Cost of Living

Why Another Cost of Living Index System?

In today’s environment, a credible missionary compensation system needs to incorporate an objective cost of living adjustment.  This adjustment….

  • Will help the system comply with IRS expectations,
  • Will better provide for the needs of field staff, and
  • Can effectively communicate with donors when inflated budgets are necessary.

To date, that data has generally been deficient or very expensive.  As a result, many have declined to use it.  ACMin has worked to find a good source of cost of living data that is affordable for everyone.  A wide array of data was investigated that ranged from free off the Internet, to the very expensive options.

Unfortunately, the only sources that were reasonably reliable as presented were the “very expensive” options.  But, even they had their difficult-to-resolve deficiencies, and sometimes were off the mark.  So, the search broadened in an effort to find what was usable and not usable about all the options, and whether those problems could be overcome.  Of course, the predictable response of ACMin to most of those options was… “We don’t like anything about it.”  There were hopeful elements residing in some of the options.  Making those elements usable however, would require extracting data, and blending those different sources… overcoming their use of differing methodologies.  Here is a simplified summary of the factors that become a part of the solution.

Source One  – Good, But Must be Supplemented

1.  One reliable source produces a good index, but they produce data very infrequently for a given location.  Furthermore, the data was generally overstated for missionary applications.  That is all unacceptable.  That source was used for years by many agencies, but was abandoned because of the infrequent updates and inflated data.

This system is US based, and is used for a wide range of expatriates, including middle wage earners at generally the same income level as many missionaries.  Data is consistently higher than a missionary profile would produce, because of more emphasis on expensive categories like eating out, transportation, and recreation.  That difference is rather consistent and predictable, so average links to that data can provide suitable results.

This source uses at least two assumptions that are more applicable than the current leading provider.  If these assumptions apply, they can lead to notably lower data.  Unfortunately for staff in those locations, the lower numbers are most appropriate. Those important assumptions are:

  • They use the best available legal exchange rate.  Others use only the official rate.
  • They make selection substitutions where expatriates in country indicate they are satisfactory and financially advantageous.  Other providers allow no substitutions.

Source Two – Inappropriate, but consistently wrong in the short term

2.  There is another reliable source that produces data regularly for many expatriates, but their pricing and spending pattern assumptions are unsuitable for missionary personnel.  Fortunately, the inappropriate results of this methodology do move up and down consistently for US based expatriates.  The numbers are wrong, but they do seem to be consistently wrong over a reasonable period of time.

Lending to the desirability of this data are the following factors:

  • Surveys are conducted as deemed needed by in-country personnel.  Exchange rate adjustments are implemented as the rates change.  Other times, inflationary adjustments are made when the need and extent are observable.
  • They also use an “operational” exchange rate in pricing survey items, not the official rate.
  • This system was updated in year 2000 in order to enhance its credibility and maintain consistency.

Source Three – Unreliable, but may help identify issues 

3.  A third, widely used commercial service is available and will be utilized as needed.  This service’s methodology is not reliable enough for determining cost of living, but data is issued that loosely reflects the “Cost of HIRING” in many places around the world.  It will not be used in the determination of index data, but it will be used as a control feature.  It will not answer questions, but it will help us ask the right questions.

Plan Strategy 

4.  Perhaps the key ingredient to this system:  Even with the ability to extract the best from each of these systems, a cost effective and user-friendly tool will need to be (and is) available to resolve uncertainties which WILL surface.  The tool will also be available to link known host locations to remote host locations for which data is not available from any provider.  This much needed feature is not available with any current provider of missionary cost of living data at any cost.

So… the challenge.  Develop a series of linkages that will reflect increases and decreases in the  index data between the publishing dates of the one credible source.  That has been done, and the result is a solid system that has applicability for the missionary community.  Credible data has now been developed for nearly 200 locations.  Unfortunately, the total process is very time consuming, and that makes it impractical for most individual missions to operate.  Additionally, it is obvious there are uncertainties that will need to be resolved.  Few agencies have the time or inclination to become that involved in the field parity system for missionaries.  That need for knowledgeable administration of data , and the cost factor, was the motivation for ACMin to step up and provide this service.

Perhaps the only downside is the potential for occasional “catch-up” adjustments in a few very volatile locations.  When the trusted data is published, the new link could lead to an uncomfortable change in the field parity adjustment if swings have been so frequent and extreme that the respective sources have not been able to keep up.  In cases where that happens, even the more expensive data has generally been deficient.  That downside is unfortunate, but not insurmountable.  The adjustments can be phased in slowly if desired.

Creative Solutions

Agencies that currently use data with which they are comfortable, can link ACMin’s beginning data to their ending data.  That will prevent troublesome changes in the missionary compensation in the short term, or in the long term if desired.  The agency can maintain that beginning margin or they can phase in the changes to implement the levels published by ACMin.  If necessary, the expensive providers allow one-time inquiries at a reduced cost.  Those inquiries can be used to occasionally refresh the links if it is felt necessary for a few key locations.  Further, it is not unthinkable that an agency could subscribe to two services if needed to overcome objections from the field.  Even that approach would provide data at a much reduced cost.  Those creative discussions are certainly welcomed.

Short Term, Missionary Driven Validation Tool

If there is a significant difference in data provided by different sources for a given location, or if missionaries are convinced data cannot be right, there is currently no way feasible way of knowing where the problem might be.  Currently, the best answer to that dilemma is “I’m sorry.”  ACMin feels that issue MUST be addressed meaningfully.  So a validation system has been developed that is missionary driven, user-friendly, inexpensive, and is not available from any other provider.

This validation process is as follows:  ACMin and your agency will identify a reference location where the index is felt to be appropriate.  The target location will then be linked to that reference location.  To do that, short-form pricing surveys will be conducted by missionary personnel in both locations.  Minimal agency or missionary time will be required.  This will provide an update link factor for the target location.  Applying that new factor to the regularly published source data will result in a reliable, ongoing index. If, in the opinion of ACMin, the new factor was needed to improve the data base, there will be no charge.  If the update is to satisfy an agency’s individual needs, there will be a nominal charge.

Billing Considerations

Cost of data will be based on the number of locations where the agency has resident staff, and for which data is available:   The default assumption is that the agency will desire data for all available locations.  Even locations that are not available from ANY source can be addressed through use of the survey tool previously mentioned.  This will still carry a lower total cost, and will eliminate the need for arbitrary or unsubstantiated estimates assigned to locations not purchased from another provider.

To visit with a consultant about how this service can assist your agency, contact ACMin at 417-861-9897 or email jburgess@consultingministry.com.

Our purpose is still to help you accomplish your purpose.