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Non-Profit Sector’s $100 Billion Opportunity

October 17, 200517 October 2005

Article Link
http://harvardbusinessonline.hbsp.harvard.edu/b02/en/common/item_detail.jhtml?id=R0305G

Although its analysis is very broad, this report has apparently created a significant amount of discussion in the US over the ability of charities and other non-profits to properly manage their resources. The authors argue that the non-profit sector could have over $100 billion more available to it if: 1) the least efficient non-profits managed to achieve a 15% reduction in their program service costs “through better management, catalyzed by the use of benchmarks” (estimated savings: $55 billion); 2) foundations distributed more of their funds than the legally required minimum of 5% of their assets (estimated additional contribution over the next 25 years: $30 billion); 3) non-profits reduced their fundraising costs and funders cut distribution costs, using best practices such as online solicitation, resource-sharing and the distribution of fewer, larger grants (estimated savings: $25 billion); 4) administrative costs were reduced (estimated savings: $7 billion); and 5) improvements in the non-profit sector’s effectiveness were made (no cost savings, but would “increase the social benefit delivered for each dollar spent”).

As an example of the administrative savings possible, the authors looked at the administrative spending as a percentage of total budgets of 52 US symphony orchestras and found that the lowest-spending orchestras spent 13% of their total budgets on administrative expenses, while the highest-spending orchestras spent 23% of their budgets on administrative expenses. Although they didn’t examine the effectiveness or the mandates of the symphonies in question, the authors recommended a 15% reduction in the difference between higher and lower-spending orchestras.

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