Real Talk About Real Costs

IPA/GIFT Statewide Conference

June 11-12, 2014

Linda S. Speed

President & CEO

Community Foundation of

Southern Indiana

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.

The Overhead Myth

Overhead = BAD

Programs = GOOD

Why?

Funders want to see measurable outcomes.

How do you measure overhead outcomes?

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

But How?

One Community Foundation’s

Journey on the Road to Sustainability

Sustainability

The ability of a community foundation to fund

its operations over time with predictable and

reliable sources of income.

• 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

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

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

Sustainability Cont.

• Info

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

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

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

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

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

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

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

Impact?

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!

Questions?

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