Capacity Building in NPOs Needs versus Reality

October 2013 |Presentation

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What is capacity building

How much is invested in capacity building in NPO’s

The Israeli Perspective

Capacity building value

Content

Definitions

Capacity Building- Whatever is needed to bring a

nonprofit to the next level of operational, programmatic,

financial or organizational maturity in order to more

effectively and efficiently fulfill its mission (National

council of nonprofits- ארגון מקביל למנהיגות אזרחית )

When talking about lack of resources for capacity

building, we also talk about lack of investment in

Overhead costs or Managerial infrastructures.

Leadership Capacity Adaptive Capacity

The Core Capacity Assessment Tool (CCAT) is a 146-question online survey that measures a nonprofit organization’s effectiveness in relation to four core capacities—leadership, adaptability, management, and technical capacities—as well as organizational culture.

What an organization needs in order to fulfill its mission?

Management Capacity Technical Capacity CCAT

Leadership Adaptability Program

Capacity Sustainability + + = TCC

Group

Administrative

cost

Fundraising

cost

Special events

cost Overhead cost + + = Bridge

span

Approach A:

Approach B:

The need of developing organizational capacities is translated to overhead costs:

Leadership Capacity The ability to create and sustain the

vision, prioritize, make decisions,

provide direction and innovate

. EXAMPLES: Board and executive leadership development, leadership

transitions, human resources, internal communications

Adaptive Capacity The ability to monitor, assess,

respond to and create internal and

external changes

. EXAMPLES: Community needs assessment, organizational assessment, program evaluation, strategic planning,

collaborations and partnerships

Citations source: Bridgespan (2008), Nonprofit overhead costs

“Because general management positions tend to be viewed as OH, they are the most difficult to justify to stakeholders”

“Due to lower pay in the nonprofit sector, key positions are often filled with junior people with little relevant training or experience”

Leadership and Adaptive capacity are the most important ones

Management Capacity The ability to make effective and

efficient use of organizational

resources

. EXAMPLES: Financial management, service delivery, program evaluation and

replication, outreach and advocacy.

Technical Capacity The ability to implement key

organizational and programmatic

functions.

. EXAMPLES: Marketing and communication, technology, legal skills, fundraising, earned-income generation, accounting, and facilities management

“Our systems are a patchwork job…we are always looking for the lowest cost solution”

“Our lack of investment in technology results in system crashes. If we were a for profit company, our IT budget would be at least 5 times what it is”

“We’ve known for a long time that a COO is vital to our growth but haven’t been able to fund it”

Citations source: Bridgespan (2008)

But management and technical capacities are also crucial

What is capacity building

How much is invested in capacity building in NPO’s

The Israeli perspective

Capacity building value

What is for today

A vicious cycle- why NPO’s don’t invest enough in overhead

Unrealistic funder expectations

Pressure on NPO’s to conform

Spend little on OH /

Underreport their expenditures

Source: Bridgespan (2008)

Funders do not incline to invest in OH

15%

10% 10% 8%

Foundation 1 Foundation 2 Foundation3 Foundation 4

Percent of program grants allocated for indirect costs

Indirect cost allocation may differ by program type within foundations

Over 50% of American adults believe NPO’s should have OH rate of 20% or less Nearly 4 out of 5 believe OH should held under 30% Those surveyed ranked OH ratios and transparency to be more important in determining their willingness to give than demonstrated success of the organization

Source: Better business Bureau’s Wise Giving Alliance Survey (2001)

The public perceives low OH cost as a sign of efficiency

Source: Bridgespan (2008)

Dialogue with social investors is not up front

17%

60%

34%

30%

24%

16%

5%

No dialogue on any of these topics

Program expansion

Facility needs

Developing financial reserves

Working capital needs

Cash flow concerns

Debt burden

My organization can have open dialogue with funders about…

66% of NPO’s have up to 3 months of expenses in their cash flow, 24% have up to 1 month

A dialogue regarding real financial needs is missing

Source: Nonprofit Finance Fund (2013)

Sources of pressure to limit administrative and funding expenses

Source: Center on Nonprofits and Philanthropy at the Urban Institute (2004)

36%

30%

24% 21%

8%

Government agencies Donors Foundations Federated campaigns Charity watchdogs

Do you feel pressure from _____ to limit OH, fundraising and administrative expenses?

NPO’s report less OH than actual spent

21% 22% 21%

13%

32% 35%

26%

17%

Organization 1 Organization 2 Organization 3 Organization 4

Reported Actual

Overhead costs include Development costs and Management & General costs Causes are pressure from social investors and uncertainty regarding IRS’s definitions

Reported VS actual overhead costs in 4 NPO’s

“The 20 percent norm is perpetuated by funders,

individuals and nonprofits themselves. When we

benchmarked our reported financials, we

looked at others and we realized that others misreport as well”

Bridgespan’s client interviewed for the report, Bridgespan (2008)

Source: Bridgespan (2008)

Some foundations invest directly in capacity building: Mostly in the capacity building process

Annenberg Foundation: Provide training. Focus on leadership and boards. Community Foundation of Monterey County: For geographically-based cohorts or networks, offer a series of skill-building workshops. Ford: Create a fund for small grants so that grantees can attend workshops of their choice. Haas Jr. Fund: Design OE grants to enhance leadership and/or offer leadership development programs for grantees. Global Fund for Children: Offer a capacity self-assessment tool that Programs can use with grantees to better assess areas of capacity strength/needs. Hewlett Foundation: Reorganize the OE Program so that it consults to Programs on how best Programs make OE grants. Create an OE Cookbook 2.0 or an OE toolkit for Programs (and for OE). Edna McConnell Clark Foundation: Invest in fewer anchor grantees with a higher level of service over a longer amount of time to impact the field. Co-design with grantees and Program a longer-term capacity building plan per anchor grantee that is aimed to deliver greater Program outcomes.

Source: OE Goldmine research Project (2011)

What is capacity building

How much is invested in capacity building in NPO’s

The Israeli Perspective

Capacity building value

Content

The public perspective

I am Finished with Donations!

The Fat Paycheck of the NPO’s CEOs

In which NPO does one earn 1.53 million shekels per year?

The government policy restricts G&A costs

The Maximum Rate of Administrative and

Overhead as a Percentage of the Total Turnover

Income (NIS)

22%0-10

אוק-18%25

13%25-50

11%50-100

7%100 and up

New voices start being heard

2014 Applied in Grants to Establish Organizational

Effectiveness

What is capacity building

How much is invested in capacity building in NPO’s

The Israeli Perspective

Capacity building value

Content

The Packard Foundation case study

Sine 1997 the David Lucile Packard Foundation has awarded 1391 Organizational Effectiveness grant to over 900 organizations. Most of the OE grans were for hiring a consultant for one year 90% of the grants ranged between $20K and &60K’ with an average of $40K.

The Packard Fundation capacity building grants

New capacity was built and has

sustained itself with significant organizatio

nal wide impact,

53%

New capacity was built and has

sustained itself with

some organizatio

nal wide impact,

30%

No new capacity

was built?, 17%

83% of grantees reported new sustained capacity was built

“At the Packard Foundation, we believe that well-managed and -governed organizations are more likely to achieve their programmatic goals, and we invest in projects aimed at

developing grantee management skills and organizational capacity”

Source: OE Goldmine Research Project (2011)

Packard’s research show that impact of OE on grantees can be determined

3%

8%

23%

47%

19%

No impact on programservices

Some (but no measurable)impact on program services

Some measurable impact onprogram services

Significant measurable impacton program services

Transformational andmeasurable impact on

program services

Impact of OE grant on program services

Over 2/3 reported significant measurable impact

Specific ways that OE grants impacted

programs: • Improved program

quality and reach (35%)

• Becoming more strategic with programing (23%)

• Increased visibility, community support and leadership role in the community (10%)

• Increased program resources (10%)

Source: OE Goldmine research Project (2011)

Where impact was most generated?

18%

21%

25%

27%

42%

Adaptive- OrganizationalLearning

Technical- Fundraising skills

Adaptive- OrganizationalResource sustainability

Leadership- Board Leadership

Adaptive- Decision makingtools

New or long-term results by categories (n=169)

Decision making tools- Developing and using tools to make decisions such as strategic plans, evaluation tools, fundraising plans, etc Organizational resources sustainability- Maintaining financial stability in order to adapt to changing environments Organizational learning- Self- assessing’ using assessment data/ findings to conduct strategic planning and following through on strategic plans

Definitions:

Source: OE Goldmine research Project (2011)

A correlation between R&D investment and organization growth had been proven..

7%

5% 4%

2%

ExhibitingMany R&Dbehaviours

Exhibitingsome R&Dbehaviours

Exhibitingvery few

R&Dbehaviours

Exhibiting noR&D

behaviours

Average annual growth rate 1. Evaluating a program to figure out what works’ rather than deciding if it works

2. Gathering data directly from program recipients to determine how to improve programs

3. Engaging key leaders and staff in interpreting the client- derived data

4. Determining outcome metrics by listening to’ documenting and sharing actual client success stories and results

5. Bringing design leaders together to assess and address the resources needed to deliver programs effectively

6. Leveraging R&D insights to inform the management of program implementation

Source: tcc group (2011), Success by design

45% 25% 25%

R&D Practices (from the Core Capacity Assessment Tool)

% of NPO’s:

5%

…Alongside the impact of an IT investments

0

100

200

300

400

500

600

Annual IT costs Annual IT benefits realized

IT infrastructure costs and estimated benefits for TLT

Source: Bridgespan (2008)

IT FTE’s

IT systems costs

Staff time savings

Staff required to add same

value without IT systems

System cost synergies

$524K

$170K

Estimated benefit of

technology investment = $324K/year

An organization should be ready for an effective capacity building investment

12%

21%

34%

36%

44%

46%

53%

57%

59%

68%

No organizational crisisResources to implement profect follow-up

Ready to look at options openlyTeam readiness/ capacity

Board involevementConsultant fit

Executive director engagementthe right time for the project

Resources to implement the projectOrganizational readiness

Factors contributed most to capacity building success

Source: OE Goldmine research Project (2011)

Capacity building should be held when it is the right time for the organization, stake holders are committed to change and there are

enough resources for project implementation

The responsibility for fostering investment in capacity building is mutual

Social investors

Supporting organizations with general

operating funds

Committing to paying a greater share

of administrative and fundraising

costs in use-restricted grants

Fostering more open discussion

about overhead

NPO’s

Developing a strategy that explicitly

recognizes infrastructure needs

Communicating the logic for

increased overhead investment

through the organization and to the

board

Providing social investors with better

ways to measure performance than

program ratios.

Dialogues about “real” overhead rates can help shift the focus to the real target - outcomes

Bibliography

Bridgespan (Apr 2008), Nonprofit Overhead Costs, http://www.bridgespan.org/Publications-and-Tools/Strategy-Development/Nonprofit-Overhead-Costs-Break-the-Vicious-Cycle.aspx#.UlEO_Ianrkg

The Core Capacity Assessment Tool (CCAT), http://www.tccccat.com/

Nonprofit Finance Fund (2013), State of the Nonprofit Sector Survey Results, http://nonprofitfinancefund.org/files/docs/2013/2013survey_nat_summary.pdf

Better business Bureau’s Wise Giving Alliance Survey (2001), http://www.bbb.org/us/storage/16/documents/WGA%20guides/holiday07.pdf

Center on Nonprofits and Philanthropy at the Urban Institute(2004), Who Feels Pressure to Contain Overhead Costs? TCC group (2011), Success by design, http://www.tccgrp.com/pdfs/7-21_TCC_Briefing_Paper_LR.pdf

OE Goldmine research Project (2011), Executive Summary, http://packard-foundation-oe.wikispaces.com/file/view/Final%20OE%20Goldmine%20Executive%20Summary%20October%2030%202011.pdf/271555728/Final%20OE%20Goldmine%20Executive%20Summary%20October%2030%202011.pdf

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