The Value of Leadership and Other Unnecessary Overhead Costs

nonprofit chainAlthough grant writing is a year-round activity, things tend to pick up substantially between January and May. Without a grant writer or development person, grant-writing season is an “all hands on deck”, time at my nonprofit. For larger opportunities or new programs, my CFO and I take the lead. For routine reapplications and smaller opportunities, the Program Directors are in charge. In all cases, responding to Requests for Proposals is part program development, part patchwork quilt budgeting, and part navigating a growing number of operational and budgetary constraints.

Of course, the need for constraints is understandable. The Powers That Be need to be certain that funds are expended in accordance with the objective of the grant, and in compliance with applicable laws and public policy.  I also take very seriously the responsibility that my organization has to use funding for the purposes expressed, in the most efficient, ethical and transparent way possible. That being said, sometimes the constraints within which we are expected to operate are mindboggling, not just to those who are applying for funding, but I hope to any reasonable person.

Take, for instance, this year’s most inexplicable constraint: A requirement that budgets include zero administrative costs. These are sometimes also referred to as overhead or indirect costs, with subtle differences between terms. But no matter what you call it, the quantity allowed was the same: Nothing. ZERO. ZILTCH. ZIPPO. Not. A. Dime. In my more quirky moments, I liken this restriction to asking me to put together that already difficult patchwork quilt budget without thread. But it is by no means a fun or interesting dilemma.

ladyI understand the philosophy behind the restriction. The desire is to ensure funding goes exclusively to worthwhile programs that meet a critical need, or achieve an important goal. Apparently, there is something inherently distasteful about funding <gasp> management. Or  <the horror!> leadership. In truth, however, research demonstrates time and time again the role of leadership in ensuring quality, innovation and productivity. Leaders are primary contributors to organizational culture, which is responsible for ethical behavior, legal compliance and fiscal responsibility.

Management is also a critical component of any effective operation. At minimum, managers provide training, supervision, and ongoing guidance to ensure adequate performance. They also perform recordkeeping and reporting functions. Ironically, even when grant opportunities do not allow for administrative costs, they still require financial and programmatic reporting. Who do The Powers That Be expect will pay for someone to complete these reports?

Anti-management attitudes seem to abound (even my social worker significant other hates managers) so it is clear the above questionmarkreasoning won’t sway everyone. But perhaps a practical argument might: Programs can’t operate in the dark, without telephones, without heat in the winter or air conditioning in the summer. Clients shouldn’t receive help in rooms with broken windows, flooring that causes trip hazards, or yellowed walls in need of paint. No one should work or be served in buildings without smoke detectors and fire alarms, trash pick-up or snow removal. Donors should expect an organization to be audited annually. When funding is offered without overhead allowances, how will these be provided?

In these economic and political times, the challenge of developing innovative effective programs, and securing funding to offer them grows more difficult. We have no room to write grants with constraints that further limit our operations. My organization already operates with an extremely low level of administrative costs—8%. That means for every $1 we receive, 92cents goes directly to provide services. In order to continue to provide effective programs in response to critical community needs we must sit at the table with the policymakers and remind them there is value in allowing reasonable administrative costs. We should not tolerate exorbitant expense or unnecessary spending, but we should also recognize that each funder should pay for their own reporting mandates—and that someone needs to pay to turn on the lights.

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4 Comments

Filed under Executive Perspective, General, Nonprofit Management, Practitioner Perspective

4 responses to “The Value of Leadership and Other Unnecessary Overhead Costs

  1. Natasha Conley

    Agreed, there is much value provided by management and administration, and someone needs to pay for them. It definitely needs to be budgeted in. 8% is a really low cost, so kudos to your organization.

  2. Pingback: Non-profits and the pitfalls of crappy technology. | The Management Maven

  3. Well said! It’s so frustrating to see these types of funding constraints effectively hobble the individuals most committed to the cause: management and staff.

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