Many not-for-profit organizations are facing budget constraints as a result of lower returns on investment funds, tightening corporate philanthropic budgets, and less funding from government, foundations, major donors and community giving. With declines in funding opportunities, competition for available funding has increased. To make up for funding shortfalls, nonprofit organizations are cutting costs, increasing efficiencies, expanding their fundraising efforts and looking for innovative ways to increase fundraising. They are also utilizing reserve funds to cover any shortfalls.
At the same time as nonprofit organizations are experiencing budgetary pressures, the demand for services has not decreased, and for many organizations, critical constituents’ needs have never been higher. As a result, the organizations most likely to succeed will be ones that can effectively assess how their use of resources contributes to the financial sustainability of their mission, and right size those resources and their deployment accordingly. At issue is what providing services and running programs really costs — not just program delivery’s direct costs, which often result in a positive margin, but also indirect costs — and how these total costs relate to program outcomes and organizational revenue
. It is possible to gain this more informed understanding of business operations — the relationship among costs, revenues, programs, etc. — through an activity-based cost and revenue model.
Leading not-for-profit organizations are calculating the cost of running their programs (program costing) and performing analyses to determine the appropriate configuration of critical programs and resources to effectively and efficiently serve their missions.
Read the full article
for a summary of the modeling initiatives that first-adopter organizations have been undertaking and the best practices that they have learned and employed.
Visit the report overview for more articles: The State of the Not-for-Profit sector in 2017.
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Senior Manager, Advisory Services, Not-for-Profit and Higher Education Practices
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Principal, Advisory Services, Not-for-Profit and Higher Education Practices
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