The Overhead Question: What's Our Role?
Flickr Photo: tylerdurden1Ask any nonprofit to describe how they feel about their overhead percentage, and you're most likely to be met with groans, sighs and rolls of eyes. None of us like the fact that the percentage of income we spend on "overhead" is the primary measure of our effectiveness.
The Nonprofit Starvation Cycle aptly summarized the problem with the overhead measure this summer. Then, in December, some of the sector's top rating agencies, including Guidestar and Charity Navigator, agreed that a new measure is needed.
Here at NTEN, we're keenly interested in this question. So many organizations view technology as an administrative, or overhead, expense -- we can argue that point later -- which means that they routinely under-invest to keep that ratio as low as possible. We're all for a change in the way that effectiveness is accounted for. But we also know that we don't want a new definition established without our input.
So today we hosted a community community call -- recording and chat transcript here -- to tackle the need for change and what it might mean for our sector. Perhaps the most tweeted line of the entire call came from Bob Ottenhoff of Guidestar:
- Overhead ratios are like asking which airlines spend the least on maintenance to decide where to invest.
That was the easy part of the conversation. By now, we all agree it's silly to evaluate an entire organization based on one ratio. The hard part is going to be coming up with what we're going to do about it.
Certainly, defining effectiveness more broadly means at the very minimum that nonprofits will have to collect AND SHARE more programmatic data. Additionally, we have to get funders and our donors to understand the bigger picture. Here are just some of the hurdles we identified on the call:
- Nonprofits aren't great at sharing data, with anyone. We need a culture change.
- As a sector, we're woefully behind when it comes to evaluation skills. Though it's catching on, we have a long way to go, and we can't be expected to report on our effectiveness when we don't have the skills to do so.
- We need systems for sharing our effectiveness data, and it has to be public. If we want donors and funders to value the data, it has to be public.
- We don't have a compelling marketplace for data sharing. Lucy pointed out that the incentives just aren't there for more robust data sharing.
- Reporting of overhead already varies wildly from nonprofit to nonprofit. How will more complex reporting be any easier?
So what are our next steps? It seems we have a battle to undertake on many fronts:
- Helping nonprofits with their evaluation skills
- Educating funders and the public about effectiveness vs. overhead
- Defining effectiveness and system for reporting that promotes adoption in the sector. Or, as Lucy puts it, creating an effective marketplace for this kind of data
And that's just to name a few.
Here's where I turn to you, NTEN: what are the big needs we haven't adressed here? And what do you want to see NTEN tackle?
