Memo #262
By Xue-Rong Jia – xue-rong.jia [at] alumni.ubc.ca
Almost every international non-governmental organizations (INGO) releases an annual report summarizing its activities and achievements for the year, including a breakdown of its revenues and expenses. For example, last year Save the Children spent 3.8 percent of its revenues for administrative purposes, 9 percent in fundraising and 87.2 percent for programs. Likewise, World Vision declares expenditures of 5.2 percent in administration, 13.7 percent in fundraising and 81.1 percent in programs for the year 2012. Some other INGOs, such as Voluntary Services Overseas (VSO) and Oxfam International, have separated their expenditures by sectors, such as economic empowerment and emergency relief, but both also include a section for overhead costs that accounted for roughly 3 percent.
However, deducing that low overhead costs are directly linked to an organization’s efficiency is a fallacy: not only can it be detrimental to an organization’s productivity, but it also gives the false impression that the return on program expenses is 100 percent for its beneficiaries. The programs and sectors of an INGO also have overhead costs, whether for the hiring and training of program officers or the administration of a large-scale program. For example, the Dalit Welfare Organization, a Nepalese NGO, lists 99.3 percent of its revenue as coming from other INGOs such as Save the Children and VSO, and has administrative costs of its own. Therefore, low overhead costs are not significant when determining how efficiently funding is used within an NGO.
Moreover, the pressure among NGOs to maintain low administrative costs in order to secure funding can even be detrimental to the overall efficiency of a given program. In order to implement projects that produce substantial and sustainable results, an organization needs to have a strong internal structure, which can only be achieved by concentrating more capital in administration. With international organizations managing many North-South partnerships, it is essential to start thinking less in terms of where the funds go and more in terms of what outcomes those funds can bring.
About the Author:
Xue-Rong Jia is a recent graduate of the MA – Asia Pacific Policy Studies (MAAPPS) at the Institute of Asian Research, The University of British Columbia.
Jewelry training offered to Dalit and Janajati women by Ms. Rijal, with the financial help of the Dalit Welfare Organization in Dhapakhel, Lalitpur district (Source: Xue-Rong Jia).
Links:
- “Overhead Costs: The Obsession Must Stop,” Stanford Social Innovation Review, October 2013
- “Navigating Happiness,” The Hauser Center, March 2010
- “The Worst Way to Judge a Charity,” Los Angeles Times, April 2012
- “Oxfam Annual Report,” Oxfam International, 2013
- “Dalit Welfare Organization,” Dalit Welfare Organization, 2010
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