Reduced Operating Expenses

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Reduced Operating Expenses

By: grabitsdm | June 10, 2009
Thursday June 4, 2009, was the "Practical Leadership: A Balanced Approach" conference from the Minnesota Council of Foundations. In the "Beyond Mergers" session Stan Birnbaum of MACC Consortium challenged the assumption that two organizations merging or cooperating in other ways would reduce operating expenses, commonly thought of as "administrative overhead" in core services such as finance, human resources, technology and facility. In the example he provided those costs generally went up with the merger, but other efficiencies were gained so that his example saw an overall cost savings in program areas of about 10 percent.

Why? Mr. Birnbaum demonstrated that most nonprofits are undercapitalized in their core services. In other words, the cost of administering nonprofits is often artificially low because of a desire to infuse as many of the organization's limited resources into its programming. How often has an organization continued to utilize an out-of-date computer, which slows other operations, just to avoid the expense of a new one? The practice of funneling maximum resources to programming then colors aspirations for cost savings in new alliances. His message seemed to be when considering partnering or merging that the two organizations should challenge assumptions about how the new joint venture will actually function.

Whether or not an organization considers a joint venture, challenging operational assumptions is a healthy exercise. In what specific ways do you feel your organization might be "undercapitalized"?