Fundraising and "Overhead"

Where does the next donated dollar do more good: Harvard University or Bunker Hill Community College?

It’s a complicated question, but it’s much better than the questions that usually get asked.

As this New York Times profile of an organization called ImpactMatters notes, the usual question of nonprofits is the percentage of costs spent on “overhead.” The question is well intended, but at a basic level, it misses the point. Lowering overhead is not the purpose of an organization.

Shifting the focus from overhead to impact is promising. When donors give, they’re usually trying to effect some sort of real-world outcome. That might be feeding people, or fighting a disease, or helping them get to and/or through college. The job of the organization receiving the donation is to do its best to turn those resources into those outcomes.

Right now, in the absence of good information, donors often rely on prestige as a proxy for effectiveness. But that can have perverse effects. In a society that equates wealth with prestige, the most prestigious recipients of donations are usually already well funded. The places in which an additional dollar would go farther don’t attract the same level of support.

Part of the challenge is that overhead doesn’t increase linearly. Hiring a new development officer is a substantial expense for a foundation, with payback coming over time. In the moment, that hire makes its overhead expenses look worse, but it’s necessary to ramp up the operation. If we shift focus from inputs to outputs, some of those dilemmas go away.

In the context of higher education, for instance, an office like institutional research would usually be categorized as overhead. It doesn’t teach classes or provide any sort of direct service to students; in my student days, I had no idea that such a thing even existed. For critics of “administrative bloat,” it looks like an easy target. But a good IR office is a force multiplier. It provides information that can get and sustain grant money. Used properly, it can help the college as a whole deploy its resources more effectively. Did a given intervention work? Without good institutional research, we may never know. Direct service provision only matters if it’s providing the right service.

More basically, there’s a pair of definitional issues. The first is discerning the difference between service provision and overhead. Faculty salaries are clearly service provision. What about faculty conference travel? What about professional development for IT staff?

The second and more crucial definitional issue is the definition of “doing good.” For example, the mission of a community college is to teach. The mission of a research university is both to teach and to produce original research. (The relative clarity of the community college mission is one of the sector’s most appealing features. We know exactly why we’re here.) And the two sectors aren’t entirely separate; roughly half of the bachelor’s degree graduates in the U.S. have significant community college credits on their transcripts. The impact of dollars given to BHCC can be measured through improvements in student success. By that measure, additional dollars given to Harvard don’t accomplish much. It only admits students who are likely to succeed in the first place, and it has enough money to fund just about any intervention it wants to.

I’m not shocked that several of the top 10 educational institutions on the ImpactMatters list are community colleges (or their foundations). The law of diminishing returns suggests that for the Harvards of the world, another donation isn’t likely to mean much, but for most community colleges, it absolutely would. Over the last several years, the emergence of the #RealCollege movement has helped focus the philanthropic dollars that do arrive into the places where they do the most good.

Any given index is subject to critique, and rightly so. But to the extent that indexes like these help us shift the conversation from prestige and overhead to results, I’m all for them.