How can nonprofits set more realistic expectations with their funders?

Summary:

Funders favor organizations with the leanest overhead costs, encouraging nonprofits to under-report costs and slash their infrastructure. This item outlines how to set more realistic expectations with funders.

Answer:

The full text of the Bridgespan case study, "Nonprofit Overhead Costs: Breaking the Vicious Cycle of Misleading Reporting, Unrealistic Expectations, and Pressure to Conform" can be found at http://www.bridgespan.org/PDF/NonprofitOverheadCosts.pdf.

Bridgspan reports on the three forces that perpetuate a vicious cycle, with grave consequences for nonprofits' ability to have impact:
1. Misleading reporting on the part of nonprofits
2. Unrealistic expectations on the part of funders
3. Pressure to conform to funders' expectations

How to break the cycle

Bridgespan provides the following recommendations for funders and nonprofits to break the cycle of unrealistic expectations:

Funders can:

• Increasingly support organizations with general operating funds when feasible.
  
• Commit to paying a greater share of administrative and fundraising costs in use-restricted grants.
  
• Foster more open discussion about overhead and shift the focus to the real target: outcomes.

Nonprofit leaders can:

• Develop a strategy that explicitly recognizes infrastructure needs, with a focus on the investments needed to achieve goals.
  
• Communicate the logic for increased overhead investment throughout the organization.
  
• Begin to provide funders with better ways to measure performance than program ratios.

Additional Resources

Bridgespan also references the Nonprofit Overhead Cost Project, a study conducted by the Center on Nonprofits and Philanthropy at the Urban Institute and the Center on Philanthropy at Indiana University. This study can be accessed online at http://nccsdataweb.urban.org/FAQ/index.php?category=40.

The Nonprofit Overhead Cost Project examines topics such as:

• Fundraising costs and staffing patterns of various nonprofit organizations.
  
• The increasing need for broader participation in fundraising by an nonprofit staff and external supporters
  
• The extent to which grants with limited overhead allowances impact the effectiveness of nonprofit organizations
  
• The flaws in attempting to assess nonprofit organizations based largely on their financial reporting
  
• The benefits and disadvantages of using financial efficiency standards to evaluate organizations

For Lee Draper's insights on what it realistically takes for a nonprofit to deliver services, please see "100% Goes to Charity?" at http://www.foundationnews.org/CME/article.cfm?ID=2339.

For another view on the role donors can play in funding overhead costs, please see Putnam Barber's article, "Donors: Share the 'Warm Glow' With Others" in the Chronicle of Philanthrophy at http://www.tess.org/articles/chron9903.html.

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Posted 02/12/09 -- YBL