A Graphic Re-visioning of Nonprofit Overhead

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Reinventing-the-wheel

“We can work together for a better world with men and women of goodwill, those who radiate the intrinsic goodness of humankind.” / Kate Ter Haar

Most nonprofit leaders agree that we need a new way to communicate about the true costs of our programs and the vital importance of strong organizational infrastructure. But we have not yet developed a simple, consistent message when sharing our view with potential supporters and investors. We are stuck with old terms and old images.

The following series of images and descriptions is really a blog in pictures. How we visualize our understanding of nonprofit structure and programs shapes the overhead debate. It’s time to get graphic about our new ideas—to deploy fresh images to help educate the public, our funders, and ourselves.

It’s Time to Retire This Pie Chart

Overhead-myth-slide

When nonprofits are viewed this way, no matter how hard we try to think differently, we imagine important infrastructure of our organization as taking a slice out of the pie—as diminishing the “real” work of our mission.

Strategic financial functions, good governance, and the development of key funding partnerships are vital to strong organizations. We need a new way to communicate this truth.

We Need a New Image

Rather than thinking of our investment in key infrastructure as diminishing our programs, it should be seen as valuable Core Mission Support.

Core-mission-support-slide-2

Core Mission Support functions are necessary, vital, and integral.

  • Strong, strategic finance and accounting
  • Progressive human resources practices
  • Capable, responsive board governance
  • Talented and engaged development staff

Whole Organizations and True Program Costs

Each of our programs is built around, is supported by, and shares responsibility for Core Mission Support.
True-Program-costs-slide-3

All of the resources we need to accomplish our programs are the True Program Costs, which include four types of expenses:

  • Direct Expenses: Program-Specific
  • Direct Expenses: Shared by Programs
  • Core Mission Support: Finance, HR, and Board
  • Core Mission Support: Fundraising & Partners

Underfunded Programs Create a Gap at the Core

Line-item-gap-slide

Some programs are only partially funded by contributions or by earned revenue.

When a program is only partially funded, the expenses not covered include a proportionate share of the Core Mission Support. This creates a Gap in funding for the finance, human resources, governance, and fundraising infrastructure that support the entire organization.

Line-Item Funding Creates a Gap at the Core

Some funders limit their support to only the direct expenses of program.

Line-item-gap-slide

When funders support only direct expenses, they deny funding for Core Mission Support. This leaves a Gap at the center of our organization. Not only is one program affected, but the health of the entire organization is at risk.

Invest in the Core to Grow the Mission

Grow-core-slide

The growth and effectiveness of our mission work depend on having a solid core at the center of our organizations. Investing in our infrastructure is savvy, prudent, and absolutely necessary.

Go Visual With Our New Thinking

Once we have a new way of understanding and communicating about the Core Mission Support needed by our organizations, it is our job to share our thinking with others. Our funders, supporters and investors all want us to succeed. They are partners in accomplishing our mission work. But like us, they may need help reimagining the role strong infrastructure plays in amplifying program effectiveness. By providing a simple visual guide, we can help transform the way we talk about, picture, and ultimately fund the Core Mission Support that is at the center of all great nonprofits.

 

This article was published in its original form at the blog of the Nonprofit Assistance Fund.

  • Cindy Leonard

    There’s one critical item missing from the new model – would like to see it read “Core Mission Support – Finance, HR, Technology and Board.” Technology affects everything we do these days but the costs are generally placed into the overhead category so tends to be underfunded at many organizations.

    • Curtis Klotz

      Cindy, you make a great point about the importance of investing in solid technology for all nonprofits. There are many technology-related expenses that could be classified in the third ring – Direct Expenses Shared by Programs. Depending on the organization and its use of technology, many expenses related to website, telecommunications, tech support, computers, and other office equipment would legitimately be categorized in this ring. Others such expenses may fall into the Core Mission Support categories as you suggest. Thanks for the feedback and for furthering the re-visioning process with us.

      • The proliferation of technology in our work – everything from databases to secure clouds – and the costs of purchasing, building, maintaining, training in heir use – is grossly underestimated and undervalued. Therefore Cindy makes a great suggest and I do hope to see technology featured in the Core in future, as in my experience, this is more and more the case – less programmatic and more pervasive and tied to everything we do.

  • Melissa Gradel

    This is a great way to address a critical fundraising issue. Curtis, can you give an outline of what line items you see in each of the circles? Where do you see rent, utilities, and other facilities-related costs? What about salaries and benefits for permanent staff? (One of the more bizarre aspects of the current model is that some funders do not consider salaries for permanent staff–even the staff responsible for implementing said programs–as direct project expenses.) Also, how do you see orgs advocating for this changed illustration? Should we just start using it in our annual reports? The typical pie chart is simply an illustration of the way expenses are categorized in the org’s audit: program, admin, fundraising. The pie chart your propose illustrates program based budgeting–which is how my organization (and many others) budget, allocating a portion of shared costs, like rent and telephone, to each program. But these are essentially internal documents, whereas the audited financials are regarding as the “official,” public version. Can we advocate for a new visual, without also changing how the financials are presented?

    • Curtis Klotz

      Thanks for your comments, Melissa. You make many good points. In lieu of a built-in Excel app capable of making this chart (maybe in time), I encourage you to use other means to adapt these visuals to your organizations needs. If your organization is already doing program budgeting and proper allocations, you can adapt this presentation. As far as the audit goes, remember that your organization can always include more detailed financial statements, notes, and alternative presentations of your financial picture in the Supplemental Information section. Just know that it may cause your auditors more work and you more in fees. But it might be worth it to better tell your story. Your feedback is much appreciated.

  • lynneakin

    Love these graphics! Wish I had them years ago. They make clear what is so obvious to those of us in the sector – the need for core mission support – but which has been so misunderstood by government and the public. Thank you!

  • Dina Wilderson

    I really like this model but it left out evaluation/performance management in the core mission support. Nonprofits today are expected to demonstrate that they are having impact with their clients and yet the funding for this portion of the work is hard to find and it is not recognized as a necessary infrastructure component.

    • Curtis Klotz

      Dina, I support your thinking. I hope you and others seeing this visual for the first time will continue to imagine how it can help tell your organization’s story (and our sector’s story). We all have components of our organization that have been marginalized and even vilified as detracting from our mission success that are more powerfully categorized and communicated as core mission support.

  • Ryan Diaz

    Kudos on the recognition that infrastructure investment is a central component of nonprofit funding. “Progressive practices” in HR would be a fruitful topic to explore in the future since the operating assumption of “100% of funding goes to programs” ignores that: 1) nonprofit staff deserve solid wages – not just executives. 2) Investment in employees is the single best barometer of the *quality* & strength of a nonprofit’s services. Underinvestment = Lower quality programs. Constructive feedback: The graphic – although helpful in demonstrating a very different perspective on this topic – takes a bit of effort to follow. I wonder if there are simpler ways of communicating the same ideas – visually – that will keep it simple for laypeople, board members, and/or potential funders and donors.

  • Rebecca Strome

    I disagree that fundraising and support are at the core of a non-profit. Organizations exist to fulfill their missions, i.e. their programs. Programs should be at the core.

    Even so, this model is still a huge improvement over the old pie chart and it STILL WORKS if “overhead” is on the outside. Think of fundraising, technology, HR, etc as the band around the outside holding the organization together. If you stretch the band too thin or leave gaps in it, the organization falls apart.

    • Steve Wogaman

      I think the key word in the center is Partners. That’s the space where sustainable programs are conceptualized and fleshed out. The stuff of the outside – while the most important output of any non-profit – is the implementation of what is created at the core. If there are no resources to engage in continual renewal, the core is lacking and the program on the outside stagnate.

  • west sider

    Thanks for a good article and fine graphics. It takes a lot of what I’ve been mumbling and muttering for 25 years and makes sense of it, adds to it, and refines it.

  • west sider

    Curtis, I have a question. I’m not sure how to interpret “partners” in this model. I know what I think it means, but I’d like to hear a sentence or two from you.

    • Curtis Klotz

      Our nonprofit business models necessitate and facilitate partnerships of all kinds with funders, advocates, communities, constituents, and clients. We often define our “development” work too narrowly — where the term fundraising takes on a very traditional tone. Of course, our core mission support includes proudly asking others to invest in our work financially. But there are many other ways that partners and partnerships are core to the success of our missions.

  • Robin Padanyi

    Great visualization! Far more nuanced than the traditional pie chart. This perspective will take repeating over, and over, and over again to change the conversation around core support resources within nonprofits.
    I think we all have a part play in beginning that conversation within our respective organizations.