How much does the organization spend on overhead? How much of the organization’s budget is dedicated to programs? What about fundraising? Are these really the right questions to ask?

Do the answers to these questions provide the information that a program officer needs to make a good grant or that an individual donor needs to decide where to give their money? The answer is no, but at present, this is the only type of information that the sector has available in any public, coordinated and consistent manner and as a result is the lens that many donors use. A recent article, The Nonprofit Starvation Cycle, published in the Fall 2009 edition of the Stanford Social Innovation Review (SSIR), points out this key flaw in the current discourse related to nonprofit effectiveness and highlights an opportunity for the sector that we at Mission Measurement see as a key turning point for many of our clients.

Cost efficiency, including the allocation of dollars to overhead, fundraising and programs is an inherently flawed lens for considering the effectiveness of an organization. While the information is quantifiable and every organization is able to produce these figures, the definition of a program or an overhead cost is open to interpretation, and thus the calculations do not tell us a story that can be consistently understood across organizations.

The authors of the SSIR article suggest that funders have a role to play in shifting their focus from costs to outcomes and based on our client experience, we would offer that nonprofits have an opportunity to change the conversation and shift the focus from cost efficiency to the actual results that they generate by providing their donors and other stakeholders with the real results, which, in the end, is a better way to understand and interpret the organization’s success.