The Issue with “Overheads”

“On average over the last 5 years, for every pound donated to [xxx], 73p went towards our work with children around the world, just 1p went on governance and the remaining 26p went on raising another pound.”

“For every £1 we receive, we spend: 88p on activities to benefit children, 11p on further fundraising initiatives and 1p on governance and other costs”

“For every £1: 85p goes directly to charitable activities, 14p is invested in fundraising, 1p is spent on governance”

Statements like the above are common-place as charities ‘prove their worth’ to us, their donors.
Someone close to me recently said “I don’t want my money to go to any admin. I just want it to go directly to the project.” Just before I launch in to an Angry Man rant let me ask you, what does “the project” mean for you? What does “admin” mean? When can one thing be considered for the project and the other admin? The electricity? The IT guy who secures the email system, or file servers? The communications person who collects stories for Facebook, social media, to update donors? How about the driver that is used by the project to go on the field and the staff to get to the government meetings?

The first issue with “overheads” and “admin” is that as a consumer, you have never asked that question about anything else you have ever spent your money on. Not about the laptop or phone you’re reading this on right now, not on the car you bought, the lunch you ate, the school you send your kids to, not even when you’re buying shares (although you might use it as additional information). At no point do you stand up and say, “I’m not giving you my money because your overheads are too high”.

Can you imagine buying shares in Apple and saying, “I want all my money to go into the physical production of the iPhone, not the design director who designed it, not the coder who brought the OS all together, not the building in which they sit, not the email system which allows them to communicate with the supply chain, not even the electricity that powers the computers. No i just want my money to go into buying the raw material and building the product.” Would Apple have become the multi-billion dollar company it is today if it had spent its time and energy convincing people how it was spending its money? Would it have succeeded if it had had to limit how much it could invest in the people, infrastructure, assets and technology behind its core identity? Unlikely.

People who invest see beyond the details of how the company operates. They see what could be. Yes, they want the operations to be lean but they look at the future potential; what can that company, with that product do which will turn into sales, revenue, profit and dividends?

The second issue is your, the donor’s, understanding of the context. In Jacmel, Haiti shortly after the earthquake in 2010 I recall a small organisation faced being evicted from its office / guesthouse and having its operations impacted because its monthly rent was increasing from a few hundred dollars a month to over $2,000. Why? Because an international NGO had moved in up the road and simply paid the asking price so as to quickly secure its premises. Everyone wanted to make a buck and the “market” prices inflated. Where does that fall in the project / admin debate?

As an investor you would probably look at the efficiency and effectiveness of such administrative expenses. You wouldn’t flat out reject them. In some cases investment in one overhead is both justifiable and in fact necessary. In others greater accountability should be demanded where costs are disproportionate to context.

Putting restrictions on your money without knowing the context of operation limits the good an NGO can do. It places unreasonable restrictions and requires them to focus on justifying the wrong things. What is important, where the money is spent or what is the impact achieved?

When you give to charity, you should be looking at their vision, their operational context, their past success rates, and at what they want to achieve. Buy into the change and measure them against that. Don’t measure them on one thing alone only because you can.

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