size of the organization, balances its efforts to bring in dollars today while building an endowment for the future. Fundraising professionals spend time growing the endowment and are measured appropriately for their efforts, as discussed in more detail in Chapter 8.▪ Attracts new donors. Endowments often tap new and different donors for support. These donors focus on gifts of assets rather than cash, and gifts from net worth rather than cash flow. Because of their opportunity for long-term and future focus, endowments attract committed visionaries. After endowment donors have made their commitments, they often become consistent annual donors as well, because they have made significant commitments to the organization’s future.▪ Focuses on the donor’s objectives. Endowment fundraising demands a donor-centered focus. Endowment fundraising helps leadership and fundraising staff members remember that the donor is in control of the gift. The donor’s money and the donor’s dream drive the gift. The donor determines the size and form of the gift. The donor determines the timing of the gift. The organization must be prepared to focus on meeting the donor’s intellectual, psychological, and financial needs. Even though the organization may want unrestricted current contributions, the donor’s wishes trump the organization’s needs every time. The organization must be willing to be as visionary as the donor, perhaps taking risks in programmatic and financial areas.[1]Footnotes[1] The Benefits of an Endowment