1. “90c of your dollar goes directly to building cars. Only 10% of our expenses go into planning and designing them.”
2. “We’re using a volunteer director and no advertising, so we can spend 100% of the movie’s budget on shooting expenses. It’ll be a hit!”
3. “90% of our military budget goes directly to soldiers and weapons. We don’t waste your tax dollars on administrative costs.”
4. “More than 90 percent of our expended resources … support our poverty-fighting projects around the world. Less than 10 percent of expended resources go toward administrative and fund-raising costs.”
The answer, of course, is #4, because it’s real. But to hear me tell it, it’s as silly a “selling point” as the others.
Efficiency is great, but who the heck came up with the idea that efficiency means low “administrative expenses”? When I think of what’s included in administrative expenses, the following jump to mind:
- Salaries for executives
- Technology infrastructure
- Self-tracking and -evaluation
For-profit companies spend boatloads on all of these things, and it isn’t because they’re being extravagant–it’s because these things are cost-effective. When you’re doing something complex and difficult (like, say, trying to improve the lives of Africans who suffer from a host of interrelated problems), you need to get great people and keep them happily employed, you need to have good tools to leverage their skills, and you need to be stepping back and looking at what you’re doing and how you can improve it.
A theme we have already hammered on ad nauseam, and don’t intend to stop, is that in giving as in everything else, It isn’t just how much you spend–it’s how you spend it. And that means that the people, tools and processes that can help you spend more intelligently are worth quite a bit of expense themselves.
This isn’t just a hypothetical/abstract argument about how the Straw Ratio can mislead you. This is the product of our experiences and frustrations with organizations that we find to be disorganized, technologically behind, and incapable of producing any details about what they do and whether it’s working. The obsession with the Straw Ratio goes beyond Charity Navigator: there is a pervasive attitude that nonprofits need to get all their money right to the needy, and do all their administration on the cheap. No one thinks a business should be run this way, but it’s conventional wisdom in the nonprofit sector, and the result is that the groups you’re paying to accomplish great things are trying to do them without good technology or good people. Examples of both to come.