I'm not sure how I feel about the author's suggestion that project-based funding and a focus on efficiency and milestones can hurt an organization's long-term planning and goals. I have seen the benefits of using milestones to track programs' successes (and monitor their failures), but I also understand the frustration with trying to track some of the less tangible things. For instance, I found it frustrating to track progress among participants in an ESL program I was running. You can run evening ESL classes for months and often the biggest successes are not in the test scores, but rather in everyday life. I was most proud of our students' progress when a parent could start communicating with her child's teacher or a student suddenly understood how to read a subway map. Yet, milestones were very helpful in tracking participants' progress in the job training program we ran. The formula was simple: if they are making more money than when they started the program and if they get a raise 3 or 6 months after graduating, you know that your program is successful. It seems that some things are just too difficult to track....
From the NYTimes....
Can Foundations Take the Long View Again?
New York Times
January 6, 2008
By Denise Caruso
As business leaders like Ted Turner, Bill Gates and George Soros have moved vast swaths of their private wealth into the philanthropic sector, market expertise has migrated there, too. As a result, foundation directors, trustees and advisers from corporate America have taken a stance that the return on charitable dollars should be tangible and measurable, and should drive capital flow in much the same way that earnings figures do in commerce.
“In the 1980s and early 1990s, there was a huge push for private philanthropy to be more accountable and to spend more time being goal-driven,” said Kathleen Enright, the executive director of Grantmakers for Effective Organizations, a Washington-based coalition of foundations that promotes ways to improve nonprofit results.
Advisers and trustees compelled foundations to redirect their unrestricted grants to more discrete, short-term projects — for example, distributing mosquito nets in malaria regions — that would deliver a measurable bang for the buck.
“The reason the nonprofit sector exists at all is because it can fund and invest in social issues that the for-profit market can’t touch because they can’t be measured,” said Paul Shoemaker, a former Microsoft employee and entrepreneur who is now executive director of the Seattle affiliate of Social Venture Partners International, a philanthropic network. “The nonprofit ‘market’ is not designed to be efficient in that way. Yet we’re applying the same efficiency metrics to both sectors.”
As a consequence, when foundations switched to project-based accounting, they forced grantees to sacrifice long-term effectiveness for short-term efficiency, Ms. Enright said. Nonprofits could no longer afford to focus on important strategic activities like advocacy or working for social change, which require “deep resources and the ability to change tactics overnight if the situation demands it,” she said.
In addition, critics say, project-based funding allows grantees to collect only a fraction of their real overhead costs. According to “In Search of Impact,” a 2006 study of foundation grant-making practices from the Center for Effective Philanthropy, foundation chief executives will allow a nonprofit to add only 10 to 30 percent of direct project costs for overhead. Some refuse to provide any operational costs at all.
The financial strain knocks many promising nonprofits out of business.
“Everyone is managing against the perception that nonprofits are supposed to be low-cost and low-overhead,” said Thomas Tierney, chairman and co-founder of the Bridgespan Group, a Boston-based consultancy and search firm for nonprofits that was founded at Bain & Company. The only way for nonprofits to increase their working capital is to take on more projects, which in turn keeps increasing the amount of capital they need — a “vicious cycle that perpetually starves them of capacity,” Mr. Tierney said.
The issue is not a lack of charitable capital. In 2005, grant-making foundations distributed more than $36 billion on assets of $550 billion, up from grants of $1.94 billion on assets of just over $30 billion in 1975, according to the Foundation Center, an organization based in New York that maintains a comprehensive database on the philanthropic sector in the United States.
Based on its data, the Center for Effective Philanthropy concluded that the present situation was limiting the effectiveness of those charitable dollars. After surveying nearly 20,000 grantees of 163 foundations and interviewing 79 foundation chief executives and 26 leaders of nonprofits, it recommended that to maximize the impact on grant recipients, foundations “should make larger, longer-term operating grants” of unrestricted funds that can be used to support the organization and its overall mission, not just specific projects or programs.
Two other recent publications reached the same conclusion: the “General Operating Support Action Guide” for foundations, published by the Grantmakers group in July 2007; and “Daring to Lead 2006,” a survey of nearly 2,000 nonprofit executives conducted by CompassPoint Nonprofit Services and the Eugene and Agnes E. Meyer Foundation.
Their findings echo the experiences of a handful of foundations at the vanguard of the movement to provide more operating support to charities over the last 10 years. They include the William and Flora Hewlett Foundation, the Edna McConnell Clark Foundation, the Philadelphia Foundation, the Whitman Institute and organizations like Social Venture Partners.
These grant makers have successfully shown that providing nonprofits with operating support “does not mean forking over tens of thousands of dollars and relinquishing expectations for results,” the Grantmakers’ report said.
Instead, they have built due diligence and accountability measures into their agreements that go much deeper than simple project budgets and reports.
The Edna McConnell Clark Foundation in New York, for example, has created a detailed system for evaluating results of general operating support grants to organizations that work to improve the lives of low-income youths.
David Hunter, the former director of assessment at the foundation, said in an interview published in the Grantmakers’ report that agreements between the Clark foundation and its grantees include specific milestones that are clear indicators of progress. They include benefits for the youths who benefit from the nonprofit’s charitable work, not just “process milestones for the organization.”
Each of the three reports concluded that general operating support yielded better results for foundations and grantees alike, particularly as larger grants are offered over a longer period.
Yet in 2005, according to the Foundation Center, only 20 percent of grants from the largest private and community foundations were designated for general operating support. A majority of foundation leaders polled in the studies acknowledged that unrestricted operating funds were better and more effective for grantees. But they continue to focus their grant-making on project support, they said, because they prefer its clear-cut results and because their boards often mandate project support as a way to show a foundation’s prominence in a specific funding area.
WHILE this may be good for a foundation’s image, Ms. Enright said, it can turn nonprofits into glorified vendors that provide only the services the foundation requests, sapping the sector of both passion and innovation.
“The presumption is that the donor knows more about how to address a given problem than its grantees, and I think that’s usually not a correct presumption,” she said. “More operating support can shift the locus of action and ideas to the people who are closest to the problem.”
Denise Caruso is executive director of the Hybrid Vigor Institute, which studies collaborative problem-solving. E-mail: dcaruso@nytimes.com.
2 comments:
Great post, Amanda! I have been thinking a lot about these issues lately. I worked at a foundation that strongly believed in providing general operating support and required only general progress reports on stated organizational/programmatic objectives. As this article pointed out, a significant benefit of the nonprofit sector is its ability to be more flexible, creative, and focused on the long-term.
Although non-profits are often under-resourced and short-staffed, I do see value in requiring more accountability, however. Some nonprofits are more effective than others, and funders need a way to make the best investments. Moreover, when foundations require rigorous reporting, society at large and the nonprofits themselves benefit from knowing what is and isn't working.
Going forward, we will need to find a balance between promoting the operational sustainability of nonprofit organizations and better selecting for high performance programs.
In my view, foundations must support nonprofit organizations in this effort by 1) working with nonprofits to develop the infrastructure and capacity they need to measure success and 2) providing additional funding for program assessment, as needed. Finally, I believe foundations should collaborate to be more consistent and effective in the reporting they require of nonprofits.
The article (and the assigned ones this week) were really interesting and highlighted a lot of my concerns when I requested grants from foundations in my old job.
One encouraging part of our readings was the piece about how foundations should act more like venture capitalists and provide trainings for non-profits. One of the foundations I worked with, Kaiser Permanente, actually did that. My agency benefited from having a health professional as a consultant. He helped us achieve build an in-house clinic, achieve our stated metrics, and build a successful multi-year relationship with the organization.
While money is important to the continuance of an organization, I believe that this value-added service could potentially be more important for agencies seeking to build effective and sustainable organizations. After all, it's much easier to ask individual donors for funding when the agency is achieving clearly defined metrics and touts a strong knowledge base.
To your point about metrics Stacey, I definitely agree - they should be measurable and transparent. I'd love to have known about best practices from other grantees, but unfortunately, those communication channels weren't in place with our funders yet.
Thanks for posting this Amanda!
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