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Nonprofit Insights: The Overhead Myth - What It Is, Why It Matters...and What Now?
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Transcript of Nonprofit Insights: The Overhead Myth - What It Is, Why It Matters...and What Now?
The Overhead Myth: What It Is, Why It Matters…and What Now?October 16, 2013
#vmlearn
Who are we?
2
#vmlearn
Jacob HaroldPresident & CEOGuidestar@[email protected]
Greg [email protected]
Ann Goggins GregorySenior Director, KnowledgeThe Bridgespan [email protected]
Collaborating to accelerate social impact
VolunteerMatch WebinarOctober 16, 2013
The Overhead Myth: What it is, why it matters….and what now
#vmlearn
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Does any of this sound familiar?
“No administrative fees means that all money goes to local charities.”
Ad for donation drive
“Our organization has remained lean, allocating nearly 90% of revenue to direct service programs...”
Large multi-service organization in CA
“100% of your donation will go towards programs that help children; 0% will go to overhead.”
Large health services organization#vmlearn
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What about this?
“The 10% figure is totally unrealistic…”
Executive Director
“We’re having to raise pools of general support to pay for our real overhead costs.”
Board Chair
“13% overhead doesn’t nearly capture the reality of our administrative costs.”
Nonprofit COO#vmlearn
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But wait!
#vmlearn
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We don’t judge companies on their overhead
Source: Compustat; Standard & Poor’s Global Industry Classification Standard Structure
10%
20%
30%
40%
50%
Sales, General & Administrative Expense as % of Total Sales
Average for service industry = 34%
Software & ServicesHealthcare & Equipment Services
Consumer Services
Telecomm. Services
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How does this play out for nonprofits?
“No more than 10% of these funds can be used for non-
program expenses.”
Pressure to conform = Under-report + Under-invest
Funder
Nonprofit
#vmlearn
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The Nonprofit Starvation Cycle
Unrealistic funder
expectations
Pressure on nonprofits to
conform
Mis
lead
ing
repo
rting
& U
nder
inve
stm
ent
“The Starvation
Cycle”
#vmlearn
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Many individual donors consider the overhead rate to be more important than program effectiveness
0
20.0
40.0
60.0
80.0
100.0%
Overhead
ratio
79%
Success of
programs
70%
How important are each of the following in
deciding whether a nonprofit deserves your support?
(Very Important)
Source: BBB Wise Giving Alliance Donor Expectations Survey
#vmlearn
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80% of foundations said they do not include enough overhead to cover the cost of reporting
Source: Grantmakers for Effective Organizations, “Is Grantmaking Getter Smarter?” 2008
#vmlearn
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Government contracts and grants are often diluted
Health and Human Services initiates “Safe and Healthy Families” grant
program
State of Maryland Departmentof Human Resources
St. Mary’s County Gov’t
Department of Social Services
Local Board of Education
Nonprofit Grant Recipient
St. Mary’s County acts on behalf of the state. State and county keep 10% for their own admin costs
No indirect cost funding retained by Board of Ed
No indirect costs allowable
“[Government funder X’s] rate is woefully inadequate. We report our finances to comply with the grant, then look elsewhere to bridge the huge funding gap that this grant creates.”
Source: GAO “Treatment and Reimbursement of Indirect Costs Vary among Grants, and Dependent Significantly on Federal, State, and Local Government Practices.” May 2010
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Nonprofits feel pressure to limit overhead
0
10
20
30
40%
Charity
Watchdogs
8%
Federated
Campaigns
21%
Foundations
24%
Individual
Donors
30%
Government
Agencies
36%
“Do you feel pressures from ____ to limit overhead, fundraising or admin expenses?
“20% overhead is the industry norm. It doesn’t capture the way we think about and manage overhead…”
“We found that a peer organization allocates 70% of their finance director’s time to programs. That’s preposterous.”
Source: Nonprofit Overhead Cost Study, 2004
#vmlearn
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Many nonprofits underreport true overhead
37%
Percent of nonprofits reporting ZERO fundraising expenses on their IRS form 990
“Analysis of over 220,000 Forms 990 found widespread reporting that defies plausibility.”
Source: Nonprofit Overhead Cost Study, 2004
#vmlearn
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Actual overhead often differs from reported, and these differences aren’t surprising given:
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Some glimmers of hope…
#vmlearn
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From vicious to virtuous: Ask better questions, get better answers
“What do good outcomes really cost?”
What are the meaningful measures of our impact and how will we communicate them?
#vmlearn
Art by Banksy
The two elephants in the philanthropic room…
E1: Some nonprofits are better than others (they create more social or environmental impact per dollar)
E2: Some donors are better than others(their donations create more social or environmental impact per dollar) #vmlearn
#vmlearn
#vmlearn
#vmlearn
Question at hand:
Can we build a stronger information scaffolding for social change?
#vmlearn
Information about…
Organizations (e.g., Nurse-Family Partnership is currently serving 22,795 babies and their mothers in 40 states across the U.S.)
Resources (e.g., The Robert Wood Johnson Foundation made a 5-year, $10 million grant to Nurse-Family Partnership in 2007)
Interventions (e.g., regular nurse visitation for new mothers their babies leads to a .2 point increase in math & reading GPA in grades 1-6)
Issues (e.g., 50% of children from at-risk backgrounds are below the basic level for reading and math skills)
#vmlearn
Many types of information can help social change actors make good choices
Contribution (you helped)
Attribution (you were responsible)
Qualitative(stories and descriptions)
Quantitative(numbers)
Subjective (peoples’ perceptions)
Objective(facts)
Independent(just about you)
Comparative(you in the context of others)
and
and
and
and
Retrospective(what happened in the past)
Prospective(goals for the future) and
#vmlearn
But how do we organize that information?
#vmlearn
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#vmlearn
#vmlearn
Gather reviewsfrom users
Survey experts
Deep analysisof performance
Highly simplified star rating
Collect basic info
& set standardof quality
Wise Giving Alliance
Company Analysis
Standardized descriptions
#vmlearn
What is your organization aiming to accomplish? What are your strategies for making this happen? What are your organization’s capabilities for doing this? How will your organization know if you are making progress? What have and haven’t you accomplished so far?
#vmlearn
The supply chain of nonprofit information – 2000
Sources Aggregators Hubs Channels Users
Nonprofits IRS GuideStar
Feedback?
Donors
#vmlearn
The supply chain of nonprofit information – 2012
Sources Aggregators Hubs Channels Users
NonprofitsIRS
Volunteers
Beneficiaries
Donors
Experts
Community foundations
GuideStarGreat
Nonprofits
Fidelity
Vanguard
Schwab
TBD
Network for Good
Volunteer Match
DonorEdge
Facebook Causes
Wealthy donors
Retail users
Foundation staff
Philanthropedia
GiveWell
Root Cause
Foundation Center
…
…
BBB Wise Giving Alliance
Feedback?
Solid lines are existing relationships Dotted lines are potential relationships
Foundation staff
Nonprofits
Media
Government
Foundations
Questions?
36
#vmlearn
Jacob HaroldPresident & CEOGuidestar@[email protected]
Greg [email protected]
Ann Goggins GregorySenior Director, KnowledgeThe Bridgespan [email protected]
Next Month:
Integrating Volunteers into Donor Management Software
http://learn.volunteermatch.org
#vmlearn
November 20, 2013