Winning the Impact vs. Overhead Argument

pendulumIt’s been nearly seven years since Ann Goggins Gregory and Don Howard coined the phrase, “nonprofit starvation cycle,” to describe the underfunding that results when nonprofits attempt to win over the community by underreporting overhead. For far too long, overhead—loosely defined as fundraising and administrative costs—has been used as the primary basis for decisions about nonprofits. It’s been nearly impossible to dismantle the widespread belief that skimping on overhead equates to being a “good” nonprofit, worthy of individual charitable donations in addition to government and foundation grants.

More recently, nonprofit professionals and advocacy groups, including Guidestar and Charity Navigator, have made strong, evidence-based arguments for why the impact of an organization’s work is a much more important indicator of success; yet the overhead myth continues. Perhaps what’s blocking sector-wide change is a clear picture of a) what happens when nonprofits lack the infrastructure required to fulfill their missions and b) what specifically is needed to maximize impact.

Christina Triantaphyllis & Matthew Forti presented evidence in their 2013 follow-up piece to Gregory and Howard’s “The Nonprofit Starvation Cycle” (SSIR, 2009) revealing that a lack of uniform measurement and evaluation (M&E) tools is a major obstacle in shifting the focus from overhead to impact. We, at Eno River Consulting, agree that M&E is a critical piece nonprofits must develop to ensure transparency, accountability and strategic planning. We also believe in prioritizing all components of infrastructure–namely systems, staff and equipment–for nonprofits to both remain viable and be optimally efficient.

Here is Eno River Consulting’s illustrative guide to ending the vicious cycle of nonprofit starvation:

ERC, Impact Vs. Overhead v2

Stay tuned for additional blog posts in which we’ll explore how the nonprofit sector can flourish both economically and programmatically through wiser investment in infrastructure.

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