It is both understandable and reasonable that philanthropists want bang for their buck when they are making grants. They need some kind of certainty that their money will be well spent that it is not going into the pockets of individuals , that it will not be misappropriated, that it will lead to positive results. There is however a key difficulty. In the name of efficiency most philanthropists will not allow more than 10% of a grant to go towards funding operational costs (as opposed to programme/project costs) if they fund operational costs at all. Part of this is due to a public perception that a NGO or not-for-profit with high operational costs is misusing funds that could or should be going towards programme or service costs. However the magic number of 10% does not really tell us anything about the efficiency of an organisation. It is simply a shortcut and it is a shortcut that hurts many NGO’s.
Spending only 10% of available funds on operational costs does not necessarily mean an organisation is an efficient. This target is perhaps achievable for an aid delivery organisation but for any type of service provider it is a serious handicap. Like any other organisation an NGO or not-for- profit is only as strong as the people who make it up. There is a strong assumption that people who do this kind of work should do it out of the goodness of their hearts – and work tirelessly never asking for any kind of reward. However people with strong social consciences still need to put food on the table and survive just like anyone else.
Having a 10% operational cost cap means that organisations have to rely heavily on part- time and volunteer labour. This does not result in greater efficiency – it results in greater inefficiency. This is because tasks that could be done by one high quality full-time staff member have to be spread over part-time and/or volunteer staff – who while they may have excellent intentions do not necessarily have the right areas of expertise.
Instead of using these arbitrary and false measures of efficiency Philanthropists should look at outcomes to see the effectiveness of an organisation. What have they achieved, how many people have they reached, what kind of impact have they had, of course keeping in mind that not all outcomes can be quantified. They should look at whether NGO’s actually truly serves the community is purports to aid. Unlike say an organisation like Autism Speaks – which is heavily funded and yet does not actually have any Autistic people involved in the running of the organisation and is heavily critiqued by actual Autistic individuals, people who it claims to ‘speak’ on the behalf of.
These are much more robust ways of determining whether an organisation is using funds efficiently and effectively. Philanthropists if they want to be involved in making lasting change in the world have to listen to the organisations that try to make it happen. They need to start giving what these organisations actually need rather than what they believe they should have. There is no point having programme money if there is no money to pay for the people and the venues and the water and the power and all the other mundane things that are required for the day to day operations of an organisation that allows programmes to happen. It may not be as sexy but it is very important.