Properly funded overhead costs are needed to build excellent organizations: that was the central message from Real Talk About Real Costs, a Donors Forum Convening held last month. 

Donors Forum, in collaboration with The Bridgespan Group, tackled this controversial issue, to help funders and nonprofits — together — wrestle with what it costs — really, fully, all-in — for nonprofits to make a significant impact; tackle the role that overhead plays in long-term sustainability; and stimulate open, honest communication about sharing costs among nonprofits and funders.

Ann Goggins Gregory, Senior Director, Knowledge at The Bridgespan Group (pictured, left),  established the framework for the conversation.“We have to anchor on the right question—how much do good outcomes cost? They cost more than we think, and the currencies are not just monetary; they are relational,” she said, also emphasizing how trust between grantmakers and nonprofits is the critical element in positive interactions between the groups.

Lizabeth Sode, Vice President and Executive Director of Strategic Services at Heartland Alliance for Human Needs and Human Rights, and Marianne Philbin, Executive Director of the Pierce Family Foundation, shared their experiences co-chairing the Donors Forum's Community of Practice on Solving the Overhead Challenge, which met for more than a year. In addition to wrestling with overhead funding challenges, the group wanted to “figure out how to communicate and help make something viral that would move people to discussion and action.” The result is a video focused on ending some of the myths about nonprofit overhead and getting people to focus on what it means to fund the whole of an organization's needs.

You can view the video here: http://www.donorsforum.org/realcosts. 

Guest speaker Antony Bugg-Levine, CEO of the Nonprofit Finance Fund, focused on what is changing in the nonprofit sector and how the sector needs to adapt. “This is not a cyclical moment in which hunkering down in the short term is a good-enough solution. What we are encountering is a fundamental shift in our society about how we mobilize service to meet demand." It’s not enough to plug the holes made by reduced government funding, Mr. Bugg-Levine said, because private philanthropy is simply not large enough to make up that gap. Changes in operations, innovations, and organizational mergers may be needed to help the nonprofit sector function and become sustainable in the new environment. “There is a recognition that simply doing things as we always have is not going to get us where we collectively want to go,” he said. 

Much of the convening was dedicated to helping build stronger relationships between funders and nonprofits. Two sets of table discussions and "reverse role play" helped both funders and nonprofits see the issue from another point of view. Participants said the role-play was valuable, and could have been even more useful had "funders" pushed back against the idea of increased overhead funding, enabling "nonprofits" to develop approaches for those situations. And, one "funder" asked of a "nonprofit," “What can we do as a foundation to assist your organization?” This was recognized as a particularly useful approach. "Normally, we all sit together and chat about what's going on with us. This format really opened up the conversations and interactions," said one participant.

Unmi Song, Executive Director of the Lloyd A. Fry Foundation and David McConnell, Chief Financial Officer at One Hope United, shared their experiences with the impact of funding overhead. Ms. Song emphasized the importance of clearly reporting and requesting overhead and administrative amounts, saying if a nonprofit organization does not ask for specific kinds of assistance, a funder cannot provide it. "If you don't put it in the budget, it won't get covered by the grant," she said. Mr. McConnell focused on how overhead expenses increase the effectiveness of an entire organization. "Not only is overhead not "bad" and necessary, but it often serves to both reduce costs and enhance the effectiveness of our direct staff efforts," he said. And, sometimes the problem is not private funders, he added, but rather government entities who put strict requirements and limits on the amount of resources that can be used for overhead.  

In closing, Ms. Goggins Gregory emphasized that the true effectiveness of this session will be known by what comes after it. She led participants in suggesting action steps, which included showing the video presented in the session to board members, developing ways to articulate to trustees the costs involved in performing evaluation, identifying evaluation costs early in the grant process, and holding Donors Forum workshops on how to identify and communicate real costs.  

Valerie S. Lies, President and CEO of Donors Forum, said that Donors Forum's involvement in this issue would continue. "We are committed to developing practical tools and resources to use in your organizations to jump-start these conversations and take them to the next level," she said. "We want to build the skills of our constituents around this issue, and then push the conversation out to build the will." 

— Jason Hardy, Member Services Associate

View the Video, Get Resources and Updates, and View Event Photos

• View the video here: donorsforum.org/RealVideo
• Get additional resources here: donorsforum.org/RealResources
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• Visit the Real Talk About Real Costs microsite here.
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