The article “Pay-What-It-Takes Philanthropy” advanced the social sector conversation about overhead, or indirect costs, by introducing the notion of segmenting the sector to benchmark costs among similar organizations. While that’s the right way to go as the next step in the conversation, it’s not the ultimate goal. The real win is when we focus on measuring outcomes for nonprofits—a goal both straightforward and sometimes extremely difficult to achieve.
Doing a better job of measuring the impact of NGOs’ programs and services requires an investment in research and continuous improvement. That’s an indirect cost that donors have to pay for, and today most don’t. The link between NGOs understanding their true indirect costs and donors stepping up to fund measurement is important and will drive our sector to the next level.
Similarly, the segmentation of the social sector begun by the article is an important step forward. It shows that within a group of similar organizations, such as research organizations, cost structures are more alike than not, and that cost structures differ from one group of organizations to another. The question I have about benchmarking is: What’s the ultimate purpose? Benchmarks are important for informing internal conversation about real costs. After all, we’ll never solve the so-called nonprofit starvation cycle unless nonprofits know what it costs to do their work well and can have meaningful conversations with their donors.
But benchmarks should not be the sole way to rate organizations. That would mean that we are still evaluating organizations on their costs. Having come (albeit long ago!) from the for-profit sector, the idea of measuring success based on a cost structure alone has always confounded me. Ultimately, we should be evaluating on our outcomes.
At Save the Children, we have conducted our own cost analysis across all 30 member organizations for the past several years, gradually getting better at defining our costs and understanding what drives them. We have looked at what we all spend on general administration, fund raising, operational support, and program costs, as well as breakouts within those costs. Having this data informs our internal conversation about expenditures. It shows where we have overinvested or underinvested and leads to questions about why that is the case.
We can now start to use the cost information to get better—and to put more of our donors’ money into driving outcomes. For Save the Children, that means children’s lives saved, children getting to and staying in school and learning, and children protected from harm. Those outcomes are not always easy to measure, but there are ways to do so. That is what I want our work to be evaluated on.
Some would argue that we are stuck in an overhead cost conversation rut because we don’t know how to measure outcomes. There are probably no universal outcome measurements, but when asked, most organizations can show outcomes data from projects. We might not have a standard way to measure outcomes across different organizations, but that doesn’t mean we should give up on talking about them. Within Save the Children, we can now globally track the numbers of children reached directly and indirectly, in emergencies and development contexts, and by sector response. We can measure access to education, and in 12 countries we can predict gains in reading skills in our Literacy Boost program. We can measure the delivery of life-saving interventions like anti-malarial treatment, treatment for pneumonia, and treatment of diarrhea—the things that kill children under five years of age. We can measure the number of health workers we train and tie these to countries’ overall maternal and child survival rates. None of these measures are perfect, but they are surely better than measuring the percentage we spend on general and administrative services alone.
“Pay-What-It-Takes Philanthropy” has stoked a growing conversation about funding true costs. The sooner we understand those costs and ensure they are covered, the quicker we can move on to tackling the ultimate goal of measuring outcomes.