Identifying and Realizing Operational EfficienciesIn Non-Profit OrganizationsJustin Greene
The Machine Is Too Lean             Non-profit organizations constantly face operational challenges in today’s fiscally constrained environment. Not only through attracting and retaining diverse revenue streams, but also by ensuring that they are good stewards of the funds they are entrusted with. This means most non-profit organizations typically operate under much smaller overhead costs then companies in the for profit arena. Two primary reasons are the organizations want to ensure as much funding as possible goes directly to philanthropic efforts, and the public perception looks negatively toward non-profit organizations that have overhead rates that are even comparable to businesses in the for-profit sector. Unfortunately, this can lead to organizations that are actually too lean and inefficient! By not having the proper resources such as personnel, processes, procedures, and software systems available, non-profit organizations can actually be hurting their bottom line through an inefficient use of their resources(e.g. not enough resources to properly document business operations or using grants that do not allow funds to be applied toward overhead of servicing the grant). A flip side to this is non-profit organizations that have invested heavily in a customer relationship management or enterprise resource planning system may not be getting their best value from it through improper process control or translation of existing processes into the new system (e.g. not having the resources to properly baseline, update, and manage workflows in a new system). Bringing on a full time resource specifically to address business operations and process improvement is usually too costly to the smaller organization that has limited funds and is generally perceived as an unnecessary expense in a larger organization that might have the resources. Hiring a consultant to streamline business operations could prove to be even more costly with hourly rates in the triple digits plus any expenses incurred. How can non-profit organizations achieve a balance of realizing operational efficiencies without spending themselves out of existence?
Who Goes Where?             Pass-through non-profit organizations are a popular construct for medium to large non-profits that directly fund local non-profits which fall within the pass-through organization’s mission. Part of the mission for pass-through organizations is to assist smaller non-profits with resources that would not normally be available to them. This can include resources to aid in ensuring operational efficiency through process improvement. If these resources aren’t currently available, a business case must be made to bring them in-house to the organization. Paying an outside consulting firm on a temporary, let alone full time basis can be extraordinarily cost prohibitive for most non-profits. Assuming a loaded rate of $150 an hour an organizational or efficiency consultant can run $26,000 a month before expenses! If a position is brought in house, even with a 50% rate reduction to $75 an hour (salary + benefits) this would still be considered extremely high for the industry unless we dive into the numbers. Within an organization that has over $6,000,000 in revenue each year this is approximately 2.6% of its annual revenue. The key is not looking at the cost but learning to understand the value.
The Value Proposition             In a $6,000,000 a year organization a 10% efficiency realization is $600,000. Even a modest 1-5% improvement still yields $60-300k worth of savings a year. Using the $75 an hour rate, cost savings are still realized very quickly through dispersion of efforts across multiple organizations. With the pass-through organization providing the resource to all of its funded partners, efficiencies of all sizes would start to be realized, which in turns makes these organizations more efficient, which makes them better stewards of their money, which ultimately put’s more funding into hands of those that need it most. Since this work is directly supporting not only the pass-through organization but its funded partners, this position could be considered a direct billable support and itself not count toward the overhead of the organization. With rates that would be extremely competitive compared to commercial options, this resource can be marketed toward other non-profits in the area that aren’t funded partners and to local for-profit businesses as a potential revenue stream for the organization. Non-tangible benefits include the increased relationships with funded partners, other non-profits, as well as other organizations, donors, and key stakeholders in the area through the reassurance that these organizations are being managed as efficiently as possible. In tough financial times and the ever present scrutiny that surrounds non-profit organizations, being able to do more with the resources you have through operational efficiencies and process improvement is a much better alternative than having to do the same with less.
References:Pallota, D. (2013, March). Dan Pallotta: The way we think about charity is dead wrong. Retrieved from http://www.ted.com/talks/dan_pallotta_the_way_we_think_about_charity_is_dead_wrong.htmlHrywna, M. (2013, February 01). Salary freezes begin to thaw, turnover rockets upward. Retrieved from http://www.thenonprofittimes.com/wp-content/uploads/2013/02/1359731596_2-1-13_SalaryBenefits.pdfWing, K. (2010, February). Introducing lean for nonprofits. Retrieved from http://www.philasocialinnovations.org/site/index.php?option=com_content&view=article&id=118:introducing-lean-for-nonprofits&catid=19:disruptive-innovations&Itemid=30Goggins, A., & Howard, D. (2009, Fall). The nonprofit starvation cycle. Retrieved from http://www.ssireview.org/articles/entry/the_nonprofit_starvation_cycle/Warren, Z. (2008, November). Occupational employment in the not-for-profit sector. Retrieved from http://www.bls.gov/opub/mlr/2008/11/art2full.pdfLassiter, V. (2007, April 12). The role of process improvement in the nonprofit organization. Retrieved from http://repository.upenn.edu/cgi/viewcontent.cgi?article=1004&context=od_theses_msodBrowne, C. (n.d.). Corporate vs. nonprofit salary differences. Retrieved from http://work.chron.com/corporate-vs-nonprofit-salary-differences-21564.html         Budgeting for a Consultant. (n.d.). Retrieved from http://www.nonprofitinclusiveness.org/budgeting-consultant