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| Knowledge Letter, Summer 2008 | |||||
Friends of the Bridgespan Group, For nonprofit leaders and their funders, putting every possible dollar into programs is as instinctual as putting a child’s oxygen mask on first would be for parents. But whereas travelers are reminded every time they fly to attend to their own needs first, nonprofits and their funders seldom get this advice. In this issue of Strategies for Social Impact, that message comes through loud and clear. “Nonprofit Overhead Costs: Breaking the Vicious Cycle of Misleading Reporting, Unrealistic Expectations and Pressure to Conform” makes the case for “good overhead”: investments in the people and processes required to support and sustain good programs. Our audio screencast on “Effective Organizations Achieve Superior Results” underscores the point.
We hope that Bridgespan’s expanded capacity will help you create greater impact in your own organization. As always, we invite your comments and welcome your suggestions at feedback@bridgespan.org. Nan Stone The Bridgespan Group |
IN THIS ISSUE Bridgespan
Perspectives From Bridgestar.org
Nonprofit Job Seekers: Finding the Right Fit for You
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Building the Organization | ||
| Audio Screencast: Effective Organizations Achieve Superior Results
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| Propelling Growth | |||
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Getting Replication Right: The Decisions that Matter Most (PDF) Kelly Campbell, Mandy Taft-Pearman, and Matthew Lee |
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| Developing Strategy | |||
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Building Blocks Post Quake for China Charities
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| Managing Performance | |||
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William Bedsworth, Ann Goggins Gregory, and Don Howard |
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Data Point: The Realities of Indirect Costs and the Unrealistic Expectations of Funders When nonprofit organizations are able to make needed investments in staffing and infrastructure—“overhead”—they are better able to carry out their missions. However, many nonprofits are challenged in doing this, as they come under pressure from individual donors, government sources, and foundation funders to direct as much funding as possible to the services they provide--and not to the staff and systems that support them.While individual donors might limit funding based on program ratios (proportion of overall expenses going to program-related activities versus indirect expenses), government sources and foundations generally do not. However, they often limit the amount of a grant that can be used for indirect costs (those costs not directly applied to program activity). We’ve noted the indirect cost allowances of four foundations with assets greater than $1 billion, as well as the typical range illustrated by Foundation E, in this Data Point. Generally 10 to 15 percent of each grant allocation is earmarked for indirect costs. While nonprofits typically report 10 to 15 percent overhead, the reality is often much higher. The four organizations we studied in the article “Nonprofit Overhead Costs: Breaking the Vicious Cycle of Misleading Reporting, Unrealistic Expectations, and Pressure to Conform” had actual overhead rates of 17 to 35 percent. The article explores the vicious cycle of overhead costs, including misleading reporting (made possible by very vague IRS reporting standards), unrealistic funder expectations, and pressure to conform. Read more about the vicious cycle and discover strategies for breaking out of it in "Nonprofit Overhead Costs: Breaking the Vicious Cycle of Misleading Reporting, Unrealistic Expectations, and Pressure to Conform". |
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| Nonprofit Jobs | |||
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Nonprofit Job Seekers: Finding the Right Job for You |
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