Lindsay Nichols
For too long, the nonprofit sector has been ill-equipped to determine which nonprofits are achieving success, and which are truly able to stick it out for the long haul. The public focuses on “overhead,” which is really how much an organization spends on administrative costs – such as keeping the lights on and paying their people, etc. – in relation to its total expenses. Popular opinion is that if the overhead ratio is too high, then the nonprofit can’t be doing enough to accomplish its mission.
GuideStar has been preaching for a long time about how arbitrary this ratio is, and how it just doesn’t get to the heart of the question – is the nonprofit doing what it should, doing it well, and will it be able to keep doing it? For example, if a nonprofit’s board of directors say that the organization needs to focus its energies on, say, upgrading its technology and expanding its IT staff next year, the organization’s overhead ratio might be high due to the cost of recruiting and retaining the best in the business, but that’s not necessarily a bad thing. Once in place, the technology could improve communications with staff in the field, automate processes so that the nonprofit can shift more resources to programs, or accomplish any number of things that will enhance the organization’s ability to achieve its mission. So who cares if the nonprofit has a high overhead ratio that one year?
The problem was that we haven’t had many tools in our arsenal to help us turn the page on the subject of overhead. That’s not to say that there aren’t any tools: our GuideStar Exchange program gives nonprofits the ability to tell their full story on GuideStar, through additional documentation, photos, videos, etc.; Charting Impact gives nonprofits a standard for defining and describing effectiveness; and the findings of our Money for Good II research show us that there are 6 steps nonprofits can take to help demonstrate their progress.
Financial SCAN, however, which we created in partnership with Nonprofit Finance Fund, gives us another tool for our arsenal – and what a robust tool it is. With Financial SCAN, we finally have the ability to analyze years and years of complex financial data to determine an organization’s true financial condition. And the financial condition is a big piece in determining the true state of an organization’s ability to meet its mission in the future.
Check out our short YouTube video by Pam Jowdy, GuideStar’s senior product manager, about all Financial SCAN has to offer here. If you’re interested in hearing more from the brains behind this new platform about how it can help you in your daily professional lives, join us for a free webinar on May 3.
For those of you that have taken a look at Financial SCAN, what do you think? Do you see it changing the way we value overhead when assessing nonprofits? Please leave your comment below or Tweet about it using the hashtag #FinancialSCAN.
When I started reading this blog I got excited. I thought – finally someone is admitting that overhead percent has nothing to do with program effectiveness. But then the solutions you suggested are more study of (self-reported) financial information. Charting Impact is also self-reported information. When will we urge donors to demand 1) real comprehensive data on what is still working / having an impact long after the initial program began or project was finished? For example, if it’s an education program, don’t just tell me how many schools you built, tell me how many children have been educated, or ideally how many graduated and went to college or got jobs. 2) independent verification of at least a sample of the data in #1 and/or 3) regular independent evaluations of the work? Real information on program effectiveness: That’s the only way to really know that your donor dollars will make a difference. Everything else is at best a proxy and at worst an irrelevant predictor of success.
What wonderful insight – and I, we (GuideStar), couldn’t agree with you more. While self-reported information is a piece of the puzzle, comprehensive information, independent verification, and evaluation from “real-life” people (not necessarily field experts) are vital. The good news: these methods exist. Philanthropedia (which we acquired last year, http://www.myphilanthropedia.org), has a proven crowdsourcing methodology to cull the best thinking and expert reviews on any given focus area. We believe in total transparency about that process, so we publish the actual reviews, the names of the reviewers, etc. More here: http://www.myphilanthropedia.org/how_we_rank. We also just published a free guidebook, More Money for More Good, co-written with Hope Consulting, that delves into all of the topics above. We discuss the merits of third-party accolades, such as individual reviews from GreatNonprofits, the GuideStar Exchange Seal as a symbol of transparency, BBB Wise Giving Alliance ratings, and others. In the guidebook we discuss the need for nonprofits themselves to also discuss the breadth AND the depth of their impact. To demonstrate their progress through narrative AND statistics. In other words, to talk about the number of schools that were built AND how many students were educated and went on to success as a result – to your point above. You can download the book at http://www.guidestar.org/moneyforgood.
So – while many great tools exist – the problem is really that a majority of donors don’t want to dig for information. We need to educate donors about these resources, but the burden is really on the nonprofits to communicate all of these things broadly so donors can find them – easily. We’ve got to lead with impact–the unmet need in the sector–and create the marketplace for high-performing nonprofit success.
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