Wednesday, October 7, 2009
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In both the public and private sectors, organizations that build robust infrastructures are more likely to succeed than those that do not. Despite this general rule, nonprofits perpetually spend very little on information technology systems, financial systems, skills training, fundraising or other types of essential overhead. In a recent survey by the Bridgespan Group of 100 nonprofits across the country, 56% planned to cut overhead even further in an attempt to weather the current recession. Doing so may jeopardize the organizations' very existence, not to mention their ability to accomplish their missions.
If meager infrastructures are so detrimental to organizations, why then is this a continuing trend within nonprofits? Further research by Bridgespan reveals a three-part cycle that contributes to the persistent underfunding of overhead:
Many funders do realize that nonprofits report artificially low overhead figures. However, without accurate data it is difficult to determine what appropriate figures should be. Although spending between 10% and 20% of operating expenses on overhead is commonly accepted in the nonprofit sector, other industries spend a considerably larger share (see figure below). Understanding real overhead costs and infrastructure needs takes commitment from both funders and grantees.
For more information, read the Stanford Social Innovation Review's The Nonprofit Starvation Cycle.
If you would like to talk to a NASAA staff person about the information in this column, contact Shannah Sphar.