All posts by Courtney Cherico

Three Important Alternatives to Overhead

Thank You

First, I want to a moment to say thank you. Thank you to the 2,000+ people who have pledged to end the overhead myth, thank you to everyone who has shared the news of the Overhead Myth campaign, launched in partnership with BBB Wise Giving Alliance and Charity Navigator, and thank YOU for reading this and learning more about the issue of nonprofit overhead expenses. You are the ones who are really moving the needle on this effort, and we’re thrilled that this campaign resonates with you.

We’ve talked a lot about what nonprofits shouldn’t focus on – overhead – and we certainly attempted to describe what they should focus on instead. In fact, our entire Money for Good II initiative was designed to inform nonprofits about how to better collect and communicate their impact data. However, it’s time that we dig deeper into three concrete things nonprofits should do today to move past overhead once and for all:

Giving Donors Better Alternatives to Overhead

1. GuideStar Exchange

It’s simple: give us your information and we will share it with the 10 million annual visitors we get to www.guidestar.org and millions more through the work of our amazing clients and partners. Our mechanism to do so is our GuideStar Exchange program, which is the only program of its kind that encourages nonprofit transparency on a national scale and allows nonprofits to supplement the public information that is available from the IRS.  It is designed to encourage transparency, and it can help nonprofits get past their financials and administrative expenses and focus on outcomes once and for all.

GuideStar Exchange gold-level participant logo
GuideStar Exchange gold-level participant logo

We just overhauled the GuideStar Exchange to align with what we learned from Money for Good II: individual donors, institutional funders, and financial planners want basic information (mission statement, program information, key employees, etc), financial information, and impact/effectiveness information about your nonprofit.

One of the biggest improvements to this program is the integration of Charting Impact with the GuideStar Exchange. GuideStar embraces the 5 standardized questions for the sector that allow a nonprofit to report on their organizational impact to date. These 5 questions were crafted (with input from major institutional funders) so that once you’ve answered these questions once, you will have a head start on many other grant applications saving you and your staff precious time and effort.

Once you give us your information, we in turn give you a gold, silver, or bronze participation logo—a symbol of transparency in the sector—and a host of other benefits. All in all, the GuideStar Exchange is free, it’s easy to get started, and it’s truly powerful.

2. Stakeholder Reviews

GNPGreatNonprofits provides a way for your non-paid stakeholders – your board members, volunteers, interns, etc. – to review your nonprofit, similar to Amazon or Yelp reviews. Their reviews help to tell your nonprofit’s story and explain your impact on a human scale. Using the Great Nonprofits platform, which the public will view through your GuideStar nonprofit report, you can solicit these reviews and push them out when you get glowing feedback. Again, it’s free, and it’s easy to do – we even have a tool kit to get you started. Remember – the more donors and funders know, the more they give!

3. Philanthropedia

PhilanthropediaIf your nonprofit has received the distinction from Philanthropedia as an expert-recommended high-impact nonprofit you should be sharing this recognition with your community! Philanthropedia has a turn-key tool kit that you can use to spread the word and help impact-oriented donors and funders find you more easily. Contact Jasmine Marrow (jasmine.marrow@guidestar.org) for access to this tool kit.

I’d love to hear about how you plan to move past the overhead ratio! Leave your comment below.

Lindsay J.K. Nichols
Lindsay J.K. Nichols

Lindsay J.K. Nichols is the communications director of GuideStar, building on the organization’s strong brand to sustain awareness of its mission through relationships with key audiences. Lindsay came to GuideStar with a deep consulting background with clients such as Best Buy, Heineken, National Geographic Education Foundation, Bracewell & Giuliani, University of Pittsburgh School of Law, Pre-K for All DC, School-Based Health Alliance, the Land Trust Alliance, RugMark, National Institute of Neurological Disorders and Stroke, National Institute of Nursing Research, and others. She began her career at the American Society of Civil Engineers (ASCE), where she handled media efforts for the ASCE/WTC report on the collapse of the World Trade Center towers. Lindsay earned a bachelor’s degree in Broadcasting Communications and Women’s Studies from the State University of New York at Oswego. The above can also be found on the GuideStar Blog: http://trust.guidestar.org/2013/07/25/three-important-alternatives-to-overhead/.

Root Cause’s Overhead Myth Response

– By Colette Stanzler, Director, Social Impact Research, Root Cause –

We applaud the campaign by BBB, GuideStar, and Charity Navigator to raise awareness about the lack of correlation between a nonprofit’s level of overhead and its performance. The Overhead Myth letter encourages donors to invest in nonprofits based on their results, not based on how lean they are. Root Cause completely agrees with this and was founded 10 years ago with the vision that resources allocated to nonprofits based on results will accelerate social progress. However, the question remains, where do we find the kind of information we need in order to not have to rely on overhead as the proxy for performance?

According to research conducted recently, donors are interested in indicators beyond financials; specifically on better understanding a nonprofit’s impact. Donors are also interested in seeing peer programs compared on standard indicators. However, the research further indicated that while information about financials is easily accessible, information about program performance, particularly at a comparative level, does not seem to exist for the average donor. Why isn’t information about results as easily attainable and standardized as the 990 or audited financials?

Colette Stanzler
Colette Stanzler

Over the past few years, Root Cause has developed a methodology to help move nonprofits to higher levels of performance and to share that information with donors. This work has culminated in the launch of Peer Performance Exchanges for different social issues. We believe that nonprofits should be able to provide, and funders should be able to request, information about program performance (or results) as regularly as they provide or request financial information.

We are currently developing three Exchanges: Youth Career Development, College Access and Success, and Healthy Aging. The Exchanges bring together nonprofits within these fields that have clear and measureable outcomes to receive a third-party independent analysis, including benchmarking, and capacity-building services. The independent analysis is at the core—providing nonprofit programs with an understanding of how they compare to their peers on over 100 indicators of organizational health (including financial stability) and program performance in their field. We also produce a summary report of the analysis, appropriately named the Transparency Report, for programs to share with key funders as a validation of their program and commitment to measurement and accountability.

We are excited that the key donor platforms where donors look for information to make confident giving decisions are focused beyond financials and on performance. And we believe that our work in providing independent analysis for programs through the Peer Performance Exchange will provide donors with the more results-oriented, comparative information they are seeking.

To learn more about Peer Performance Exchange, contact Colette at 617.649.1538 or cstanzler@rootcause.org.

As the Director of Social Impact Research, Colette provides strategic leadership, oversight of SIR’s core research process including methodology refinement and product development, client management on customized research projects, and actively participates in the broader development of the social impact market through collaboration and partnerships with other players in the market. From her experience in the business sector, specifically financial services, Colette brings an understanding of capital markets, investor expectations, and how data is used to inform investment decisions to apply to SIR’s research and analysis in the social impact marketplace. While she has experience in both product development and analysis from previous experience in the business sector, she has been involved with nonprofits most of her life and brings perspective to our process from being a volunteer, consultant, advisor, board member, and social impact investor. With the SIR team, Colette hopes to build a significant library of social issue research that enables donors to make more informed giving decisions and results in more resources being allocated to high performers. This a cross-post of her article on the Root Cause blog, which can be found here: http://rootcause.org/blog/overhead-myth-response, and on the GuideStar Blog, here: http://trust.guidestar.org/2013/07/12/root-causes-overhead-myth-response/.

 

Can You Prove You Are Making A Difference?

– By Lee T. Sullivan, CPA, CGMA, manager at PBMares, LLP –

For more than 25 years, nonprofit organizations have been measuring various aspects of their performance, all in an effort to improve services and prove to Board members, donors, and the general public that they were accomplishing the organizational mission.

These performance measures have focused primarily on transparency, governance, and financial accountability: how were funds raised and how was that money being spent? In recent years, performance measurement has begun to focus more on “impact.” Donors are interested in communication that demonstrates the significant or lasting changes that a nonprofit is making for community and society at large. Rather than simply measuring how funds were spent, mission-based performance analysis connects performance and outcomes to mission.

Mission-based performance measurement better enables nonprofits to assess their progress, determine future activities, and ultimately, gauge whether they are accomplishing what they set out to do. Mission-based performance measurement also allows nonprofits to communicate with staff, board members, and funders in a way that captures the link between investment in the organization and programmatic outcomes, and assures that all parties are in agreement regarding what the program is trying to accomplish and the most effective means for achievement.

To develop a sound mission-based performance measurement system, nonprofits should start by determining what outcomes can reasonably be measured, then specifying appropriate indicators for each of those outcomes. Creating a model of program inputs, activities, outputs, and outcomes can provide a helpful means for thinking through the changes program participants are expected to experience during and after the program. Nonprofits should also seek input from numerous audiences (staff, participants, volunteers, etc.) in identifying program outcomes.

The organization also will need to identify data collection procedures and methods for analysis then test each, revising them as necessary. Once implemented, mission-based performance measurements must be monitored regularly and improved as the program progresses.

Finally, nonprofits must recognize that while preferable to previous performance-based methods, mission-based performance measurement has its limitations. It does not eliminate, for example, the need to monitor resources, activities, and outputs, nor does it explain why a program achieved a particular outcome. Similarly, it is important to recognize that measuring and improving program outcomes does not necessarily improve community-level outcomes.

Mission-based performance measurement represents the latest tool to help nonprofits strengthen delivery of services. Used properly, it can give direction internally, focus board members on policy and program issues, and improve services. But it is important to also recognize that it is not the end of the line. Nonprofits must continue to adapt newer and more effective means for communicating and assuring that they are meeting their mission and, ultimately, making a difference.

The preceding is a guest post by Lee T. Sullivan, CPA, CGMA, is a Manager at PBMares, LLP and leads the firm’s Not-For-Profit team.  PBMares is a regional accounting and business consulting firm serving clients throughout the Mid-Atlantic. Please contact the author at lsullivan@pbmares.com or visit www.PBMares.com. This can also be found on the GuideStar Blog: http://trust.guidestar.org/2013/07/01/can-you-prove-you-are-making-a-difference

The USO on the Overhead Myth

– By Sloan Gibson, president and CEO of the USO –

Kudos to these three great organizations–GuideStar, BBB Wise Giving Alliance, and Charity Navigator–for taking a stand against the fixation on overhead!  Yes, charities should be efficient.  But, to be relevant, charities must be effective.  That is what donors expect and, for the USO, what troops and families deserve.

Being effective starts with aligning priorities and allocating resources to meet the greatest needs.  That process must be informed by empirical data gathered directly from those served.  At the USO, we learn a lot about the needs of troops and families in the course of their 9 million visits to our centers and another 2-3 million direct service encounters we have with them each year at locations around the world.  All that information feeds our annual planning, budgeting and decision-making.

FRED GREAVES
Sloan Gibson, president and CEO of the USO

But we don’t stop there.  We expect every program to deliver specific outcomes. After every program activity we document the outcomes in a written after action review. That’s also how we get better—continuously. Through our annual TELLUSO survey of thousands of troops and military family members around the world, we learn what is most important to them and how well our programs and facilities are meeting their needs.  We don’t just assume we are accomplishing our mission of lifting the spirits of troops and military families.  We know—because 95% tell us, “… the USO lets me know that my country supports me,” and 98% say, “… the USO boosts my morale.”

Without investing in the infrastructure that makes it possible to track outcomes, we would be hard pressed to let our donors know the good their donations make possible.

We have a different view of efficiency. Donors are interested in the impact a donated dollar has on the community a charity serves. In the USO’s case, we are fortunate to have supporters who provide a range of in-kind goods and services that allow us to get greater value for every dollar donated to us. When you take into account that kind of support, including contributed goods, the value of rent-free centers around the world, contributed celebrity time and talent and hundreds of thousands of volunteer hours, we estimate that we deliver $1.52 in goodness for every donated dollar. Keeping in mind that we target those resources where they are needed most, that’s a good return on a donor’s investment!

The preceding is a guest post by Sloan Gibson, the 22nd president of the USO, a role he stepped into in September 2008, after spending more than 20 years in banking. He’s responsible for leading the USO’s mission of lifting the spirits of troops and military families at more than 160 USO locations around the world. Currently, he’s leading the USO’s efforts to support wounded, ill and injured troops and their families through the USO’s Operation Enduring Care. Sloan is a 1975 graduate of the United States Military Academy at West Point, and he earned both Airborne and Ranger qualifications as an Army infantry officer. He also earned a Masters in Economics from the University of Missouri in Kansas City and a Masters in Public Administration from the John F. Kennedy School of Government at Harvard University. This can also be found on the GuideStar Blog at http://trust.guidestar.org/2013/06/27/the-uso-on-the-overhead-myth/.

Paul Brest’s Thoughts on the Overhead Myth

– By Paul Brest, professor of law, emeritus, Stanford Law School –

In the Overhead Myth campaign, Art Taylor, Jacob Harold, and Ken Berger outline the pernicious consequences of relying on the overhead ratio as a proxy for a charity’s performance. Coincidentally, in the days preceding their blog post, the Nonprofit Quarterly featured two writers taking the opposite view. Brian Mittendorf, an accounting professor at Ohio State University, acknowledges that overhead is not a proxy for impact, but argues that such accounting metrics are more reliable and comparable than impact metrics. William Schambra, director of the Hudson Institute’s Bradley Center for Philanthropy and Civic Renewal, asserts that donors’ desires to have as much money as possible go directly to recipients rather than to indirect costs reflects their laudable emotional connection to the objects of their charity.

Paul Brest
Paul Brest

Mittendorf concedes that reliance on overhead is at most a second best solution—in his words, looking for the lost keys under the proverbial lamppost. Even so, given the extent to which nonprofits manipulate overhead data (as shown in the Taylor-Harold-Berger letter), the lamp is pretty dim.

Schambra extolls donors’ common sense rejection of performance metrics, an interest that he disdainfully attributes to “experts.”  Putting to one side his antipathy toward experts, Schambra’s point about donors’ empathy with their intended beneficiaries is a plausible explanation for their antipathy to overhead. But for donors who care about actually improving their beneficiaries’ lives, overhead is not merely an unreliable heuristic but often a counterproductive one. For just one example, an increasing number of charities use performance management systems to provide better outcomes for their clients; yet the costs of building and maintaining these systems all count as overhead.

I think that Schambra demeans ordinary donors when he implies that they don’t care about the impact of their gifts. The Hope Consulting Money for Good I study, which he approvingly cites, reports that 85% of donors say they care about nonprofit performance but only 35% do any research to learn about it. Given how frustrating it is to learn about performance from the charities themselves and most of the on-line rating services, 35% seems a pretty high number. In any event, there are improvements in sight, due in large part to BBB Wise Giving Alliance, GuideStar, and Charity Navigator.

Robust impact metrics are available only for a tiny number of organizations. However, BBB Wise Giving Alliance and GuideStar, together with Independent Sector, have promoted a new suite of proxies for impact that are far superior to reliance on overhead alone. Their Charting Impact standards ask organizations to answer five basic questions:

1.     What is your organization aiming to accomplish?
2.     What are your strategies for making this happen?
3.     What are your organization’s capabilities for doing this?
4.     How will your organization know if you are making progress?
5.     What have and haven’t you accomplished so far?

While an organization’s ability to answer these questions is no guarantee of impact, its inability to answer them makes any pretensions to impact dubious. Without abandoning accounting measures, Charity Navigator’s CN 3.0 adopts a similar scheme, and it also takes account of an organization’s feedback from its beneficiaries.

Neither Charting Impact nor CN 3.0 is a substitute for knowledge about actual impact, and neither provides anything as simple as a single number. But they are great steps forward in helping wean donors from a metric that, alone, provides a distorted view of an organization’s success in improving people’s lives—which is what charity is ultimately all about.

Paul Brest is professor of law, emeritus; and former dean of Stanford Law School. He currently teaches in the Law School and Graduate School of Business, and is faculty co-director of Stanford Center on Philanthropy and Civil Society; From 2000 to 2012, he was president of the William and Flora Hewlett Foundation. This post can also be found on the GuideStar Blog: http://trust.guidestar.org/2013/06/19/paul-brests-thoughts/.

What Do Good Outcomes Cost?

– By Ann Goggins Gregory, Senior Director, Knowledge, The Bridgespan Group –

For several years, I’ve been interested in (many would say obsessed with) the need to break out of the nonprofit starvation cycle, where donors and nonprofits alike fixate on overhead rather than on what good outcomes cost. So I was thrilled to hear the joint announcement, www.overheadmyth.com, from GuideStar, BBB Wise Giving Alliance, and Charity Navigator denouncing the overhead ratio as a valid indicator of nonprofit performance.

Ann Goggins Gregory
Ann Goggins Gregory

What do good outcomes cost? The for-profit world does not measure success by focusing on overhead, but if it did (by looking at sales, general and administrative costs as a percent of total sales), the average rate would be 25%. For service industries, perhaps the best analog to the social sector, it’d be 34%. Intuitively, we’d expect that a high-performing nonprofit would hire the best people, train them to be as effective as could be, and monitor results to improve as it went along. That involves HR, training, and performance measurement. Overhead, overhead, overhead!

The truth is, funders love to support programs, but too many don’t understand the real cost for nonprofits to get powerful results. So if we want to move beyond “how much do you spend on overhead?” to “what do good outcomes cost?” funders must change the way they think and act.

But is there anything that nonprofits can do to speed the change?

Yes. First, nonprofits need to communicate honestly and clearly about costs. A few years ago, I was in a conference session on social media for nonprofits, and the speaker pulled up what he considered to be a great Facebook page for a big NGO. There, front and center, was the message “100% of your donation will go to support the refugees.” As a recent Chronicle of Philanthropy article points out, organizations can claim this NOT because their overhead is actually zero, but because board members or other funding sources underwrite overhead needs. This sort of communication is misleading and only contributes to the starvation cycle.

Second, nonprofits need to gain a deeper understanding of their full costs. This is hard, and funders struggle to understand the concept of “full costs,” too. What are programmatic costs? What are “indirect”? What goes in overhead? Getting this clarity is possible, and it is vital to articulating what good outcomes really cost.

Seeking to address these needs, Donors Forum, the state association of grantmakers, nonprofits, and their advisors in Illinois, recently partnered with The Bridgespan Group to have “Real Talk about Real Costs,” which brought together 300 practitioners in a near-equal mix of funders and nonprofits. The convening built on a year-long Community of Practice focused on tackling the overhead challenge. To support ongoing efforts, Donors Forum aggregated resources to help funders and nonprofits answer the question “what do good outcomes cost?” One of the most powerful and easy-to-use resources is this two-minute video with accompanying discussion guide.

Yes, this will be hard – and yes, a lot of the responsibility for ending this obsessive focus on low overhead rests with donors themselves. But I’ve come to believe that simply waiting for donors to change understates the power and responsibility that nonprofits have to create the big shift that they and their beneficiaries want and need.

The preceding is a guest post by Ann Goggins Gregory, Senior Director, Knowledge, in the San Francisco office of The Bridgespan Group, a nonprofit advisor and resource for mission-driven organizations and philanthropists. This post can also be found on the GuideStar Blog: http://trust.guidestar.org/2013/06/18/what-do-good-outcomes-cost/. Ann joined Bridgespan in 2005, spending three and a half years in the strategy consulting practice before transitioning into a knowledge role. In her position, she leads the organization’s efforts to reflect on insights emerging from strategy consulting and plays a pivotal role in identifying opportunities for external knowledge sharing that arise from client work.

In her consulting work at Bridgespan, Ann worked with a number of education clients – including charter management organizations and a statewide public/private partnership focused on reforming high school education – and also worked on business plans for several leading youth-serving nonprofits. She has been an active contributor to knowledge projects since she joined the firm, co-authoring “Nonprofit Starvation Cycle” in the Fall 2009 issue of Stanford Social Innovation Review and “How Governments Can Spur High Charity Performance,” published in the Chronicle of Philanthropy (December 2009).  Ann has helped lead Bridgespan’s national research on how nonprofits are “Managing in Tough Times.”

Prior to joining Bridgespan, Ann worked as a consultant at Deloitte Consulting and has also consulted to several large youth development organizations, including Public Allies and YouthBuild USA. Ann earned her BA in International Relations and German with honors from the University of South Carolina Honors College. Ann holds an MPA from Harvard’s Kennedy School of Government and an MBA from Northwestern University’s Kellogg School of Management.