Comments on: Donors and Overhead: Maybe They Don’t Care http://www.nonprofitsassistancefund.org/blog/2009/07/28/donors-and-overhead-maybe-they-don%e2%80%99t-care/ Nonprofits Assistance Fund shares thoughts and insights on nonprofit management and finance Fri, 20 Jan 2012 15:53:43 +0000 hourly 1 http://wordpress.org/?v=3.3 By: Ana From Accounting Course http://www.nonprofitsassistancefund.org/blog/2009/07/28/donors-and-overhead-maybe-they-don%e2%80%99t-care/comment-page-1/#comment-43488 Ana From Accounting Course Sun, 29 Aug 2010 10:56:31 +0000 http://www.nonprofitsassistancefund.org/blog/2009/07/28/donors-and-overhead-maybe-they-don%e2%80%99t-care/#comment-43488 I fully agree with the attitude, that donors should care about overheads. As a giver (donor) I think you should control the fund and their distribution and spending on overhead, since why give if you do not care whether the money reach those people who really needs them. On the other hand I would also recommend all non-profits showing their overheads and demonstrating adequate control over them. This would an advantage to attract more funding and earn solid reputation. I fully agree with the attitude, that donors should care about overheads. As a giver (donor) I think you should control the fund and their distribution and spending on overhead, since why give if you do not care whether the money reach those people who really needs them.

On the other hand I would also recommend all non-profits showing their overheads and demonstrating adequate control over them. This would an advantage to attract more funding and earn solid reputation.

]]> By: Dave Stravers http://www.nonprofitsassistancefund.org/blog/2009/07/28/donors-and-overhead-maybe-they-don%e2%80%99t-care/comment-page-1/#comment-25535 Dave Stravers Wed, 26 Aug 2009 13:59:38 +0000 http://www.nonprofitsassistancefund.org/blog/2009/07/28/donors-and-overhead-maybe-they-don%e2%80%99t-care/#comment-25535 Bill Enright of the Lake Institute says that donors use five criteria in assessing religious charities: Investment: Donors see their giving as investing, not bailing out. Accountability: They want to know how the money is used, and they expect progress reports. Effectiveness: They want the gift to accomplish its goal. Partnerships: They want to be partners in the process of deciding where the money goes. Sustainability: They want the recipient to stay in business. — Note that one of the five guidelines is NOT “keeping your overhead expenses as low as possible”! In fact, quite the opposite. "Sustainability" can only happen if organizations invest in administration and donor relations (fund raising). Organizations that don't do this often cannot survive a crisis, and almost always cannot maximize their impact on behalf of their cause. Bill Enright of the Lake Institute says that donors use five criteria in assessing religious charities:

Investment: Donors see their giving as investing, not bailing out.
Accountability: They want to know how the money is used, and they expect progress reports.
Effectiveness: They want the gift to accomplish its goal.
Partnerships: They want to be partners in the process of deciding where the money goes.
Sustainability: They want the recipient to stay in business. —

Note that one of the five guidelines is NOT “keeping your overhead expenses as low as possible”! In fact, quite the opposite. “Sustainability” can only happen if organizations invest in administration and donor relations (fund raising). Organizations that don’t do this often cannot survive a crisis, and almost always cannot maximize their impact on behalf of their cause.

]]> By: Kate Barr http://www.nonprofitsassistancefund.org/blog/2009/07/28/donors-and-overhead-maybe-they-don%e2%80%99t-care/comment-page-1/#comment-24940 Kate Barr Wed, 12 Aug 2009 14:52:07 +0000 http://www.nonprofitsassistancefund.org/blog/2009/07/28/donors-and-overhead-maybe-they-don%e2%80%99t-care/#comment-24940 Thanks to Carole for chiming in with the Bridgespan research. I highly recommend it to everyone to strengthen the case that the focus on low overhead is destructive. I like Carol Berde's use of the term "infrastructure" as a way to turn the discussion on its head. Thanks to Carole for chiming in with the Bridgespan research. I highly recommend it to everyone to strengthen the case that the focus on low overhead is destructive. I like Carol Berde’s use of the term “infrastructure” as a way to turn the discussion on its head.

]]> By: Carole Matthews http://www.nonprofitsassistancefund.org/blog/2009/07/28/donors-and-overhead-maybe-they-don%e2%80%99t-care/comment-page-1/#comment-24910 Carole Matthews Tue, 11 Aug 2009 20:34:40 +0000 http://www.nonprofitsassistancefund.org/blog/2009/07/28/donors-and-overhead-maybe-they-don%e2%80%99t-care/#comment-24910 The Bridgespan Group has a good article on this topic--"Nonprofit Overhead Costs: Breaking the Vicious Cycle of Misleading Reporting, Unrealistic Expectations, and Pressure to Conform." (http://www.bridgespan.org/learningcenter/resourcedetail.aspx?id=252) It shares questions donors and organizations can use to help them better focus on what matters most--achieving more for their beneficiaries over the long term. I thought people reading this thread might be interested. The Bridgespan Group has a good article on this topic–”Nonprofit Overhead Costs: Breaking the Vicious Cycle of Misleading Reporting, Unrealistic Expectations, and Pressure to Conform.” (http://www.bridgespan.org/learningcenter/resourcedetail.aspx?id=252) It shares questions donors and organizations can use to help them better focus on what matters most–achieving more for their beneficiaries over the long term. I thought people reading this thread might be interested.

]]> By: Ann Johnson http://www.nonprofitsassistancefund.org/blog/2009/07/28/donors-and-overhead-maybe-they-don%e2%80%99t-care/comment-page-1/#comment-24908 Ann Johnson Tue, 11 Aug 2009 18:21:13 +0000 http://www.nonprofitsassistancefund.org/blog/2009/07/28/donors-and-overhead-maybe-they-don%e2%80%99t-care/#comment-24908 Results. As Kate reveals in her examples she is more interested in how many received food and shelter or permnanent housing, were admitted to college, engaged in cultural activities etc. - than overhead. I absolutely agree and wonder if we could go further? For example, measure and communicate the numbers of people who received housing against the overall existing need. Or record how the organizational results impact the community demand. Or monitor how these results compare to previous years results vs. existing need/demand. Or calculate a program's impact on investment. (This one is more difficult and tenuous I know, but pretty important) I have vigorously supported the notion that the value proposition of an organization depends a whole lot more on results than "overhead"...the % has always been arbitrarily determined and is not relevant as a stand alone indicator. (If overhead, ops or admin. cost could be re-languaged to capital investment, it might help some.) But more importantly, being able to report results against eixting need, community demand, and investment - over time - seems like the kind of information NP leaders/boards (not only donors) would be especially interested in and actually USE to determine new strategy, resource alignment, overall effectiveness and ofcourse, to raise funds! Results. As Kate reveals in her examples she is more interested in how many received food and shelter or permnanent housing, were admitted to college, engaged in cultural activities etc. – than overhead.

I absolutely agree and wonder if we could go further? For example, measure and communicate the numbers of people who received housing against the overall existing need. Or record how the organizational results impact the community demand. Or monitor how these results compare to previous years results vs. existing need/demand. Or calculate a program’s impact on investment. (This one is more difficult and tenuous I know, but pretty important)

I have vigorously supported the notion that the value proposition of an organization depends a whole lot more on results than “overhead”…the % has always been arbitrarily determined and is not relevant as a stand alone indicator. (If overhead, ops or admin. cost could be re-languaged to capital investment, it might help some.) But more importantly, being able to report results against eixting need, community demand, and investment – over time – seems like the kind of information NP leaders/boards (not only donors) would be especially interested in and actually USE to determine new strategy, resource alignment, overall effectiveness and ofcourse, to raise funds!

]]> By: Kate Barr http://www.nonprofitsassistancefund.org/blog/2009/07/28/donors-and-overhead-maybe-they-don%e2%80%99t-care/comment-page-1/#comment-24863 Kate Barr Mon, 10 Aug 2009 19:39:36 +0000 http://www.nonprofitsassistancefund.org/blog/2009/07/28/donors-and-overhead-maybe-they-don%e2%80%99t-care/#comment-24863 Thanks to all for commenting. I appreciate the confirmation that "overhead ratio" is not a valuable measure of nonprofit worthiness. I think that what bothered me the most about the article that I started with was that program/overhead ratio was the ONLY evaluative criteria suggested. I just don't believe that could possibly be the most important factor when considering a contribution to a nonprofit. Thanks to all for commenting. I appreciate the confirmation that “overhead ratio” is not a valuable measure of nonprofit worthiness. I think that what bothered me the most about the article that I started with was that program/overhead ratio was the ONLY evaluative criteria suggested. I just don’t believe that could possibly be the most important factor when considering a contribution to a nonprofit.

]]> By: Carol Berde http://www.nonprofitsassistancefund.org/blog/2009/07/28/donors-and-overhead-maybe-they-don%e2%80%99t-care/comment-page-1/#comment-24761 Carol Berde Sat, 08 Aug 2009 18:47:34 +0000 http://www.nonprofitsassistancefund.org/blog/2009/07/28/donors-and-overhead-maybe-they-don%e2%80%99t-care/#comment-24761 Thanks, Kate, for debunking the overhead ratio myth. Commonsense is, or ought to be, a major part of grantmaking. And commonsense tells us that infrastructure is esential to achieving the results that Kate rightly urges us to focus on. Language matters, too. "Infrastructure" describes more clearly than "overhead" those people, functions, and systems necessary to deliver on mission and achieve results. It's the cost of doing business. It's also a word that often is more meaningful to donors, especially those in the business world, than "overhead" or "capacity." Carol Berde Thanks, Kate, for debunking the overhead ratio myth. Commonsense is, or ought to be, a major part of grantmaking. And commonsense tells us that infrastructure is esential to achieving the results that Kate rightly urges us to focus on. Language matters, too. “Infrastructure” describes more clearly than “overhead” those people, functions, and systems necessary to deliver on mission and achieve results. It’s the cost of doing business. It’s also a word that often is more meaningful to donors, especially those in the business world, than “overhead” or “capacity.”

Carol Berde

]]> By: Linda Ball http://www.nonprofitsassistancefund.org/blog/2009/07/28/donors-and-overhead-maybe-they-don%e2%80%99t-care/comment-page-1/#comment-24675 Linda Ball Thu, 06 Aug 2009 15:38:41 +0000 http://www.nonprofitsassistancefund.org/blog/2009/07/28/donors-and-overhead-maybe-they-don%e2%80%99t-care/#comment-24675 Thank you for that encouraging blog! As a small nonprofit organization we struggle with finding donors willing to cover overhead even though the programs we offer encompass so many facets of the population -- part of it is, I'm sure, that we have been scared off of asking for what we really need to have the programs running to their highest level .... it is refreshing to hear that there are more donors out there who are willing to look at the impact versus the cost. Thank you for that encouraging blog! As a small nonprofit organization we struggle with finding donors willing to cover overhead even though the programs we offer encompass so many facets of the population — part of it is, I’m sure, that we have been scared off of asking for what we really need to have the programs running to their highest level …. it is refreshing to hear that there are more donors out there who are willing to look at the impact versus the cost.

]]> By: Bjorn Arneson http://www.nonprofitsassistancefund.org/blog/2009/07/28/donors-and-overhead-maybe-they-don%e2%80%99t-care/comment-page-1/#comment-24641 Bjorn Arneson Thu, 06 Aug 2009 00:19:36 +0000 http://www.nonprofitsassistancefund.org/blog/2009/07/28/donors-and-overhead-maybe-they-don%e2%80%99t-care/#comment-24641 This "overhead vs. program" question reminds me of an argument that people often make about the efficiency of Medicare, pointing to its miniscule administrative ratio. Flip the coin over. If Medicare spent more rooting out excessive and fradulent billing practices, we'd certainly be happy, right? However, this increased level of scrutiny costs administrative dollars. Some argue that investing in a more robust auditing system would deliver a net benefit to Medicare. I echo the points made by the author and previous commenters: donors focused solely on program expense ratios are missing the point. This “overhead vs. program” question reminds me of an argument that people often make about the efficiency of Medicare, pointing to its miniscule administrative ratio. Flip the coin over. If Medicare spent more rooting out excessive and fradulent billing practices, we’d certainly be happy, right? However, this increased level of scrutiny costs administrative dollars. Some argue that investing in a more robust auditing system would deliver a net benefit to Medicare. I echo the points made by the author and previous commenters: donors focused solely on program expense ratios are missing the point.

]]> By: Mark Ingold http://www.nonprofitsassistancefund.org/blog/2009/07/28/donors-and-overhead-maybe-they-don%e2%80%99t-care/comment-page-1/#comment-24553 Mark Ingold Tue, 04 Aug 2009 04:12:09 +0000 http://www.nonprofitsassistancefund.org/blog/2009/07/28/donors-and-overhead-maybe-they-don%e2%80%99t-care/#comment-24553 I absolutely agree that the administrative expense or overhead ratio is both vastly overused and vastly misunderstood. Having said that, I would also agree with Rich that knowledgeable donors should include the ratio in a comprehensive analysis. Not to measure against a generic benchmark though, but to compare the organization over time. Comparing this ratio between similar organizations can also be misleading since what is reported as M&G can differ significantly from agency to agency. I absolutely agree that the administrative expense or overhead ratio is both vastly overused and vastly misunderstood. Having said that, I would also agree with Rich that knowledgeable donors should include the ratio in a comprehensive analysis. Not to measure against a generic benchmark though, but to compare the organization over time. Comparing this ratio between similar organizations can also be misleading since what is reported as M&G can differ significantly from agency to agency.

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