Real Talk About Real Costs: Overhead

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Donors ForumMany of us who work in and with nonprofits around the country have long been frustrated with the misguided approach of relying on overhead costs as an evaluation tool for the effectiveness of nonprofit organizations. So, there was a collective sigh of appreciation when Guidestar launched the Overhead Myth campaign last month, and together with Charity Navigator and BBB Wise Giving Alliance, encouraged donors to not use overhead or administrative costs ratios as a measure of performance, but rather focus on the impact investments have in a nonprofit.

This national conversation started by the Overhead Myth campaign elevates the conversation that has been happening across the country for years: nonprofit leaders have struggled to raise funding for administrative costs and articulate the true expenses of running an organization, the Bridgespan Group and others have written compellingly about “the starvation cycle” that nonprofits become trapped in when donors rely on overhead costs, and nonprofits and funders alike have struggled to shift the culture of funding to focus on investment in impact over dollars spent only on hard program costs.

The nonprofit and philanthropic sector in Illinois is no different. In 2012 Donors Forum, the state association of funders, nonprofits, and advisors, began to tackle this issue with hopes of making local cultural change that would eventually ripple outward. Pulling together a mixed group of almost 30 nonprofit leaders and funders, a community of practice was formed to spend the year learning, discussing, and problem-solving together. Meeting every six weeks or so throughout 2012, the group built relationships, learned from the experiences of both funders and nonprofits, and ultimately took action to begin building the skill and will to have “Real Talk about Real Costs” through the development of a new movement.

Real Talk about Real CostsBased on the work of this dynamic community of practice, Donors Forum, together with our partner Bridgespan Group, has launched a significant community conversation about the overhead cost issue to drive culture change locally as well as be part of the conversation nationally. We produced a short, bright video aimed at helping raise awareness of funders about how their funding can really change the world. The video can be used as a conversation-starting tool for boards and staff. And in March (2013) we brought together an equally mixed group of 300 funders and nonprofit leaders to have real talk about the real costs of outcomes in nonprofits during an intensive event focused on learning and dialoguing together as we problem-solve around this challenge.

Making cultural change on how overhead costs are viewed and funded is a slow process that involves both building the skill of nonprofit leaders and funders to understand and articulate the true costs of programs and outcomes and building the will of those organizations to have real and sometimes challenging conversations about what outcomes really cost with the people in decision-making positions.

The work Donors Forum has done over the past 18 months is now coalescing well with the national attention from the Overhead Myth, and we hope to continue to be a driver of the movement and conversation in Illinois and beyond. The crucial leadership role of state associations in problem-solving is essential for this conversation and others, to find solutions to similar sector-wide challenges.

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