Reimagining the ‘Overhead’ Debate
March 24, 2014 | 4874 views
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What if we could re-imagine the “overhead” debate and shift philanthropic discourse from questions about how a non-profit spends its money to one that engaged the world in a thoughtful debate about long-term impact at what cost?
Sure, there have been efforts in the US to move in this direction for some time. Charity Navigator, GuideStar and BBB Wise Giving Alliance recently published an open letter denouncing the “overhead myth” that they, in large part, have promoted and perpetuated. This has been followed by strong blogs, like this one, wondering, “where is all the data on results”? It’s a fair question that would be better received with a hint of reflection on roles in distorting philanthropic markets and spending decisions. But that said, I have long believed that relentless monitoring and honest reporting on strengths and weaknesses of programs, combined with an openness and ability to pivot to improve, would go a long way towards better work and better impact over time.
We are trying to reimagine overhead and reporting in the water sector and have been pleasantly surprised at how enthusiastic our initial efforts on reframing the debate have been received by non-profits, philanthropists of all shapes and sizes, and, interestingly, auditing firms. It is clear there is a hunger for a new discourse on both impact and investments. As such, let me broadly outline some initial thinking on this subject, with the hopes that it not only sparks some debate but also provokes responses that will force us to improve as we move forward.
To begin, we asked ourselves what we would look like if we eliminated functional allocations altogether. If we started by pushing back on the categorization of staff and expenses as either “program” (good expenses) or “overhead” (somewhat necessary but generally considered bad, potentially wasteful expenses) and just asked ourselves “what does it actually cost to implement our work?”
To illustrate we looked at one of our country programs (Malawi) and added up all the costs of running that program – salaries, health care, grant management costs, petrol, water and electricity bills, coffee, tea, meals on the road, pens, paper, and so on. Everything.
We then added to that number the costs associated with our regional support program in Nairobi that provides grant management, technical, supervisory, and accounting support to the Malawi program. Again, these costs included everything from staff salaries to air travel and office supplies. We then added on that a rather large (for illustrative purposes) chunk of costs incurred in our Headquarters in Denver (the epicenter of overhead hell) and added it all up and found that this cost was $885,767 in our FY 2013.
So, what was the result of that investment? This surely is the most important question – not who is an accountant or (gasp) a fundraiser but rather what did all this effort actually do in Malawi. And when we talk of results they can’t be all about perceived great work (the crowd should never roar “Water For People is the best”) – honest results will show progress and challenges, advances and limitations, and thus justify future expenditure to build on strengths and address constraints.
In Malawi, we saw some real improvements in the work our $885,767 investment supported. We saw our rather stringent sustainability results increase by over 30% as tariffs for water increased by users, as downtimes without water decreased as local plumbers surged into action to make needed repairs, part of a growing legion of permanent jobs (552–485 of which are women) focused on keeping water flowing. We saw the second straight year of zero cholera cases and 76 rural villages achieve open defecation free status, meaning every family has and uses a hygienic toilet. And we saw an 18% increase in water coverage as we drive for full district-wide and citywide coverage.
We also have many challenges. We saw a decline in water availability in some parts of the city of Blantyre as increasing pressure on existing water resources grows, requiring a real rethink in water resource management over time. We wonder whether the poorest are accessing water for free (cross-subsidized by paying customers) and believe we need to get sharper on this aspect of our work. And we know that there is a lack of clarity in some places on what tariff money is actually used for by Water User Associations (WUAs, the local operators of water services).
On top of all this, we saw an an additional $2,893,838 investment in water and sanitation from government, local residents and other aid agencies for the Everyone Forever 2030 work we are supporting in Malawi. This was not our money, but money unleashed for the results outlined above and channeled through local government and WUAs to expand services and keep water flowing.
So if I told you that we have unqualified audits for years, that we have monthly global consolidated financials navigating 11 currencies and 5 continents, that we publish our monitoring data and finances online for all to see, that we saw progress and challenges as outlined above and have plans on how to improve our support to local government and the local private sector, and more than tripled your investments in Malawi—would you really care what our overhead ratio is in FY 2013?
I imagine not.