Charities are all too familiar with being scrutinized over their administrative costs, but in a twist, a foundation in Britain is being asked to reduce its overhead.
John Copps, a head researcher at the British charity-evaluation group New Philanthropy Capital, describes on his organization’s blog how the Big Lottery Fund — Britain’s largest grant maker — is being instructed by the government to reduce its administrative costs from 8 percent to 5 percent.
While it may seem that the foundation shouldn’t be immune to the cost-cutting going on elsewhere, Mr. Copps says, limiting the organization’s administrative costs will likely cause harm.
Faced with less money and fewer employees, the foundation would likely make fewer small grants, start fewer new grant-making programs, and spend less on research and evaluation of programs. None of those moves would be good for nonprofit groups, says Mr. Copps.
What do you think? Should grant makers that spend a lot on administration be encouraged to cut those costs to get more money out the door to grantees?
3 Responses to Should Grant Makers Be Encouraged to Cut Administrative Costs?
jeffm - July 27, 2010 at 12:54 pm
Without appropriate overhead an organization – for profit or not for profit – can’t effectively manage their performance. They risk not having the right systems, processes, and people needed to understand what’s working and what’s not working. And, as a result, will have no idea whether they are moving closer to their goals or further away. Without this an org can learn and continuously improve.Bridgespan did some research on overhead rates across 25 industries and found that on average an org allocates 25% to overhead. 5% seems ridiculously low.
astrand - July 27, 2010 at 3:26 pm
It sems like making small grants, starting new grant-making programs, and research and evaluation of programs shouldn’t be lumped in to overhead / admin / management. Those all seem appropriaptely program related, maybe there needs to be a retooling of the defintion of overhead.
81154412 - July 27, 2010 at 4:48 pm
My organization’s overhead rate is 8%, and with this amount we must maintain multiple licensures, manage a variety of funding streams, do the intense outcomes tracking required for accreditation, and battle government agencies and insurance companies to actually pay for the services they buy from us. It’s not unreasonable to challenge a grant-making organization, operating with fewer requirements, to shoot for a 5% overhead rate.