Real Costs. Real Outcomes
with David Greco
Pacific Ballroom
February 5, 2016
8:45am – 10:15am
REAL COST. REAL OUTCOMES
David Greco
Project Director, Real Cost Project
www.realcostproject.org
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“The world has changed, and so must we. It’s time for
a new approach.”
- Clara Miller, President, F.B. Heron Foundation
www.realcostproject.org
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WHICH OF THESE EXISTED IN 2005?
www.realcostproject.org
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A rapidly changing social sector:
►
►
►
►
►
►
Technology & Data
Big Money
Government
Market Solutions
Impact Investing
Regionalization & Collaboration
www.realcostproject.org
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1.5 Million Nonprofit Organizations
87%
<$1MM
+
54%
<90 days
of cash
+
65%
<10%
overhead
Weak Infrastructure
Strained Capacity
Limited Impact
Less Quality
Fewer People Served
www.realcostproject.org
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MONTHS OF CASH
<1 Month
1 -3 Months
TOTAL (<3 MONTHS)
3 Months +
NONPROFITS SERVING
CALIFORNIA
LOW-INCOME
NONPROFITS OVERALL
COMMUNITIES
13%
14%
40%
46%
53%
60%
47%
40%
ABILITY TO MEET
DEMAND
YES
NO
NONPROFITS SERVING
CALIFORNIA
LOW-INCOME
NONPROFITS OVERALL
COMMUNITIES
44%
35%
56%
65%
www.realcostproject.org
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Orange County Nonprofit Sector 2004 - 2012
Revenue < $500K
2004
79%
2012
80%
Revenue < $100K
Deficits
52%
26%
53%
30%
www.realcostproject.org
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THE CONSEQUENCES
Funding Does Not
Cover the Full Cost
Inability to
Meet Demand
Lack of Liquidity
‘Doom
Loop’
Limited Capacity
& Weak
Infrastructure
Pursue
Off-Strategy & Nonscalable Funding
Distraction &
Fragmentation
www.realcostproject.org
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STOPPING COUNTERPRODUCTIVE
ACTIVITIES AND BEHAVIORS
1. What can you do to make sure that you achieve the worst
result imaginable with respect to achieving impact.
Adapted from Liberating Structure’s Making Space with TRIZ
www.realcostproject.org
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www.realcostproject.org
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STOPPING COUNTERPRODUCTIVE
ACTIVITIES AND BEHAVIORS
1. What can you do to make sure that you achieve the worst
result imaginable with respect to achieving impact.
2. Is there anything that we are currently doing that in any
way, shape, or form is on the list? Be brutally honest!
3. What first steps will help us stop what we know creates
undesirable results?
Adapted from Liberating Structure’s Making Space with TRIZ
www.realcostproject.org
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www.realcostproject.org
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NATIONAL PARTNERS
www.realcostproject.org
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RESEARCH OVERVIEW
Qualitative approach spanning multiple funder types
Statewide
reach focusing
on Southern
and Northern
California
Grantmakers
In-depth interviews
conducted
Corporate
Family
Community
Giving
Networks
Public
Endowments
Individuals
Staff Roles including
Board Members,
Executive Directors,
and Program Officers.
www.realcostproject.org
Annual Budgets
from $400,000 to
$9 Billion
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WHAT WE LEARNED
POLICY
PEOPLE
• Lack of formal policies
around overhead or
indirect costs
• No standard definition of
terms
• No shared or common
language
• Discretion left to
program, grants
management, and/or
financial staff
• Little or no formal
training on determining
full cost
www.realcostproject.org
PRACTICE
• Practice driven by
cultural norms and
perceived ‘best
practices’ in the field
• Radical differences in
approach and practice
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A NEW APPROACH. A NEW PRACTICE.
What are the
outcomes?
What do those
outcomes really
cost?
What role do you
want your money
to play?
WHAT WILL IT TAKE TO GET THERE?
www.realcostproject.org
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Simply put, the real cost
includes all necessary costs for
a nonprofit organization to
deliver on mission and to be
sustainable over the long term.
 Program Expenses
 Administrative and
Operating Expenses
 Reserve and Capital
Expenses.
www.realcostproject.org
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REGIONAL FORUMS
• San Francisco – June 9, 2015
• Los Angeles – June 15, 2015
• Orange County – June 19, 2015
• San Diego – June 23, 2015
www.realcostproject.org
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KEY TAKEAWAYS
•
Culture of Philanthropy: The uneven power dynamic creates a culture where nonprofits feel
they cannot be transparent on issues around financial challenges and the true cost of
delivering services.
•
Restrictions and Program-based Funding: Many institutional foundations are organized and
staffed around specific program areas. This system institutionalizes practices that 1) reinforce
the idea that programs – not overall organizational capabilities – are what matters most; 2)
restrictions are necessary to link funding to specific program results; and 3) accountability is
necessary for the program officer to justify the grant.
•
Shift to Outcomes: There was a great deal of agreement that focusing on inputs such as cost
is not providing the opportunity for nonprofits to effectively deliver on mission. Rather,
foundations should ground their grantmaking by focusing on what are they trying to achieve.
•
Organizational Innovation and Growth: Supporting indirect and overhead costs can have
lasting impacts on organizations by allowing leadership the ability to remain flexible in
changing times.
www.realcostproject.org
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INSTITUTIONAL BARRIERS
•
Lack of understanding of nonprofit financial management.
•
Lack of established best-practices models around funding the full cost of programs.
•
Lack of trust and a belief that many nonprofits don’t understand how to run “like a
business” – especially among trustees and foundation board members.
SECTOR-WIDE BARRIERS
•
A pervasion culture and mindset that “Overhead is Bad”.
•
Lack of a shared language and common definitions around overhead and full costs.
•
Lack of open and transparent conversations between funders and nonprofits.
•
Deeply ingrained practices, beliefs and perceptions.
•
Lack of established best-practices models around real cost funding.
•
Lack of understanding of nonprofit financial management.
•
Lack of skills and training around measuring and evaluating outcomes.
www.realcostproject.org
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OVERCOMING BARRIERS
• Executive Buy in: Simply, change happens at the top. In order for lasting
and impactful change to occur in funding methods, executives and boards
of trustees must fully understand the issues and be prepared to
implement changes.
• Engaging Grantees in a Real Cost Conversation: Before changing
grantmaking practices, grantmakers need to examine their current
practices – both formal and informal – and to engage in conversations
with their grantees as to what does it really take for them to achieve their
outcomes and how the funder’s grantmaking practices are helping or
hindering the achievement of outcomes.
www.realcostproject.org
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What do you need to help you move forward?
What support do funders need?
What support do nonprofits need?
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For More Information:
•
•
•
•
Real Cost Project – www.realcostproject.org
Northern California Grantmakers – ncg.org
San Diego Grantmakers – sdgrantmakers.org
Southern California Grantmakers – socalgrantmakers.org
David Greco, Project Director
Email: [email protected]
Phone: 213-640-9295
www.realcostproject.org
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