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This Month's topic: Administrative Costs
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 Generations: The Challenge of a Lifetime for Your Nonprofit,
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| This Month's Topic: Administrative Costs |
Sites of the Month
Each month, this area provides with a number of my favorite and most helpful sites regarding the topic of the month.
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Management
Tip of the Month
Each issue, I start with a discussion
of my management perspective on the month's topic, and give you a few hands-on
ideas to consider.
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Recommended Publications
Here, I provide you with my
recommendations on the materials available that can help you
become more mission-capable in the area of Admin Costs
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Technology
I provide you with some good ideas for
uses of tech to better your organization in the area of Admin Costs
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Marketing
Tip
So much to say, so little space to say
it.....
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Next
Issue
In April, you'll get my newest take on an annual topic here: New Uses of Tech for Nonprofits
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Past Issues:
You can see the topics of past Mission-Based Management Newsletters, and then view those that are of interest to you, by scrolling to the bottom of the newsletter, or by clicking here. |
Websites of the
Month
Here are my recommendations for websites of interest
on this month's topic: Administrative Costs
Back to
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Management Tip of the Month
Are Admin Costs Important?
Get ready. This is a subject that makes me almost literally froth at
the mouth. So, straight to the question: Are Admin costs Important?
Yes, but they shouldn't be. Administrative costs are a stupid and ineffective metric by which to value or even worse, compare, nonprofits.
Can you hear me now? The nearly obsessive emphasis on this one
statistic drives me nuts. Comparing nonprofits by admin % is like
comparing 5 cars you might buy by weight. It's interesting, but
not of much value. And, it indicates laziness to me. If you want to
find out what's going on from reading the financials, you have to drill
down and do the work More on that later.
First, NO ONE can tell you what
a "good" admin percentage is, although that hasn't stopped people from
showing their ignorance by declaring that 12% or 13% is good and
anything higher is bad. Nonprofits are so diverse, have such varying
capital structures, that declaring one number the right one is....how
do I say this nicely? Naive.
Of course, we compound this error with the prevailing assumption
(particularly among funders and large donors) is that less admin is always better.
Or not. The National Center for Charitable Statistics has a great brief "Getting What We Pay For: Low Overhead Limits Nonprofit Effectiveness"
, which talks about the damage low overhead does. Why would a nonprofit
cut overhead to a damaging level? Because every funder harps on this
and the ED and board simply follow the funders' guidelines. And
it hurts organizations, sometimes to the point of killing them. Read "How I Cooked the Books", if you don't believe me.
I see this damage all the time in my work. And, as we transition from
Boomer ED's to GenX ED's over the next ten years, we'll see more
damage--our admin costs are held so low that we have no management
"bench", no cadre of mid managers who are being groomed for top spots.
What else gets cut in the quest to meet the admin % expectations of
funders, press and public? Leadership development, training, continuing
education. Sounds like a formula for crappy services to me. I recently
was told of a community foundation that sponsored (and posted on their
website) a contest to see who could have the lowest admin costs. A race to the bottom if I ever heard of one.
Anyone think that FedEx is poorly run? No, they are a lean, profitable
organization. How about Southwest Airlines? One of my MBA students ran
a comparative analysis on FedEx's financials, and found that FedEx's
"admin costs" were over 30%, and that Southwest's were 31%. Hmmm. And
why is it that this admin obsession pertains only to smaller
nonprofits? Most universities have admin % add-ons of over 100% on
research grants, and the feds OK them without blinking...again: Hmmm.
If you think I'm exaggerating about the witch hunt mentality about admin costs, try this. Go to Google,
type in the search string "Nonprofit Administrative Costs" and hit
"enter". What do you see? Ads for "Find The Best Charities", and "100
Best Charities". Why? Because these online watchdogs use admin costs as
a key metric in their rating system. Here's another fact: CPA
firms don't all account for admin the same way...yet another reason
that using admin to compare the effectiveness of different
organizations is like comparing apples to watermelons.
One more thing. When I talk about administrative costs I am not
talking about fund raising costs. That's a different measure, and
usually more valuable, if it's used with full disclosure on how it was
calculated.
Am I contending that admin costs are always a bad measure? No, not in one particular case:
Year-over-year data for the same organization that is measuring admin
costs the same way, is a good metric, if it is used as a gateway to
deeper examination. I use this with my clients regularly. If I see four
year's of data and admin costs as a percentage of total revenue go way
up or way down, I raise my hand and ask why. I do the same thing with
an organization that I want to donate to....I examine three year's
990's and look for any big variations in administrative and other costs. But absent this one use (which
is, as I say, a good warning flag) I'm much more concerned about quality of services, or increased output of services, etc. than I am about an artificial percentage that may or may not indicate something amiss.
Remember, good quality usually
requires more training, more infrastructure, etc. Such valid
expenditures add to admin costs just as much as the much taunted
"Excess executive pay". Finding the real cause requires a little work
to drill down to examine the actual contributors to the total
administrative line.
NOTE TO THE PRESS, PUBLIC, DONORS AND FUNDERS: Think, and do your homework before you rant about an organization's "ineffectiveness" because its admin % rises to the unbearable level of 13.2735%.
If
you found this hint helpful, there are lots more management, marketing, and
technology ideas for you in the "Ideas" section at
www.missionbased.com. Check them
out--they're free.
And, remember to take a look at the
Mission-Based Management
Blog.
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Print Resources
My recommendations for texts and other readings on Administrative Costs are
shown below.
Costs are Cool: The Strategic Value of Economic Clarity: a terrific article from the Bridgespan Group.
How I Cooked the Books , a cautionary tale, and a reprint from Nonprofit Quarterly.
Our Little Secret: another terrific article by Tom McLaughlin.
Publishing the Nonprofit Annual Report: Tips, Traps, and Tricks of the Trade, by Carolyn Taylor
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Technology Tip
How can Tech help me with my admin costs
Since I know I'm going to lose the debate on my position (see above) that measuring
admin. costs is dumb, we need to move and and deal with, to paraphrase
Jim Collins, the brutal reality. Since it is what it is, you need to be on top of your
administrative costs at all times.
In the Marketing Tip, I'll talk about ways to work with this issue on
your website. Here, I want to revisit a topic I've talked about from
time to time: A Management Dashboard. basically, the idea is that you
pick five, eight, even 10 metrics for your organization and have your
IT person, or your CFO turn them into a quick way to look at status.
Think of your auto dashboard. It tells you what? Speed, distance,
engine temp and fuel level. If you have a high performance car, a
tachometer
might also be there. There is, of course, a LOT more going on in your
engine and other systems, but these are the the key things. If
something more goes amiss, you have a warning light to alert you. This
is the idea you can use with your management metrics. There's a lot
going on in your organization, but what do you really need to know?
You don't need high priced software to do this. With
a simple spreadsheet and its graphics, you can develop a terrific dashboard, but
key is to pick your metrics carefully. But once you do, it can save you
lots and lots of time.
So what do dashboards have to do with administrative costs? Make the
various components of your admin % one of your measured metrics. Don't
perseverate on this, but do keep tabs on it. By adding it to your
regularly reviewed data, you also show your board and funders that the
issue is on your mind and that you and your staff are paying attention
to it.
If you found this hint helpful, there are lots more
management, marketing, and technology ideas for you in the "Ideas" section at
www.missionbased.com. Check them
out--they're free.
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Top
Training Schedule for Peter Brinckerhoff
Below you'll see the date, location, and topics
of public training I'm scheduled to do in the next few months. For more
information on a particular speaking engagement, get in touch with the contact
person listed in the right hand column, or
email me.
For more information on my availability throughout
the next 12-18 months, available topics, sample agendas, and fees go to
www.missionbased.com/training.htm
Marketing Tip
Admin Costs and Marketing
With administrative costs, marketing discipline can help you by giving people what they want,
which is information on administrative costs, and then adding to it
what they need, which is information on other outcomes. Three things to
consider.
1. Make sure
that your annual report, 990 and current budget are all visibly linked
on your website. For a good example of this, go to the Points of Light Foundation website and take a look.
2. Make sure
you have a performance statement, in addition to your financial
statement, one that notes how much mission you have done, your quality,
etc. Show people more than just your numbers. Show them your mission
outcome. And, related to administrative costs, deal with it clearly and
directly. Show how you calculate yours, and how it has fared over the
past three years. If it's up, note why (for example, "We invested in
more training for key staff this past fiscal year"). Be direct, and
point repeatedly to your mission outcomes.
3. Make sure
you make your case on Guidestar and other watchdog sites. Go there, and
add comments on your outcomes, or links to your outcome reports. Also
remember that Guidestar and its peers often use (at no fault of theirs)
old 990's. Post your most current information right on your website.
By doing these three things, you'll be
transparent, let people look at the admin costs, but see beyond it to
the good you are really doing in your community.
And, if you found this hint helpful, there are lots more
management, marketing, and technology ideas for you in the "Ideas" section at
www.missionbased.com. Check them
out--they're free.
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Top
Future Topics for
The Mission-Based Management Newsletter....
| April |
New Tech Uses for Nonprofits |
| May |
Generation Change and the People You Serve |
| June |
Mentoring |
July
|
Better Cash Planning |
| August |
What if you are a (really) small nonprofit? |
| September |
Generation Change and Technology |
| October |
Crisis Management |
| November |
Generation Change and Marketing |
| December |
Signs of Organizational Trouble |
| Send me
your topic suggestions at: peter@missionbased.com |
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You asked, so here they are:
Past Single-Topic Issues of the Mission-Based Management Newsletter...
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Copyright 2007,
Corporate Alternatives, inc.
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