The common but flawed social sector practice of using administrative overhead to gauge and determine organizational effectiveness is getting a lot of attention these days. If you are involved with the development or fundraising of a nonprofit organization, then it is likely that you have heard the powerful Ted Talk by Dan Pallotta addressing this issue. In fact, The Stanford Social Innovation Review wrote that his book Uncharitable “deserves to become the nonprofit sector’s new manifesto.”  I agree wholeheartedly that nonprofit effectiveness should not be defined only by the organization’s ability to maintain low overhead costs.

The desire to keep overhead low is often in direct conflict with the organization’s desire to focus on impact and excellence. Considering that this measure alone, without carefully examining other measures, penalizes organizations that invest in the technology or high-quality staff needed to support impact and excellence. When viewed without the rich context of other outcome measures, the measure of administrative costs says nothing about how effective the organization is at achieving its stated mission. It is altogether possible that one organization could reach a greater impact with only 30% of their funding going straight to programs compared to another organization where 95% of funds are invested directly into programs.

I applaud those like Dan who are trying to change the conversation. However, if nonprofit leaders are going to change the conversation and encourage funders to make decisions on something other than overhead, new success measures will need to be provided to replace this inadequate measure.

If not overhead, then what? The best way to judge a nonprofit’s success is to examine their OUTCOMES. In order to stop using overhead, organizations are going to have to step up to the plate and start quantifying their results. What results are organizations accomplishing with the resources raised? How is the organization changing lives and changing circumstances? If the sector is serious about moving the conversation away from overhead, then leaders will need to get serious about quantifying their results and managing to outcomes.

This will require a radical shift for many nonprofit leaders. New research presented in my new book, Impact & Excellence reveals that only 28% of nonprofits have created cultures focused on managing to outcomes. To be successful, organizations should be tracking two to three outcome measures directly in line with the organization’s mission that demonstrate their organization’s unique impact and value. These measures should overlap around what funders and their participants most desire. Below are some different outcome measures that could be used for different missions.

  • Reduction in homelessness
  • Increases in graduation rates
  • Reduction in substance abuse
  • Increases in employment
  • Reduction in those needing government assistance
  • Reduction in smoking
  • Increases in healthy eating
  • Increased access to mental health providers

Changing the funding conversations and management decisions away from overhead and towards outcomes is the only way the nonprofit sector will be able to create radical changes and improvements. The opportunity for the nonprofit leaders is that focusing on outcomes will allow them to be more flexible and innovative in their service delivery model. They also must find the approach that leads to the greatest benefit to society, instead of only focusing on what will keep their costs down. The challenge for donors and funders is that this shift in making funding decisions based on outcomes will require a little more discernment when deciding which organization is truly making a difference in this world. Nonprofits can start proving the following information to donors in addition to overhead numbers to start educating and changing the conversation. Activities should be conducted in the order listed.

  1. Communicate how the organization’s mission and programs aligned. An effective program will have a clear and compelling mission with clearly defined programs. Make sure there is clear logic behind what the program does and what the organization hopes to achieve. For example, a Kindergarten readiness program must show how they provide a safe and engaging environment and teach the elements related to Kindergarten readiness.
  2. Establish clear and measurable outcome goals related to this mission. For example, an organization that prepares children for Kindergarten should establish a goal related to this outcome. For example, a realistic goal may be that 80% of the children served will meet all objectives on a Kindergarten readiness test at the end of the program. Leaders should track the program’s success to this measure to ensure they are meeting this goal. Once this goal is reached, leaders should strive to increase the success rate, having an even greater and successful program.
  3. Once an outcome is mastered on a few clients, then add a measure of expanded access. Growth without outcomes is not an impressive measure. Real change happens when a program that achieves results expands to serve more people. For example if in 2013, the Kindergarten readiness program served 50 kids and 80% achieved Kindergarten readiness. Then in 2014 a measure of success would be if the program expanded to serve twice as many children (100) and still obtained a success rate of 80% of higher. Now it is clear that this organization is not only changing lives but is expanding and growing to change even more lives.

If you are looking to develop performance and outcome measures that motivate others to support your mission, Measurement Resources is here to help! We can help you align your mission, your measures, and your culture. Our favorite part is to celebrate our clients’ success on their increased impact on the world!  We’d love to help you make data-driven decisions with confidence. Contact us today for your FREE 20-minute strategy session.

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