bridgespan marc rahlves presentation marc rahlves... · tbg 130717-mie conference tbg pres ... 9...

26
6/28/2013 1 “Breaking out of the Nonprofit Starvation Cycle to Better Deliver on Mission” Collaborating to accelerate social impact July 17, 2013 MIE National Directors Conference Who is The Bridgespan Group? The Bridgespan Group aspires to a society characterized by equality of opportunity and justice. To that end, we collaborate with mission- driven leaders and organizations seeking to break cycles of intergenerational poverty, provide effective safety nets and ensure core human and civil rights 2 130717-MIE Conference TBG pres ... TBG core human and civil rights. History: Founded in 2000 Values: Impact, respect, candor, collaboration, passion Services: Strategy consulting, leadership development, philanthropy advising, and developing and sharing insights Offices: Boston, New York, and San Francisco (~200 staff) Clients: 400+ foundations and nonprofits globally Why we are here today Importance of economic clarity for strategic decision making Challenging macro environment 3 130717-MIE Conference TBG pres ... TBG Resource allocation as key lever for impact Need for support structures and getting them funded

Upload: others

Post on 22-Jul-2020

2 views

Category:

Documents


0 download

TRANSCRIPT

Page 1: Bridgespan Marc Rahlves presentation Marc Rahlves... · TBG 130717-MIE Conference TBG pres ... 9 $2.1T in pending cuts stemming from the Budget Control Act •$900B in cuts to discretionary

6/28/2013

1

“Breaking out of the Nonprofit Starvation Cycle to Better Deliver on Mission”

Collaborating to accelerate social impact

y

July 17, 2013MIE National Directors Conference

Who is The Bridgespan Group?

The Bridgespan Group aspires to a society characterized by equality

of opportunity and justice. To that end, we collaborate with mission-

driven leaders and organizations seeking to break cycles of

intergenerational poverty, provide effective safety nets and ensure

core human and civil rights

2130717-MIE Conference TBG pres ...TBG

core human and civil rights.

• History: Founded in 2000

• Values: Impact, respect, candor, collaboration, passion

• Services: Strategy consulting, leadership development, philanthropy advising, and developing and sharing insights

• Offices: Boston, New York, and San Francisco (~200 staff)

• Clients: 400+ foundations and nonprofits globally

Why we are here today

•Importance of economic clarity for strategic decision making

•Challenging macro environment

3130717-MIE Conference TBG pres ...TBG

•Resource allocation as key lever for impact

•Need for support structures and getting them funded

Page 2: Bridgespan Marc Rahlves presentation Marc Rahlves... · TBG 130717-MIE Conference TBG pres ... 9 $2.1T in pending cuts stemming from the Budget Control Act •$900B in cuts to discretionary

6/28/2013

2

Objectives

• Provide interesting and practical information

• Understand what applies to the legal aid field

• Give opportunity to connect and discuss with

4130717-MIE Conference TBG pres ...TBG

• Give opportunity to connect and discuss with your peers

Today’s agenda

• Key trends in government and philanthropic funding

• Managing and succeeding in tough times

5130717-MIE Conference TBG pres ...TBG

• Understanding your costs and why it matters

• Break

• Dynamics of the Starvation Cycle and breaking out of it

• Wrap up

1,000,000,000

1,500,000,000

Funding in USD

IOLTA

Legal communityOther

1,293,742,000

Civil Legal Aid Funding comes primarily from public sources

6130717-MIE Conference TBG pres ...TBG

0

500,000,000 LSC

State Legislatures

Fdns/Corps

Other Public Funds

2012 Data Collection = $1,294,000,0002011 Data Collection = $1,344,000,0002010 Data Collection = $1,375,000,000

So, a 3.5% decrease from the prior year, when there was a 2% decrease from the high.

Page 3: Bridgespan Marc Rahlves presentation Marc Rahlves... · TBG 130717-MIE Conference TBG pres ... 9 $2.1T in pending cuts stemming from the Budget Control Act •$900B in cuts to discretionary

6/28/2013

3

Federal funding outlook is bleak

Government Accountability Office -- Realistic Scenario

7130717-MIE Conference TBG pres ...TBG

Source: GAONote: Data are from Alternative model used in GAO’s Fall 2011 simulations based on the Trustees’ assumptions for Social Security and CMS Actuary’s alternative assumption for Medicare.* This also includes spending for insurance exchange subsidies and CHIP

State and local outlook also troubling

Surplus(Positive balance)

5

4

3

2

Percentage of GDP

Government Accountability Office -- Estimate of State and Local Operating Balances, as a Percentage of GDP

8130717-MIE Conference TBG pres ...TBG

Source: GAO simulations, updated April 2011

Deficit(Negative balance)

1

0

-1

-2

-3

-4

-5

Operating Balance

2005 2010 2015 2020 2025 20552030 2035 2040 2045 2050 2060

Year

Near-term budgetary concerns not making the situation any better

Fallout from the federal stimulus•$740B of ARRA funding has paid out; the stimulus

has run its course

•As one non-profit executive noted, the stimulus money running out is a “cliff we are toppling over.”

9130717-MIE Conference TBG pres ...TBG

$2.1T in pending cuts stemming from the Budget Control Act•$900B in cuts to discretionary funding starting in FY

2012

•An additional $1.2T across the board trigger cuts will begin to take effect in FY 2013

Page 4: Bridgespan Marc Rahlves presentation Marc Rahlves... · TBG 130717-MIE Conference TBG pres ... 9 $2.1T in pending cuts stemming from the Budget Control Act •$900B in cuts to discretionary

6/28/2013

4

Philanthropic giving is improving slowly…

• Total charitable giving has increased in current dollars in every year since tracking began in 1967 with the exception of three: 1987, 2008, and 2009

• 2012 charitable giving grew 3.5% (1.5% when adjusted for inflation)

R h di t it ill t k t l t i t i h

10130717-MIE Conference TBG pres ...TBG

• Researchers predict it will take at least six more years to raise as much as before the recession

• Only sharp growth in giving came from corporations (12%), foundations increased their grants by 2.3%.

• Nearly 40 percent of the 6,000 charities that responded to a study by the Nonprofit Finance Fund said they planned to change how they raised money this year

Source: Giving USA Report 2013, The Chronicle of Philanthropy, CCS Snapshot of Today’s Philanthropic Landscape 2012

…with individual donors giving more than 70% of all philanthropic dollars

60

80

100%

Human ServicesPublic-Society benefits

HealthInternational affairs

Arts,culture & humanitiesEnvironmental/animals

To Individuals

100%

60

80

100%

BequestsCorporations

Foundation

$316.2B

11130717-MIE Conference TBG pres ...TBGSource: Giving USA Report 2013, CCS Snapshot of Today’s Philanthropic Landscape 2012

0

20

40

60

Giving by typeof recipient (2010)

Religion

Education

Foundations

0

20

40

60

Giving by source(2012)

Individuals

$8

$10

$12

erso

n

Legal Aid Funding Trends (not inflation adjusted)

12130717-MIE Conference TBG pres ...TBG

$0

$2

$4

$6

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

Dol

lars

Per

Poo

r Pe

LSCIOLTAStatePublicPrivate

Page 5: Bridgespan Marc Rahlves presentation Marc Rahlves... · TBG 130717-MIE Conference TBG pres ... 9 $2.1T in pending cuts stemming from the Budget Control Act •$900B in cuts to discretionary

6/28/2013

5

Summary Legal Aid trends

•Funding from public sources decreasing

•Biggest drop in relatively restriction free and (historically) ongoing sources- Total reduction around $82.3M - Public: LSC (-14%) state funding (-7%)

13130717-MIE Conference TBG pres ...TBG

Public: LSC ( 14%), state funding ( 7%) - Private: IOLTA (-7%)

•Increasing sources virtually all private- Total increase around $32.3M- Only legal community funding generally unrestricted and ongoing (+7%)

Questions for discussion

•What aspects of our findings most resonate with your experience?

14130717-MIE Conference TBG pres ...TBG

•Where/how/why are you seeing things differently?

Today’s agenda

• Key trends in government and philanthropic funding

• Managing and succeeding in tough times

15130717-MIE Conference TBG pres ...TBG

• Understanding your costs and why it matters

• Break

• Dynamics of the Starvation Cycle and breaking out of it

• Wrap up

Page 6: Bridgespan Marc Rahlves presentation Marc Rahlves... · TBG 130717-MIE Conference TBG pres ... 9 $2.1T in pending cuts stemming from the Budget Control Act •$900B in cuts to discretionary

6/28/2013

6

Small group discussion at table

•How has the economic situation impacted your organization?

•Where did you have to make adjustments or cuts?

16130717-MIE Conference TBG pres ...TBG

y j-Programs?-Overhead?-Staff?

•What has worked well, what has not worked so well?

Most nonprofit organizations have felt the impact of thedownturn

•Many organizations have experienced funding cuts

17130717-MIE Conference TBG pres ...TBG

•The demand for services continues to increase

•Anxiety levels of staff are high

Nonprofits we surveyed saw less severe decreases in revenues in 2010

Percentage of respondents reporting decrease in revenues

80%

Percentage of respondents reportingdecrease in revenues greater than 10%

62%

18130717-MIE Conference TBG pres ...TBG

2009 2010

32%

Source: Bridgespan Succeeding in Tough Times Survey Results, N for 2009=106, N for 2010=102

2009 2010

18%

Page 7: Bridgespan Marc Rahlves presentation Marc Rahlves... · TBG 130717-MIE Conference TBG pres ... 9 $2.1T in pending cuts stemming from the Budget Control Act •$900B in cuts to discretionary

6/28/2013

7

Most direct service nonprofits experienced higher demand for services in 2010

Respondents reporting increased demand for servicesin prior year (percent)

100%95%

88%81% 80% 80%

19130717-MIE Conference TBG pres ...TBGSource: Bridgespan Succeeding in Tough Times Survey Results, N =102

Health

Multi-s

ervic

e

Prov

iders

Educ

ation

and

Yout

h Se

rvice

s Other

Housin

g an

d

Elder

ly Se

rvice

s

Job Tr

aining

Arts/

Cultu

re

25%

We also sought to learn more about how government funded nonprofits and government officials viewed the situation

•We focused our research on a few guiding questions:-How are nonprofits funded by government viewing the situation?-What do they believe the future holds for them and their beneficiaries?-How are they preparing for that future?-How do their perspectives compare with those of government funders?

•To help answer these questions, we conducted a survey for

20130717-MIE Conference TBG pres ...TBG

p q ynonprofit organizations who received more than 50% of their revenues from government

-68 survey responses received-59 from human service organizations-56 from organizations which received funding from more than one type of govt. funding stream (local, state, national)

•We also conducted 23 interviews-17 interviews with nonprofit leaders-6 interviews with federal, state and local government officials

“Has your organization’s total funding from all government sources increased or decreased since the recession began in 2008?”

21130717-MIE Conference TBG pres ...TBG

Note: 68 survey takers answered this question

Page 8: Bridgespan Marc Rahlves presentation Marc Rahlves... · TBG 130717-MIE Conference TBG pres ... 9 $2.1T in pending cuts stemming from the Budget Control Act •$900B in cuts to discretionary

6/28/2013

8

“Over the next 2-3 years, I expect that funding for my organization from all government sources will likely ___ ?”

22130717-MIE Conference TBG pres ...TBG

Note: 67 survey takers answered this question

Nonprofits viewing pending federal cuts with pessimism and uncertainty

“The federal budget cuts enacted this summer and the additional cuts likely in the months ahead will cause significant problems for our organization as we

Please rate your level of agreement with the following statements:

23130717-MIE Conference TBG pres ...TBG

Note: 67 survey takers answered this question

for our organization as we seek to fund our mission”

“Our organization has an adequate understanding of how the pending federal budget cuts will impact our organization”

Strongly AgreeAgreeDisagreeStrongly Disagree

FOCUS COMMUNICATION COLLABORATION

•Focus resources on mission critical

•Communicate with and engage stakeholders

•Collaborate with other organizations

Organizations haven taken different approaches to address the crisis

24130717-MIE Conference TBG pres ...TBG

programs

•Scale back, eliminate subset of programs

g g(staff, volunteers, board)

-Discussions-Communication plans-Board involvement in addressing challenges

g-Form advisory group-Share resources such space and admin. support

-Apply jointly for funding

Need to understand full costs Challenging and timeconsuming

Effective to better meetdemand

Page 9: Bridgespan Marc Rahlves presentation Marc Rahlves... · TBG 130717-MIE Conference TBG pres ... 9 $2.1T in pending cuts stemming from the Budget Control Act •$900B in cuts to discretionary

6/28/2013

9

•Too slow to cut costs

•Focus on fundraising

However, many show gaps with potential for serious consequences

25130717-MIE Conference TBG pres ...TBG

•Few deep reserves

•No well-defined contingency plan

Actions by government funded organizations we surveyed with focus on long-term

80% Identified full cost to deliver each program or service

80% Increased efforts to accurately measure outcomes

80% W k d l l ith b d t dd d t

26130717-MIE Conference TBG pres ...TBG

80% Worked closely with board to address downturn

77% Improved productivity with available resources

72% Clarified which programs are strategic priorities

72% Diversified funding outside of gov’t sources

Note: 67 survey takers answered this question

71% Froze salaries and hiring

62% Reduced staff

62% Reduced costs by increasing administrative efficiencies

Short-term actions by government funded organizations we surveyed

27130717-MIE Conference TBG pres ...TBG

42% Utilized reserve funds

29% Cut salaries

46% Changed services to lower costs

Note: 65 survey takers answered this question

Page 10: Bridgespan Marc Rahlves presentation Marc Rahlves... · TBG 130717-MIE Conference TBG pres ... 9 $2.1T in pending cuts stemming from the Budget Control Act •$900B in cuts to discretionary

6/28/2013

10

7 steps to help managing through tough times

1. Act quickly, but not reflexively, and plan contingencies

2. Protect the core

3. Identify the people who matter most and keep that group strong

28130717-MIE Conference TBG pres ...TBG

4. Stay very close to your key funders (and don’t wait for them to call)

5. Shape up your organization

6. Involve your board

7. Communicate openly and often

Growing organizations have used outcomes measurement, contingency plans, and communications

Additional common tactics associated with growth(% tried in the prior year)

76%

94%

69%

84%

59%

29130717-MIE Conference TBG pres ...TBG

Increased efforts to accuratelymeasure outcomes

Developed a contingencyplan

Created a communicationsplan to address recession

43%

Decreased/stablerevenue

Increasedrevenue

Source: Bridgespan Succeeding in Tough Times Survey Results, N=102

Today’s agenda

• Key trends in government and philanthropic funding

• Managing and succeeding in tough times

30130717-MIE Conference TBG pres ...TBG

• Understanding your costs and why it matters

• Break

• Dynamics of the Starvation Cycle and breaking out of it

• Wrap up

Page 11: Bridgespan Marc Rahlves presentation Marc Rahlves... · TBG 130717-MIE Conference TBG pres ... 9 $2.1T in pending cuts stemming from the Budget Control Act •$900B in cuts to discretionary

6/28/2013

11

Why this matters to executive directors

•Resource allocation is an important part of strategy and powerful lever for achieving goals

•Unrestricted funds are often your most precious resource

Th t f ki t d ff i iti l t

31130717-MIE Conference TBG pres ...TBG

•The art of making trade-offs is critical to your success

•Examples-Which programs do we fund?-Should we expand to a new location?-How much money to we need to sustain our programs?

Scope of financial data available in many nonprofits is still worrisome

•Revenues are typically sufficiently understood

•Full cost transparency is the exception and every organization has their own way at looking at its cost information-Limited views

32130717-MIE Conference TBG pres ...TBG

8Total costs only8Grant accounting only8Program-specific expenses is what is usually needed

-Rationale for limited data8Time and resource intensive8Insufficient systems8Information not used

•By service offering

“True Costing” seeks to address these issues

•By functional areaHow are costs grouped?

Functional analysis True cost analysis

33130717-MIE Conference TBG pres ...TBG

•Direct costs of programs

•Gross contribution = program revenue –program costs

•Direct and indirect costs

•Focus on key cost drivers

•Net contribution = restricted program revenues – (direct + indirect program costs)

Which costs assigned to programs?

Financial measure?

Page 12: Bridgespan Marc Rahlves presentation Marc Rahlves... · TBG 130717-MIE Conference TBG pres ... 9 $2.1T in pending cuts stemming from the Budget Control Act •$900B in cuts to discretionary

6/28/2013

12

Begin by examining your programs, both in theory AND in practice

Mapping and

Target outcomes

Target participants

Target program operations

Your management’s definition of programs IN THEORY

34130717-MIE Conference TBG pres ...TBG

pp gsegmentation of programs, participants, outcomes

Actual outcomes

Actual participants

Actual program operations

Analysis of actual program, participant, and performance IN PRACTICE, and impact on costs

What is the difference?

This informs true cost by identifying (in principle and practice) key cost drivers

• Various ratios of staff to participants–Case loads, class/program sizes–Level of utilization of resources

• Levels of ‘dosage’ of a service (may contain three components)

35130717-MIE Conference TBG pres ...TBG

components)–Duration of time service is delivered–Frequency in which services are offered– Intensity of effort per instance of services

• Target number of participants served, and outcomes to achieve

• Where revenue comes from, what restrictions this places on who is served

Let’s start with an example

$3 200

Average cost per youth for nonprofit X to serve ~1,100 youth

$3 400

Contract price per youth by Dept of Juvenile Justice to serve 200 more youth

36130717-MIE Conference TBG pres ...TBG

$3,200 $3,400

Page 13: Bridgespan Marc Rahlves presentation Marc Rahlves... · TBG 130717-MIE Conference TBG pres ... 9 $2.1T in pending cuts stemming from the Budget Control Act •$900B in cuts to discretionary

6/28/2013

13

At its most basic, this looks pretty good

$3 200 $3 400 = $200

Surplus per youth

Contract price per youth by Dept of Juvenile Justice to serve 200 more youth

Average cost per youth for nonprofit X to serve ~1,100 youth

37130717-MIE Conference TBG pres ...TBG

$3,200 $3,400 = $200

Further analysis reveals different picture

Nonprofit X serves youth with different intensities of service – and this impacts cost

A t$5,470

Program A: Intensive services for the most at-risk youth (cost per youth)

38130717-MIE Conference TBG pres ...TBG

$3,200

Average cost per youth for nonprofit X to serve ~1,100 youth

,

$2,800

$1,600~500 youth

~275 youth

~300 youth

Program C: Light services for on-track youth to keep them on-track (cost per youth)

Program B: Moderate services for struggling youth (cost per youth)

We learn that this contract is specifically for intensive services to youth most at-risk

$5,470~300

$3,400 = ($2,070)

Deficit per youth

DJJ funding per youth

Average cost per

Program A: Intensive services for highly at-risk youth (cost per youth)

39130717-MIE Conference TBG pres ...TBG

$3,200 $2,800

$1,600~500 youth

~275 youth

300 youth

This would result in $414Kdeficit

And it gets worse...

g pyouth for nonprofit X to serve ~1,100 youth

Program C: Light services for on-track youth to keep them on-track (cost per youth)

Program B: Moderate services for struggling youth (cost per youth)

Page 14: Bridgespan Marc Rahlves presentation Marc Rahlves... · TBG 130717-MIE Conference TBG pres ... 9 $2.1T in pending cuts stemming from the Budget Control Act •$900B in cuts to discretionary

6/28/2013

14

$580

These costs do not include indirect costs or new fixed investments

$5 470

May require new ‘fixed investments’

New senior manager to oversee 500 vs. 300 youth program

Need to cover portion of admin, mgmt costs

Program A: Intensive services for highly at-risk youth (cost per youth)

40130717-MIE Conference TBG pres ...TBG

$700

$340

$580

$3,200

$5,470

$2,800

$1,600~500 youth

~275 youth

~300 youth

% of senior leadership team’s time to oversee

Costs such as additional IT, facilities, etc. not captured in ‘direct’ estimate

Average cost per youth for nonprofit X to serve ~1,100 youth

, g(may go down with growth)

Other variable indirect costs not included in estimateProgram C: Light services for on-

track youth to keep them on-track (cost per youth)

Program B: Moderate services for struggling youth (cost per youth)

So it gets worse…

$3,400 = ($2,650)

Deficit per youth

DJJ funding per youth

$580 $5,470~300 Average cost per

th f fit

Program A: Intensive services for highly at-risk youth (cost per youth)

41130717-MIE Conference TBG pres ...TBG

This would result in $530Kdeficit

$700

$340 $3,200 $2,800

$1,600~500 youth

~275 youth

youthyouth for nonprofit X to serve ~1,100 youth

Program C: Light services for on-track youth to keep them on-track (cost per youth)

Program B: Moderate services for struggling youth (cost per youth)

$580

…Although it might get better (no promises)

$2 917 $3 400 = ($97)

Deficit per youth

DJJ funding per youth

Hypothetical – Contract requires 15:1 staff ratio; this nonprofit provides Program A at 10:1

(and staff represent 80% of direct costs)

Program A: Intensive services for highly at-risk youth (cost per youth)

42130717-MIE Conference TBG pres ...TBG

$700

$340

$580

$3,200

$2,917

$2,800

$1,600~500 youth

~275 youth

~300 youth

$3,400 ($97)

This would result in $49Kdeficit

Average cost per youth for nonprofit X to serve ~1,100 youth

However – does this org believe it can achieve same results with higher ratio?

Program C: Light services for on-track youth to keep them on-track (cost per youth)

Program B: Moderate services for struggling youth (cost per youth)

Page 15: Bridgespan Marc Rahlves presentation Marc Rahlves... · TBG 130717-MIE Conference TBG pres ... 9 $2.1T in pending cuts stemming from the Budget Control Act •$900B in cuts to discretionary

6/28/2013

15

Example/exercise: a high school youth org.

Organization Z in New Orleans

Case Management Employment trainingEducation

Math/English tutoring for in-school youth

GED support for out of school youth

• Program description– Year-round, bi-weekly 1 hour

sessions with youth-trained social worker to provide positive adult role model and support, including referral to internal and external programs and advocacy with

• Program description– A 3-month basic job skills training,

internship, and job placement service for age 18+ participants who graduate high school or gain a GED and do not proceed to college• Program description • Program description

Advance toReferred to

EXAMPLE

43130717-MIE Conference TBG pres ...TBG 4

programs, and advocacy with juvenile justice system if necessary

– Case-load of 50 youth per case manager

• Target participants– 500 youth– Youth ages 14-18 living in

Orleans parish– Youth come from families at or

below 300% of poverty

• Target outcomes– Youth remain free from

engagement with juvenile justice system

– Youth get placed in education programming to complete high school, get GED

college – Offered twice a year

• Target participants– 50 youth per session– Age 18+– Requires they have a GED or high

school diploma, and come through case management and education programming

• Target outcomes– Acquisition of a full-time job– Employed 90 days later– Employed 1 year later (may not be

in same job)

Program description– Weekly 2 hours of group

tutoring in math by grade– Weekly 2 hours of group

tutoring in English by grade

• Target participants– 250 youth, in school– Must be engaged in CM

• Target outcomes– Reading/math at grade-level,

on-time grade advancement– Graduation from high school

with a 3.0 GPA– Individualized Life Plan to

seek post-secondary education or employment

Program description– 2 hours a day, 3 days a

week of GED test tutoring, in the afternoon/evening

• Target participants– 250 youth– Out of school, age 16+,

must be engaged in CM

• Target outcomes– Acquisition of GED within 2

years– Individualized Life Plan to

seek post-secondary education or employment

The actual analysis revealed the following

Organization Z in New Orleans

Case Management Employment trainingEducation

Math/English tutoring for in-school youth

GED support for out of school youth

• Program insights– Average case-load actually 35, with

variation from 30-70– Only 50% of youth meeting bi-

weekly

• Actual participants

• Program insights– Full participation in basic job skills

course– Only 25 slots currently available

for internship per session

• Actual participants• Program insightsO l 73% f th ti i t i

• Program insights85% f th ti i ti t

Advance toReferred to

EXAMPLE

44130717-MIE Conference TBG pres ...TBG

p p– 555 youth being served, but only

70% from Orleans Parish – rest from Jefferson Parish, St. Charles Parish; no funding coming from those parishes to support programming

– 95% of youth had engagement with juvenile justice system pre-engagement with Org Z

– No tracking of economic status

• Actual outcomes– Only 35% of youth have additional

involvement with juvenile justice system once they begin engagement with Org Z; Only 15% of youth meeting bi-weekly get in trouble

– All youth referred to an education program

p p– 50-75 youth per session– Only 70% are graduates of either

education program

• Actual outcomes– 85% job placement rate by end of

program– Participation in internship

component does not influence likelihood of successful job placement

– 90% remain in a job at 90 days– No data tracked/available for

employment at 1 year

– Only 73% of youth participate in both math AND English

• Actual participants– 280 youth, all in school– All youth referred by CM

• Actual outcomes– Youth participating in both math

and English have 90% likelihood of graduating on time

– Youth in just one only have 60% on-time grad. rate

– 30% of youth drop-out, end up in GED program

– ILP’s not tracked; grade advancement not tracked

– 85% of youth participating at target dosage

• Actual participants– 250 youth– 70% youth referred by CM;

30% involved without being in CM system

• Actual outcomes– 90% receive a GED within 2

years– ILP’s actively tracked through

a home-grown Microsoft Access-database created by staff

Only 80% of target Orleans Parish youth in CM actively participating in education program, even once referred

Activity discussion:

• What observations do you have from this analysis?

• What impact could actual performance be having on the cost structure of this nonprofit, its pricing, its revenue, and on its funder relationships?

45130717-MIE Conference TBG pres ...TBG

• If you were the Executive Director of this nonprofit, what would you explore further? What actions might you take that could influence cost? Performance?

Page 16: Bridgespan Marc Rahlves presentation Marc Rahlves... · TBG 130717-MIE Conference TBG pres ... 9 $2.1T in pending cuts stemming from the Budget Control Act •$900B in cuts to discretionary

6/28/2013

16

It is important to allocate the direct costs of staff...

Name of programs/activities

In-Patient Program

Out-Patient Program

In-Home Program

After-School Program

Total staff direct cost

List of program-specific staff

Salary plus benefits/tax $ 207,000 $ 172,200 $ 325,110 $ 230,090 Check

Director of IP $112 000 100% 100%

ILLUSTRATIVE

46130717-MIE Conference TBG pres ...TBG

Director of IP $112,000 100% 100%

Director of OP $135,200 100% 100%

Director of IH $155,000 100% 100%

Director of AS $103,000 100% 100%

Program associate 1 $65,000 60% 20% 20% 100%

Program associate 2 $65,000 20% 80% 100%

Program associate 3 $60,000 10% 40% 30% 20% 100%

Tutor $36,900 100% 100%

Family and child counselor $87,300 70% 30% 100%

Consultant to IP program $50,000 100% 100%

Consultant to IH program $65,000 100% 100%

…as well as non-staff direct costs

Name of programs/activities

In-Patient Program

Out-Patient Program

In-Home Program

After-School Program

Total non-staff direct cost

List of program-specific staff

Total expenses $ 106,200 $ 240,350 $ 107,650 $ 116,000 Check

ILLUSTRATIVE

47130717-MIE Conference TBG pres ...TBG

spec c sta e pe ses $ 06, 00 $ 40,350 $ 0 ,650 $ 6,000 C ec

Supplies $112,000 60% 20% 20% 100%

Local site rent and utilities $135,200 50% 50% 100%

Transportation $155,000 45% 55% 100%

Consultants $103,000 100% 100%

Food and miscellaneous $65,000 60% 40% 100%

There are three basic methods for allocating indirect costs…

Then allocate indirect costs, using drivers

48130717-MIE Conference TBG pres ...TBG

Flat across programs

Proportional based on program size

Based on specific program knowledge

In practice, nonprofits use a combination of all three

Page 17: Bridgespan Marc Rahlves presentation Marc Rahlves... · TBG 130717-MIE Conference TBG pres ... 9 $2.1T in pending cuts stemming from the Budget Control Act •$900B in cuts to discretionary

6/28/2013

17

Finally, distinguish restricted from unrestricted funding

• Not all revenue is created equal

• Getting clear on which pieces come with strings attached is key to understanding true financial picture

49130717-MIE Conference TBG pres ...TBG

… is tied to utilization on specific programs

… is given to the org. in general and offers

maximum flexibility

…is not restricted in the traditional sense but still face limitations

Unrestricted fundingRestricted funding Potential grey area

ILLUSTRATIVE

Bringing it all together: Here’s what one nonprofit knew before true cost analysis...

50130717-MIE Conference TBG pres ...TBG

In-Patient Out-Patient In-Home After-School

Indi

rect

cos

ts

Res

trict

ed re

venu

e

Unr

estri

cted

reve

nue

Dire

ct c

osts

…and here’s what they learned

ILLUSTRATIVE

51130717-MIE Conference TBG pres ...TBG

In-Patient Out-Patient In-Home After-School

Dire

ct c

osts

Unr

estri

cted

reve

nue

Page 18: Bridgespan Marc Rahlves presentation Marc Rahlves... · TBG 130717-MIE Conference TBG pres ... 9 $2.1T in pending cuts stemming from the Budget Control Act •$900B in cuts to discretionary

6/28/2013

18

52130717-MIE Conference TBG pres ...TBG

Today’s agenda

• Key trends in government and philanthropic funding

• Managing and succeeding in tough times

53130717-MIE Conference TBG pres ...TBG

• Understanding your costs and why it matters

• Break

• Dynamics of the Starvation Cycle and breaking out of it

• Wrap up

Does any of this sound familiar?

“No administrative fees means that all money goes to local charities.”

- Ad for donation drive

“Our organization has remained lean, allocating nearly 90% of revenue to direct service

54130717-MIE Conference TBG pres ...TBG

nearly 90% of revenue to direct service programs...”

- Large multi-service organization in CA

“100% of your donation will go towards programs that help children; 0% will go to overhead.”

- Large health services organization

Page 19: Bridgespan Marc Rahlves presentation Marc Rahlves... · TBG 130717-MIE Conference TBG pres ... 9 $2.1T in pending cuts stemming from the Budget Control Act •$900B in cuts to discretionary

6/28/2013

19

What about this?

“The 10% figure is totally unrealistic…”- Executive Director

“We’re having to raise pools of general support to pay for our real overhead

55130717-MIE Conference TBG pres ...TBG

“13% overhead doesn’t nearly capture the reality of our administrative costs.”

- Nonprofit COO

pp p ycosts.”

- Board Chair

But Wait!

56130717-MIE Conference TBG pres ...TBGAdam E. Moreira, Wikimedia Commons Gallery

We don’t judge companies on their overhead

40%

50%

Average for service industry = 34%

Sales, General & Administrative Expense as % of Total Sales

57130717-MIE Conference TBG pres ...TBG

10%

20%

30%

Source: Compustat; Standard & Poor’s Global Industry Classification Standard Structure

Software and services

Health care equipment and

services

Communicationsservices

Consumer services

Page 20: Bridgespan Marc Rahlves presentation Marc Rahlves... · TBG 130717-MIE Conference TBG pres ... 9 $2.1T in pending cuts stemming from the Budget Control Act •$900B in cuts to discretionary

6/28/2013

20

How does this play out for nonprofits?

“Marc Nonprofit”“Ann Funder”

58130717-MIE Conference TBG pres ...TBG

“No more than 10% of these funds can be used for non-program

expenses.”

Pressure to conform →

Under-report + Under-invest

The Nonprofit Starvation Cycle

59130717-MIE Conference TBG pres ...TBG

Pressure on nonprofits to

conform

“The Starvation

Cycle”

More than half of donors expect nonprofits to spend less than 20% on overhead

20

30%

Percent you expect spent on programs

30%

25%

22%

60130717-MIE Conference TBG pres ...TBG

0

10

> 80% At least80%

At least70%

At least60%

8%

At least50%

12%

Don't know

3%

Source: BBB Wise Giving Alliance Donor Expectations Survey, 2001; case study interviews

Page 21: Bridgespan Marc Rahlves presentation Marc Rahlves... · TBG 130717-MIE Conference TBG pres ... 9 $2.1T in pending cuts stemming from the Budget Control Act •$900B in cuts to discretionary

6/28/2013

21

Donors consider overhead rate more important than program effectiveness

61130717-MIE Conference TBG pres ...TBG

80% of foundations said they did not include enough

62130717-MIE Conference TBG pres ...TBG

include enough overhead to cover the cost of reporting.

Government contracts limit overhead

“[Government funder X’s] rate is woefully inadequate. We report our finances to comply with the grant, then look elsewhere to bridge the huge funding gap that this grant creates.”

63130717-MIE Conference TBG pres ...TBGSource: Case study interviews

Page 22: Bridgespan Marc Rahlves presentation Marc Rahlves... · TBG 130717-MIE Conference TBG pres ... 9 $2.1T in pending cuts stemming from the Budget Control Act •$900B in cuts to discretionary

6/28/2013

22

Nonprofits feel pressure to limit overhead

“Do you feel pressures from ____ to limit overhead, fundraising or admin expenses? “20% overhead is the

industry norm. It doesn’t capture the way we think about and manage overhead…”

64130717-MIE Conference TBG pres ...TBG

“We found that a peer organization allocates 70% of their finance director’s time to programs. That’s preposterous.”

Many nonprofits underreport true overhead

“Analysis of over 220,000 Forms 990 found widespread reporting that defies plausibility.”

37%

65130717-MIE Conference TBG pres ...TBG

37%Percent of nonprofits reporting ZERO

fundraising expenses on their IRS form 990

Actual overhead often differs from reported

66130717-MIE Conference TBG pres ...TBG

Org 1 Org 2 Org 3 Org 4

Page 23: Bridgespan Marc Rahlves presentation Marc Rahlves... · TBG 130717-MIE Conference TBG pres ... 9 $2.1T in pending cuts stemming from the Budget Control Act •$900B in cuts to discretionary

6/28/2013

23

These differences aren’t surprising given:

• Lack of accountability and standards for nonprofit reporting

• Lack of infrastructure and systems

67130717-MIE Conference TBG pres ...TBG

• Tacit “support” of misleading reporting by multiple players

• Lack of consequences for misreporting

Under-investment hampers impact

68130717-MIE Conference TBG pres ...TBG

The Nonprofit Starvation Cycle

69130717-MIE Conference TBG pres ...TBG

Pressure on nonprofits to

conform

“The Starvation

Cycle”

Page 24: Bridgespan Marc Rahlves presentation Marc Rahlves... · TBG 130717-MIE Conference TBG pres ... 9 $2.1T in pending cuts stemming from the Budget Control Act •$900B in cuts to discretionary

6/28/2013

24

Where is your organization?

(A) Highlight us (B) Equip us (C) Convince us (D) Convert us

We’re able and We’re willing to We’re able to report We’re not able or

70130717-MIE Conference TBG pres ...TBG

willing to report on

full costs

report on full costs

but not able

on full costs but not

willing

willing to report on

full costs

Framework courtesy of Grantmakers for Effective Organizations (GEO)

Nonprofit leaders, know thy costs

• It’s impossible to know if you are misreporting or under-investing without clarity on your true costs

• This IS about having clarity, within your management team, on where your money is going and what trade-offs you are making (explicitly or implicitly)

71130717-MIE Conference TBG pres ...TBG

g ( p y p y)

• This is NOT the same as reporting your functional “pie” on your 990 or in your annual report

Ending the cycle: It starts with funders

• Shift to a focus on outcomes

• Be honest about what it takes to achieve outcomes

• Provide general operating support

72130717-MIE Conference TBG pres ...TBG

• Provide general operating support

• Pay a fair share of overhead when making program grants

Page 25: Bridgespan Marc Rahlves presentation Marc Rahlves... · TBG 130717-MIE Conference TBG pres ... 9 $2.1T in pending cuts stemming from the Budget Control Act •$900B in cuts to discretionary

6/28/2013

25

Ending the cycle: Nonprofits also must act

• Share real overhead with the board

• Share real overhead with funders

• Ask “Where are we under-investing?"

73130717-MIE Conference TBG pres ...TBG

• Ask Where are we under-investing?

• Educate donors on critical importance of overhead

Small Group Discussion

•How much does the Starvation Cycle affect the Legal Aid Field?-Today?- In the future?

74130717-MIE Conference TBG pres ...TBG

In the future?

•What do you see as the biggest challenges and opportunities for your organization?

Additional resources

For NonprofitsFor Funders

75130717-MIE Conference TBG pres ...TBG

Page 26: Bridgespan Marc Rahlves presentation Marc Rahlves... · TBG 130717-MIE Conference TBG pres ... 9 $2.1T in pending cuts stemming from the Budget Control Act •$900B in cuts to discretionary

6/28/2013

26

Today’s agenda

• Key trends in government and philanthropic funding

• Managing and succeeding in tough times

76130717-MIE Conference TBG pres ...TBG

• Understanding your costs and why it matters

• Break

• Dynamics of the Starvation Cycle and breaking out of it

• Wrap up

Thank you!

To sign up for our newsletters, alerts, Twitter posts, or RSS feeds, visit:

www.bridgespan.org/subscriptions

77130717-MIE Conference TBG pres ...TBG

[email protected]