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A vicious cycle is leaving nonprofits so hungry for decent infrastructure that they can barely function as organizations-let alone serve their beneficiaries. The cycle starts with funders' unrealistic expectations about how much running a nonprofit costs, and results in nonprofits' misrepresenting their costs while skimping on vital systems-acts that feed funders' skewed beliefs. To break the nonprofit starvation cycle, funders must take the lead.
ORGANIZATIONS THAT BUILD ROBUST infrastructure-which includes sturdy information technology systems, financial systems, skills training, fundraising processes, and other essential overhead-are more likely to succeed dian those that do not. This is not news, and nonprofits are no exception to the rule.
Yet it is also not news that most nonprofits do not spend enough money on overhead. In our consulting work at the Bridgespan Group, we frequently find that our clients agree with the idea of improving infrastructure and augmenting their management capacity, yet they are loath to actually make these changes because they do not want to increase their overhead spending. But underfunding overhead can have disastrous effects, finds the Nonprofit Overhead Cost Study, a fiveyear research project conducted by the Urban Institute's National Center for Charitable Statistics and the Center on Philanthropy at Indiana University. The researchers examined more than 220,000 IRS Form 990s and conducted 1,500 in-depth surveys of organizations with revenues of more than $100,000. Among their many dismaying findings: nonfunctioning computers, staff members who lacked the training needed for their positions, and, in one instance, furniture so old and beaten down that the movers refused to move it. The effects of such limited overhead investment are felt far beyond the office: nonfunctioning computers cannot track program outcomes and show what is working and what is not; poorly trained staff cannot deliver quality services to beneficiaries.
Despite findings such as these, many nonprofits continue to skimp on overhead. And they plan to cut even more overhead spending to weather the current recession, finds a recent Bridgespan study. Surveying more than 100 executive directors of organizations across the country, we found that 56 percent of respondents planned to reduce overhead spending. Yet decreasing already austere overhead spending (also callee .-enses) mayjeopardize organizations' very existence - not to mention their ability to fulfill their missions. And although the...