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Real Costs - PowerPoint Presentation

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Real Costs - PPT Presentation

Realistic Strategies Calculating Analyzing amp Communicating the Full Cost of Your Programs November 5 2015 CalNonprofits Annual Policy Convention Cosponsored by California Community Foundation ID: 598497

cost costs amp overhead costs cost overhead amp direct program nonprofit functions full indirect funders shared benefit fundraising administrative

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Real Costs  Realistic StrategiesCalculating, Analyzing, & Communicating the Full Cost of Your ProgramsNovember 5, 2015

CalNonprofits Annual Policy Convention

Co-sponsored by:

California Community Foundation

Center for Nonprofit Management

First5LASlide2

About theFunded by:California Community FoundationCenter for Nonprofit ManagementFirst5LAIrvine FoundationOur unrestricted funders: Weingart, Packard, CalWellness

Our 9,400 membersSlide3

Why Overhead? Understanding how to allocate shared costs allows you to manage allocations to maximize recovery of the full costs from fundersUnderstanding “fully loaded” costs of various activities give you the financial analysis to inform decision-makingSlide4

Why now?OMB Uniform Guidance mandates 10% or more indirect cost rate in nonprofit-government contracts that include federal moneyReal Cost Project of Northern California, San Diego and Southern California Grantmakers

Rising influence of the online charity raters which rely heavily on “overhead rates” as a proxy for excellenceSlide5
Slide6

How do you decide between a Starbucks latté and a Peet’s latté? Slide7

The myth about nonprofit overheadOverhead rates are a good indicator of whether a nonprofit is effectiveLower overhead = good nonprofitHigher overhead = bad nonprofitSlide8

Real Costs  Realistic Strategies Determining the full cost of providing servicesReality-based communicationsNonprofit Overhead ProjectSlide9

Set pricesChoose mix of productsPick locationsEvaluate future investmentsSlide10

Why does it matter what a program really costs?Key factor in setting “price”If market price is lower than actual cost, must find subsidy to close the gapIf no source to close the gap between price we are paid and full cost of providing services, nonprofit diesSlide11

Closing the gap between full costs and priceFunders and donorsThird-party payersLow wage staffClients and communitiesCustomers willing to pay more than costSlide12

Language RealityWe (nonprofits, funders, others):Call the same costs by different namesCall different costs by the same name

Confuse & deceive ourselves and othersSlide13

Confusion of termsSlide14

Frameworks for expenses: Form 990: program, management & general, fundraisingDirect costs and indirect costsDirect program costs, shared costs, admin costs and fundraising costsSlide15

Form 990 classification of expenses: ProgramManagement & GeneralFundraisingSlide16

Direct Costs & Indirect Costs

Directly associated with a function

Lunches for the senior lunch program

Tree

scientist for tree

planting

program

Not

directly associated with a function

Benefits more than one function

A fair share needs to be allocated to each function

Rent

IT expenses

Audit costsSlide17

Both Direct & Indirect Costs are legitimate components of: Administrative functionsFundraising functionsProgram functions Slide18

Administrative FunctionsBoard supportFinancial managementHR managementIT management Slide19

Administrative CostsBoth direct & indirect costs of performing administrative functions:Admin costs that benefit whole agency function as indirect costs

Administrative costs that benefit a single cost objective may be treated as direct costs

(program management costs)Slide20

Fundraising FunctionsPreparing & making unsolicited requests for contributionsSoliciting donors, businesses, foundationsGenerally does not include submitting requests to governmentSlide21

Fundraising CostsDirect Costs: cost directly associated with soliciting contributions &Shared Costs: costs associated with performing multiple functions for which the benefit to fund raising efforts must be estimated through allocationSlide22

Program FunctionsProviding services or activities designed to achieve your missionSlide23

Program CostsDirect Costs: cost directly associated with delivering a program &Shared Costs: costs associated with performing multiple functions for which the benefit to a specific program must be estimated through allocationSlide24

Differing Definitions of Overhead CostsAgency-wide administrationAgency-wide administration plus facilities and other shared costsAny cost that cannot be directly attributed to delivery of a specific serviceSlide25

Real Costs = Full CostsDirect costs + Fair allocation of shared costs + Fair allocation of admin costs = Fully loaded costSlide26
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Bases for allocation of shared and indirect costs Proportionate to specific measures (square footage use, copier counts)Proportionate to total direct costsProportionate to direct personnel costsOtherSlide32
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Tactics to improve cost recoveryMake overhead costs invisible by converting all to direct costsUtilize a strict definition of overhead as admin costsBenefit from new federal approaches in OMB Uniform GuidanceConfront realityEducate donors & fundersSlide34

Strategy development based on knowing full costsSet prices to cover costs of a program and/or know how much subsidy it will requireInclude full costs in grant proposalsMake the case to government funders for higher than 10% indirect cost rateBased on knowing what surplus or deficit each program generates, make strategic decisions about where to subsidize, cut, investSlide35

Overhead issue is:Management issueNonprofit sector structural issue & normsGovernment contracting issue

Messaging challengeSlide36

Many more resourceswww.calnonprofits.org/overheadSlide37

www.calnonprofits.org/overheadSlide38

Your role in the Overhead ProjectContribute your stories and resources to the websiteTell your staff, board and funders about the Nonprofit Overhead Project and the Real Cost ProjectDo not publicize your Charity Navigator ratingHelp CalNonprofits identify & celebrate funders & donors who get it

Join us to change the narrative