INGO Starvation Cycle

The effects of using overhead costs as a key

performance metric for evaluating INGO
effectiveness and efficiency

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Problem
Donors often restrict a proportion of
their grants that INGOs can spend on
overhead (OH) functions, which limits
the abilities of the INGOs to function
efficiently.
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Background on the Problem

What is overhead?
Typical costs that comprise overhead.
There is ambiguity in what costs comprise
overhead and confusion around how to calculate
overhead.

Why are donors restrictive?

They are motivated by good intentions and want
to be good stewards of their donors money.
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Donor System Map

$

$
Governme
nt
Taxpayers &
Individual Donors

INGOs

Beneficiar
ies

Foundatio
ns

The red colored dollar signs ($) indicate money that has

overhead expectations implicitly or explicitly attached.

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Overhead in Other Industries

OH is an accepted expense
of the cost of doing
business in the private
sector with OH rates
averaging around 25%,
even higher for service
industries.
Meanwhile, non-profit
organizations feel pressure
to report overhead rates far
under 20%.

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Vicious Cycle
Underreporting of
true costs
Unrealistic
expectations
Pressure to
conform
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Key Spotlight: Underreporting

2008 Bridgespan report:
75-85% of surveyed NGOs
were incorrectly reporting the
costs associated with
foundation or government
grants.

2004 NSCC report analyzing

250,000 990 forms showed:
25% of nonprofits in $1-4M in
contributions report 0n
fundraising expenses.
13% of all non-profits report
management and general
expenses.

Overhead Rate Graph from 2008 Bridgespan

Report

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Effects on NGOs
Under investment in
key operational areas
that limit INGOs ability
to scale programs and
impact successfully
Increased staff turnover
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Addressing this Challenge

World Vision
Developed platform showing how indirect
costs strengthened their overall impact

Heifer International
Strong leadership and centralized system to
reduce OH

Save the Children

Networked Leadership Center takes some
indirect costs and affiliates take on others

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Key Research Question

Of INGOs that rely most on highly
restrictive funding sources, which core
overhead functions do organizations
sacrifice or underfund in an attempt to
comply with the overhead restrictions
of their key funding sources?
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Our data represented:

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Analysis
% of Overhead Spending per category across cohort
18
16
14
12
10
8

% of Overhead Spending (per category)

6
4
2

Prioritize spending of
finance and
leadership. Some
typical overhead
categories barely
represented.

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Analysis
For
organizations
that were more
restrictive there
was a
correlation of -.4
M&E spending.
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Full cohort

Total Spending
Overhead Spending
17.9
%
Finance14%

Analysis

Organizations with
<10% reported OH

Total Spending
Overhead Spending
7.26%
Finance35.7%
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Proposed Solution

Process

Outcomes

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