In an era where nonprofits confront perpetual financial challenges and face difficult decisions regarding resource allocation, a transformative study led by business professors Telesilla Kotsi, Arian Aflaki, and Alfonso J. Pedraza Martinez has unveiled a strategic approach to strengthen nonprofit resilience. The article, "Nonprofits can become more resilient by spending more on fundraising and admin – new research," published on October 18, 2023, in The Conversation, discusses their findings, challenging the conventional wisdom of directing the majority of funds solely into program costs. Instead, it advocates for a nuanced and dynamic spending strategy.
The Mathematical Model: Unlocking Spending Priorities for Resilience
The research team crafted a mathematical model guiding nonprofits to optimise spending for current performance and future resilience. Delving into the impact of spending on core programs and administration costs, the model considers vital elements such as infrastructure, equipment, staff, and resources.
This model ensures nonprofits strategically allocate resources to enhance their immediate impact while building a robust foundation for future challenges.
Balancing Act for Capacity Building: Redefining Priorities
Contrary to traditional beliefs favouring program costs, the study recommends that smaller organisations with limited budgets allocate a larger share to administrative costs. This shift lays the groundwork for long-term resilience and improved service delivery.
By prioritising administrative costs, nonprofits can invest in crucial infrastructure and support systems, ensuring sustained effectiveness and responsiveness to their mission.
Fundraising as a Key Component
As nonprofits expand and solidify their capacity, the study suggests a gradual shift towards fundraising. This strategic pivot enables organisations to gather crucial funding, aligning spending with anticipated future needs and emphasising synchronisation with growth trajectories.
Fundraising becomes pivotal as it allows nonprofits to maximise their existing capabilities, ensuring financial stability and preparedness for future endeavours.
Embracing Administrative Costs
Underscoring the importance of administrative costs, including salaries, training, infrastructure, and upkeep, the research challenges the pressure from donors to minimise overhead. It argues for a balanced approach, asserting that effective management requires sufficient investment in administrative functions.
Adequate investment in administrative functions is essential for organisational efficiency, employee development, and maintaining the overall health of the nonprofit.
Breaking the Starvation Cycle: A Positive Shift in Donor Perspectives
The research highlights the "starvation cycle," where organisations underinvest in critical infrastructure due to donor pressure. Encouragingly, major donors, like the Ford Foundation, recognise the importance of covering overhead costs, signalling a positive shift towards understanding the essential role of effective management.
Recognising and addressing the starvation cycle is crucial for ensuring nonprofits have the resources to operate sustainably, ultimately leading to increased impact and success in their missions.
As an nonprofit operations consultant, I resonate with the study's findings and encourage philanthropists and granting organisations in Australia to heed this paradigm shift in funding approaches. Moving beyond restricted funding, adapting to changing trends, and advocating for all-inclusive support can break the destructive "starvation cycle." By aligning funding priorities with the comprehensive needs of nonprofits, we pave the way for lasting and impactful change. Read the full article here.
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