Overhead & Impact Analysis of a Nonprofit Organization

In any context regarding nonprofit organization, both the funders and the nonprofits often want the organization to function effectively in ways that can demonstrate impacts (Chikoto, & Neely, 2014). It all starts with the organization’s missions and vision. It takes quite a significant cost to realize it.The most significant approach that has been used to evaluate the effectiveness of the non-profit is the overhead ratio (Lecy, & Searing, 2015). It is normally applied to refer to a certain percentage of an organization’s total cost that is committed to the fundraising and administrative purposes (quite different from the program costs) (Chikoto, & Neely, 2014). According to scholars, effective management of expenses is quite essential for nonprofit success, and overhead cost can be used to realize the required organizational proficiency. The extent to which a non-profit organization can manage its overhead costs is often directly proportional to its competitive proficiency. Often, there is no definite definition of overhead; but generally, it can be defined as a combination of general, fundraising and management costs. According to most of the previously published literature on the role of overhead costs on organizational efficiency, a nonprofit organization has three types of costs which include program, management & General and fundraising costs. The fundraising including the Management & General costs constitute the overhead costs (Tuckman, & Cyril, 1991). The program cost refers to the cost that accrues due to a particular activity or a program within a non-profit organization. Sometimes, these costs are often referred to as the direct costs. While some of the nonprofits only thrive on one program, others depend on many programs to function effectively. Fundraising cost can be used to refer to costs that involve soliciting, seeking or securing charitable assistances (Lecy, & Searing, 2015). Examples of such costs may include the development staff, the amount paid to the fundraising consulting firm including the amount paid to register the charitable nonprofit organization for the purposes of solicitation (for the preparation of grant proposals). Lastly, the management and General costs can be used to refer to all of the costs that are needed to run the organization (they are shared across different programs). One thing about overhead cost is that they are quite necessary; however, note that there can be too little or too much. In most of the community nonprofits, it is quite normal to find nonprofits underspending on overhead (Liket, & Maas, 2013). A detailed focus on the overhead illustrates that it includes necessary expenses like utilities, rent, insurance, administrative and accounting costs (Tuckman, & Cyril, 1991).

To understand the study topic in the most appropriate manner, the study includes a certain nonprofit organization based in the New York City called the Women In Need (Win) in the essay(Women In Need Center, 2017).The organization refers to a nonprofit organization that provides housing services for both homeless women and children. For close to 33 years, Win has greatly involved itself in the provision of critical services, safe housing including certain tailor made programs exclusively meant to serve homeless people and children to rebuild their lives. Win’s mission revolves around the provision of support and shelter to homeless children and women. The organization’s vision focuses on the delivery of extensive programs that seek to help homeless women and children secure homes and also lead successful lives. Lately, the organization has been experiencing a lot of challenges in its attempt to provide the best of services to the homeless women and children (Women In Need Center, 2017). Even though the organization receives a significant amount of money to cater for its population, the organization has demonstrated inability to provide affordable housing for individuals residing in the shelter as a result of lack of job, incomes, and education. To remedy the situation, the essay attempts to conduct an overhead and impact analysis of the nonprofit organization to determine recommendation for increasing the organizational efficiency.

Is the company using overhead resources responsibly?

It is apparent that Win is grappling with a challenge regarding the inability to provide adequate shelter to the homeless individuals situated in New York. There are higher probabilities that the current challenges are as a result of inappropriate or irresponsible use of the organization’s overhead resources. It is more likely that the organization has certain transactions that are intended to benefit most of the insiders (officers, board members, and the executives) other than the organization’s beneficiary’s which is quite against the law. There is also higher probability that the organization’s expenses are meant to further some courses that are different from the organization’s mission. The organization has many worthy courses, but based on legal terms; the organization is bound to progress as per its mission. Other ways through which the organization may involve itself in irresponsible utilization of overhead resources may be through extravagant expenses that accrue to trivial benefits (Carroll, & Stater, 2009). Smart organizations may perceive this from the view of their donors as well as other stakeholders. For such organizations, certain bills, for example, let’s say $ 600 daily accommodation bill for a hotel may be acceptable (in certain circumstances) while for others it might be perceived as a despicable move that in one way or another might harm the reputation of the organization. Based on analysis and preceding surveys the organization spends about 36.9 cents for every dollar (Women In Need Center, 2017). This according to a section of previously published literature is seen as extravagant.

Win’s overhead costs

Win uses a number of overhead costs as means for supporting its programs. These include fundraising as well as the Management and General costs. The management & general costs expenses are fund meant for the overall management and function of the program as well as the organizational activities (rather than for direct fundraising programs and activities) (Women In Need Center, 2017). The overall management includes the expenses and salaries of the organization’s chief officer as well as the staff (excluding the time spent on supervision or even on performing of fundraising programs and activities). Other expenses under this category include overall legal services, Staff and committee meetings, distribution and publication of the annual report, investment expenses among others (Bowman, 2006).When it comes to fundraising expenses, this refers to the expenses incurred in the process of soliciting contributions, grants, and gifts. Win’s fundraising activities include the preparation and distribution of fundraising material, participation in the federated fundraising campaigns, soliciting grants and bequests, conducting and publicizing fundraising campaigns and lastly soliciting government bequests that are considered contributions (Bowman, 2006).

The type of overhead information should be shared

Often, significant portions of the nonprofit organizations are normally reluctant to talk directly to funders regarding overhead. This is because they perceive that overhead expenses may make them seem more like ineffective stewards of resources. What nonprofit organizations should know is that donors often want to fund impacts and therefore should base their overhead information on honesty (Kirk, & Beth Nolan, 2010).To help remedy such a situation, Win should consider embracing honesty regarding its overhead information. Win would do so by sharing certain overhead information such as the operating costs, and administrative costs. The operating cost may include overhead expenses relating to costs such as rent, phone services, supplies and office equipment, insurance, utilities and other costs. In other words, these refer to expenses that Win incurs when it is not giving out shelter, grants and other shelter-related services to the homeless people of New York City (Kirk, & Beth Nolan, 2010).The non-overhead expenses related to soliciting funds also constitute operating costs. When it comes to the administrative costs, it is quite mandatory to share this type of overhead information especially due to the f act that most of the potential donors often assess how much nonprofit spend on administrative costs (as a means for determining whether the non-profit is good at investing). This could be quite easier for certain nonprofit organizations than others. Other overhead information that Win should consider include miscellaneous information regarding overhead expenses. Win’s miscellaneous expenses may constitute depreciations, insurance, supplies, and taxes.  Most of the miscellaneous expenses related to the nonprofit organizations often have direct impact on funding; this means that they should be managed carefully (Kirk, & Beth Nolan, 2010).

Strategic Impact

Most of the community foundations (major funders of nonprofits and charities) often rely on a number of factors regarding a non-profit’s capability to provide significant community influence before granting the organization the required amount of money. When it comes to Win, it is quite evident that amidst all of the economic turmoil, the organization has maintained significant grant levels, collaborated with its partners to create effective programs as tools for addressing the emerging societal needs, maintain the organizational process as well as the organizational governance strategies (until the current challenge).One of the current Win’s strategic impact focuses on agility, resiliency, and innovation (Women In Need Center, 2017). This is based on the need to serve a significant portion of the New York’s Homeless women and children. The strategic impact is meant to envision a society where all of the homeless women and children of New York will have an opportunity to lead a quality life that constitutes safety, sound health, among others. Win’s decisions and actions towards the strategic impact are largely informed by certain organizational values such as:

Leadership; which is championed by the fact that they learn and listen to their community. The organization’s leadership is largely based on their approaches to identifying shelter-related problems within the community and looking for resources and better ways to respond to them.

 Equity: Win makes every effort to primarily focus on the vulnerable individual in the society (though not exclusively)

Inclusiveness: The organization strives quite hard to lead and promote inclusiveness in the New York society in manners that honor strength, contribution, and diversity of all of the individuals in the society.

How Win measures and documents its impacts

Just like most of the nonprofit organizations today (75 percent) Win often strives to measure some or all of their work. It is general knowledge that funder requirements are the fundamental cause of the increased urge for the organization’s impact measurement involvement (Hager, Pollak, & Rooney 2007). Another reason for increased urge to measure impacts resonates from the fact that the organization acknowledges that improved services and strategies equals to a platform for improving their services. Otherwise, some of the scholars argue that if nonprofit organizations want impact measurement to accrue to increased impacts and improved services, there is need to ensure that there measurement work for the organization (Flynn, & Hodgkinson, 2002).When it comes to Win’s impact measurement, it is quite important to note that the organization’s approach is largely etched on performance management alongside evidenced oriented methodologies as a way of improving services (other than randomized control trials) such as the Code of Good  Impact Practice. The main aim of the impact measurement framework is to provide inclusive and accessible services that apply to the whole of the organization (Hager, Pollak, & Rooney 2007).

How the impacts are communicated

Win employs different ways of communicating its impacts to the stakeholders. The most dominant benchmark for achieving this is often through the engagement of the relevant organizational stakeholders at the organizational level (Bugg- Levine, & Goldstein, 2011). Other communication approaches include curation. This approach is quite economical and efficient approach to influencing a larger population at a given time; it may involve repining, retweeting infographic from other organizations with similar agendas and purposes. It could also involve videos and case studies. Note that most of the communication style in the organization is based on social media, annual reports and digital tools (digital forums). While the social media plays a significant role among the clients and staff, annual reports have a considerable importance among the funders especially due to their formal nature (Bugg- Levine, & Goldstein, 2011; Abramson, & Spann, 1999).

Impact vs. Overhead

When it comes to the two concepts, it could be quite challenging to determine the effective and trustworthy of a nonprofit organization. While some granters may opt for quantifiable results, the long-standing relationship in the community or what is simply referred to as impact; others rely on low executive turnover or the overhead ratio to determine efficiency (Thornton, 2007). A recent survey conducted by the BBB Wise Giving Alliance demonstrated that donors and granters are less concerned with how a nonprofit organization may be reaching its mission and therefore base their decision on how effectively an organization spends the donor funds such as the overhead costs (such as salaries and fundraising). Some of the fundraisers perceive that focusing much on the overhead ratio as a measure of organizational efficiency is one way that mars the relationship between charity organizations and funders and therefore nonprofit organization should often base efficiency or soliciting on impact (Bugg- Levine, & Goldstein, 2011; ).

Recommendations

Based on the recent survey published by the BBB Wise Giving Alliance, It is recommended that at least two-thirds (65%) of the total nonprofit expenditure be allocated for the nonprofit’s expenditure. The expenses allocated for fundraising and other overhead costs should not exceed 35 percent.
Win should not only base their efficiency including relationship (with relevant stakeholders) on overhead ratios but also should include impact as means for increasing organizational performance

 

 

 

 

 

 

References

Abramson, A. & Spann, J. eds. (1999). Foundations: Exploring their Unique Roles and Impacts in Society. Washington DC: Urban Institute Press

Bowman, W. (2006). Should donors care about overhead costs? Do they care?. Nonprofit and Voluntary Sector Quarterly, 35(2), 288-310.

Bugg- Levine, A., & Goldstein, J. (2011). Impact investing: harnessing capital markets to solve problems at scale. Community Development Investment Review, 30- 41.

Carroll, D. A., &Stater, K. J. (2009). Revenue diversification in nonprofit organizations: Does it lead to financial stability?. Journal of Public Administration Research and Theory, 19(4), 947-966.

Chikoto, G. L., & Neely, D. G. (2014).Building nonprofit financial capacity: The impact of revenue concentration and overhead costs. Nonprofit and Voluntary Sector Quarterly, 43(3), 570-588.

Flynn, P. & Hodgkinson, V. A., eds. (2002). Measuring the Impact of the Nonprofit Sector. New York, NY: Kluwer.

Hager, M., Pollak, T., & Rooney, P. (2007).Variations in Overhead and Fundraising Efficiency Measures.

Kirk, G., & Beth Nolan, S. (2010). Nonprofit mission statement focus and financial performance. Nonprofit Management and Leadership, 20(4), 473-490.

Lecy, J. D., & Searing, E. A. (2015). Anatomy of the nonprofit starvation cycle: An analysis of falling overhead ratios in the nonprofit sector. Nonprofit and Voluntary Sector Quarterly, 44(3), 539-563.

Liket, K. C., & Maas, K. (2013). Nonprofit organizational effectiveness: Analysis of best practices. Nonprofit and Voluntary Sector Quarterly, 0899764013510064.

Thornton, J. (2007). Nonprofit fund-raising in competitive donor markets. Nonprofit and Voluntary Sector Quarterly, 35(2), 204-224.

Tuckman, Howard P., and Cyril F. Chang.(1991)”A methodology for measuring the financial vulnerability of charitable nonprofit organizations.” Nonprofit and voluntary sector quarterly 20, no. 4 (1991): 445-460.

Women In Need Center. (2017). Women In Need Center. Retrieved 12th February 2017, from http://www.wincny.org/

 

 

 

 

 

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