Why We Support Operational Costs and You Should Too

Yesterday, Julie Brandt wrote a piece in the Stanford Social Innovation Review “Overhead Costs: The Obsession Must Stop.” It’s a great article that’s worth your time. At Firelight, we prioritize funding operational costs of our grantee-partners. As Brandt explained, “The belief that nonprofits that minimize investments in overhead deliver higher-quality services or better results has deprived many organizations of the resources they need to serve their communities.”

We invest in the operational structure, staff, and overhead of an organization because it leads to results:

• Leaders and staff members are better supported to develop high-quality programs that make a difference in children’s lives. When leaders of organizations are not focused on cutting costs or making ends meet for themselves, their families, and the organization overall, they are better positioned to focus on making a difference in their communities.
• Staff members that are compensated appropriately for their skills and expertise are less likely to leave an organization.
• Staff and volunteers, who are provided regular training and professional development opportunities, turn their newly developed skills into providing greater care and support for children.

All too often, community organizations with low overhead are hard pressed to deliver on outcomes that they can’t reasonably accomplish with the limited staff and resources available to them. As a result, the money going to programs from donors who do not want to support operating costs ends up making little difference in the lives of the people it was intended for.

If there are holes in an organization, from untrained staff to insufficient office equipment, it is most likely not going to be able to produce long-term change in the communities. This isn’t a fault of the organization so much as it’s the lack of understanding from donors that supporting the foundation of an organization, to make it strong and sustainable, is key to delivering on program objectives.

In Firelight’s most recent grant cycle 27% of grants awarded supported operational costs of our partners. Examples of activities funded under operational support include paying salaries, communications, transport, as well as monitoring and evaluation.

An additional 5% supported organizational capacity building, which includes skills building for staff, volunteers, and board members, or support for the organization in areas such as strategic planning or resource mobilization.

When we recently awarded funding to Foundation for Community Support Services (FOCUS) in Malawi to construct a community resource center which will eventually generate an income for the organization, FOCUS’ leadership wrote to us saying, “We salute you for your continued commitment to improving the livelihoods of our children and also in the areas of our sustainability as FOCUS which most donors do not appreciate.”

Firelight is often one of the only donors prioritizing funding for operational costs and capacity building for community-based organizations in Africa. This is not necessarily a good thing. As our acceptance rate for new applicants averages 2%, there are many more organizations beyond the number Firelight can support that need funding to keep these vital services running. Sometimes that means supporting the less glamorous side of social change such as paying the utilities to keep the lights on in an office, fuel costs so staff members can visit their beneficiaries on a regular basis, or salaries so that staff can devote time and attention to working with communities to end poverty.

Brandt argues that, “We must challenge the myth of nonprofit overhead. Donors need to focus on evaluating charities based on leadership, transparency, governance, and results.” I couldn’t agree more. It’s time to shift the paradigm from evaluating charities based on the ratio of program to operational costs, to evaluating the impact of their programs and the ability to meet the outcomes they set out to accomplish.