Thursday, February 8, 2007

How much overhead is too much?

I think it is a problem when donors focus on overhead costs as the primary means of determining the worth or effectiveness of an organization.

In his monograph "Good to Great for the Social Sectors" (an addendum to his original book with a similar title), Jim Collins provides a very insightful argument against such a perspective. I think that the book is well worth the read for any person working in our sector, so I will not quote it here. However, the basic argument was that: "If one football team won more games than another, but had a higher percentage overhead than the other, would it be a worse team?"

That being said, I disagree with this recent act of Congress to lower the eligibility bar for entrance into the Combined Federal Campaign:

Philanthropy Today: From The Chronicle: Combined Federal Campaign

This issue is very concerning... when fundraising costs suck a quarter out of every dollar raised, the organization is likely to be poorly run or the mission is possibly not worth funding.

There are many fine organizations that can fall below this threshold. I believe that Congress should re-think this action.

Donors should utilize overhead/CEO pay to provide a quick "fraud check" when evaluating a charity. After determining that the organization passes muster, donors should then look at:

  • Strength and diversity of board leadership
  • Qualifications of staff (particularly CEO)
  • Impact of services (inputs AND outcomes)

Personally, I also like to look at the uniqueness of the services/impact as well as the capacity for replicating services. This shows that the programs in which I invest are model services for other organizations.