Do Indirect Costs Directly Impact Services and Your Mission?

We’ve been at this grantmaking endeavor for only a year now and have already noticed some common patterns amongst funding requests. Not surprisingly, when asked what they need most, the responses from nonprofit staff are all about programmatic expenses that enable them to serve more people, animals, communities, or other mission focus. The focus is on growth. Yet without adequate funding for indirect costs as well, growth can outstrip a nonprofit’s managerial capacity, processes, and financial systems. The growth becomes unsustainable.

The needs are so great in our society that serving more of your target market is a worthy cause. The animal shelter wants more funding for veterinary care so they can help more animals. A school wants to add teachers or new programs so they can serve more students. A foodbank wants funding for food so that they can serve more needy families. It’s a worthy cause for sure and it attracts funding. Fundraisers can tell a better story about meeting society’s needs than they can about, for example, a new computer.

A well-known study by the Gallup Organization on employee engagement found that having the tools and equipment to do a job well was fundamental to employee engagement. Gallup refers to this as the “Second Element” of great management. Inadequate tools and equipment hold people back from doing their best, leading to frustration, disengagement, and reduced productivity. It's clear, from major studies and experience alike, that indirect costs directly impact services and mission.

Consider the employee who spends three times as much time tracking data than they would if they had the right software and/or computer. Think about the organization that can’t track the impact of their work because they don’t have the right tools and equipment. They don’t truly know what works and what doesn’t. Consider the productivity difference between employees who are freezing cold because the heat doesn’t work well, versus employees who are warm and comfortable while working.

I’ve been a part of many nonprofit budget-building processes as an employee. The first meeting is typically the most depressing. Everyone comes with their wish list. Someone also brings the revenue projection. Projected revenues and needed expenses never match. So, the first task is to cut expenses, and those exciting and needed wish list items and improvements, the ones that everyone is excited about, are the first to go. This cycle is all too familiar with those who have worked within the nonprofit world. We learn to do without, but over time it takes a toll.

At Phillips Charitable Foundation we continue to be interested in grants for direct programmatic costs, but also encourage nonprofits to examine indirect tangible needs as well. The right people, processes, equipment, and systems have to be in place to manage and sustain the good work being done to fulfill your organizational mission. Investing in tangible items that help your employees be more comfortable, more productive, and/or more engaged will strengthen your nonprofit’s ability to fulfill its mission over time. Sometimes it makes more sense to focus on getting better rather than on getting bigger.

By Jennifer Good

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