• Is Overhead the best KPI for Nonprofits?

    Recently, on the Twin Cities blog, Leadership and Community, Janine Fugate shared some thoughts on how we look at nonprofit business. She mentioned a TEDTalk by Dan Pallotta, “The way we think about charity is dead wrong.”

    Fugate wrote: I hope there will be greater awareness of what it actually takes to run a nonprofit organization and the importance of funding a nonprofit organization’s “overhead”. I believe this is critical to helping our donors and supporters shift their measurement focus from financial efficiency measures alone to overall organizational impact and social change.

    The restrictions nonprofits must follow to raise funds and the (arbitrarily) set percentage for “reasonable” operating costs, are prohibitive. Any one metric used to assess a comprehensive value proposition for nonprofit impact would be an over simplification. Even in the business sector, ROI isn’t the only metric use to measure success. As “conscientious capitalism” continues to evolve, social responsibility is being measured in terms of profit and purpose and consumers are much more actively engaged in and using their purchase power to make decisions that include both.

    The days of they (for-profit companies) being the ones who make the living, and we (nonprofit) being the ones who make the living worthwhile – are gone. (Actually, they never existed, but the perspective perhaps did.)

    So, if any one metric is one dimensional and poorly assesses an organization’s value, it is even more disturbing to me, in my 35 years of nonprofit sector work, the way in which nonprofit value is minimized because of the attitude typically held in our society about money and power. Money donated by individuals or institutions, is viewed as having less value, along with the professionals involved in the asking, because acquiring money is less attractive, compared to making money. Asking for rather than making money holds a different set of values.

    Palotta’s point of how much money he raised through his organization doesn’t get to this point either. Making more – no matter how, as long as it is ethical, doesn’t equate to impact. It simply means more was raised. Not only do we need to consider the constraints in the ways we get $ but, also, the way money gets us. Pallotta’s fundraising efforts resulted in impressive revenue generation. But who decides how the money is raised and how it is invested, what results in the investment in the short AND long term, what constitutes infrastructure rigor, and what attracts and holds leadership and bench strength, should be at center stage of the debate on financing social sector work. Better to “show me the results!” than “show me the money!”

    Ann Johnson, is Director of the Center for Nonprofit Management

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