Real Talk About Real Costs - Indiana Philanthropy Alliance · The Nonprofit Starvation Cycle “The...
Transcript of Real Talk About Real Costs - Indiana Philanthropy Alliance · The Nonprofit Starvation Cycle “The...
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Real Talk About Real Costs
IPA/GIFT Statewide Conference
June 11-12, 2014
Linda S. Speed
President & CEO
Community Foundation of
Southern Indiana
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The Nonprofit Starvation Cycle
“The persistent underfunding of overhead . . . over time
causes funders to expect grantees to do more and more
with less and less – a cycle that slowly starves
nonprofits.” “The Nonprofit Starvation Cycle,” Ann Goggins Gregory & Don Howard
(2009).
• Identifies changing funders’ unrealistic
expectations as the best way to change that cycle.
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The Overhead Myth
Overhead = BAD
Programs = GOOD
Why?
Funders want to see measurable outcomes.
How do you measure overhead outcomes?
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Grantee Role in Breaking Cycle
• NPO executives should commit to understanding
their REAL overhead costs and REAL infrastructure
needs
• Then communicate them to their boards and funders
• And use them to develop strategies around what the
real costs tell them about their programs and
operations
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But How?
One Community Foundation’s
Journey on the Road to Sustainability
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Sustainability
The ability of a community foundation to fund
its operations over time with predictable and
reliable sources of income.
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• In 2012, Strategic Plan made Ensuring Financial Sustainability
a priority
• In 2013, Sustainability Task Force created
• Used the process suggested by
Nonprofit Sustainability (book by Bell,
Masaoka and Zimmerman)
• Major focus was looking at true
operating costs
Background
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Step 1: Time & Cost Study
• Time & Cost study performed
• Covered every activity, program, service, etc.
• PROFITABILITY NUMBER calculated using:
1. Amount of time spent on each
2. Revenue generated by each
3. Direct/Indirect cost of each
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Step 2: Mission Impact Rating
• “Mission Impact Rating” for each product/program/service
based on
1. Overall impact
2. Alignment with mission and strategic plan objectives
• All NPOs have a dual bottom line
– (1) Profitability and (2) Mission Impact
– We looked at both
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Sustainability Cont.
• Info
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Step 3: Matrix Mapping
• Plotted each product/service/activity onto a grid for a visual
guide showing where each falls based on mission impact and
probability
• The information helped inform strategic decisions about
activities, programs, products.
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Profitability
Imp
act
High Mission Impact, Low Profitability
Keep, Contain Costs
High Mission Impact, High Profitability
Invest and Grow
Low Mission Impact, High Profitability
Water/Harvest and Increase Impact
Low Mission Impact, Low Profitability
Close or Give Away
Source: Bell, Nonprofit Sustainability
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31
-3
-1
1
3
(30,000) (20,000) (10,000) 10,000 20,000 30,000
Profitability
Imp
act
Volunteer Dinner Annual Operating
Campaign
Youth Program
Community Grant Awards
Youth Grant Awards
In-Home Events
Donor Cultivation Activities
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Step 4: Evaluate Programs
Typically, programs may
• have relatively low mission impact
• have actual costs in excess of perceived costs
• have received initial funding from outside grant dollars
• operate under the Foundation’s umbrella and therefore carry a
significant amount of liability – the IRS views the Foundation
as the responsible party
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Before
-6
-4
-2
0
2
4
6
(5,000.00) (2,000.00) 1,000.00 4,000.00
Fund 1
Program 1
Program 2
Service 1
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After
Program 1
-6
-4
-2
0
2
4
6
(5,000.00) (2,000.00) 1,000.00 4,000.00
Fund 1
Program 2
Service 1
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Step 5: Sustainability Policy
• Adopted by Board May 2014
• Documents the importance of long term sustainability
• Addressed shortfalls from programs and services and identified
reasonable solutions:
– Administrative fee schedule adjusted
– Fiscal sponsor policy adopted
– Fund balance & grant minimums increased
– Imposed reasonable fee for services
– Included six month communications plan for existing fundholders
• Makes sustainability a focus for all future Foundation business
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Key Points
• Our imperative was and is to find a way to continue our work
but address the shortfalls some of our funds, programs and
services incur
• Programs and services can be a tremendous drain on resources
and you have to address those head on by knowing what your
true costs are
• Have the hard conversations – they are worth it to your
sustainability
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Impact?
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Bottom Line?
• This is an exhaustive process
• Provides economic clarity
• Justifies/validates the true costs of what you do
• Makes the funding conversation easier
• Helps to break the Nonprofit Starvation Cycle!
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Questions?
23