Efficiencies
What are Efficiencies?
In manufacturing, efficiencies are easy to define. There is a whole area dedicated to this research and accompanying language. It's a natural component to producing better widgets, at a fast rate and at a lower cost.
But communities and their residents are not widgets.
In the non profit sector, organizations are constrained by a similar 'triple constraint' - time, cost and scope. Yet, this does not account for the life-force of non profit activities: volunteers. This missing line item is very difficult to define, value and conserve, unlike those dimensions of the triple constraint.
Examples of Efficiencies
Every day the local non profit sector is finding ways to be more efficient. Here are just a few of them.
1. Maximize Program Expenses: The Early Childhood Development Coalition (ECDC) helps to coordinate and streamline all early learning-related groups and their activities.
2 Minimize Administration Expenses: Golden Community Resources Society (GCRS) operates as an umbrella organization for multiple programs over multiple sites.
3. Minimize Fundraising Expenses: Events like Funders Forum bring many funders into one room, enables them to present to potential applicants and helps determine where funding/support fits exist within the community.
Further, one could have made 10 copies of this report and it would likely be outdated the day after. Or one could put this online in a very simple and cost effective website for the same cost, yet have the ability to update it as new information becomes available - often the next day!
Non Profit Efficiencies
Michael Sack Elmaleh is one of the very few people to have written about non profit efficicency and his explanation of the Statement of Functional Expenses (SFE) is by far the simplest.
“Accounting provides some measure of a firm's economic efficiency on its income statement. A large net income usually tells us that something has gone right, while a large loss indicates that something is amiss. The same cannot be said about a non profit's income statements (usually called the Statements of Revenue and Expense). Since the central goal of a non profit is to provide services, not earn large profits, the absence of a profit is not a mark against the organization. As an alternative to the income statement, accounting attempts to measure a non profit's efficiency on a financial statement called the Statement of Functional Expenses (SFE).
The SFE divides a non profit's expenses into three categories:
1. Program Expenses: goods and services distributed to fulfill the purpose of the organization.
2. Administrative expenses: costs of business management, record keeping, budgeting, and finance and other management and administrative activities.
3. Fund raising expenses: costs of fund-raising campaigns and events.
The underlying idea of the SFE is that an efficient non profit is one that minimizes its cost of fund raising and administration. The SFE allows us to compute the ratio of these three expense categories. We might reasonably expect that an organization that spent 80% of its resources on program, 15% on administration and 5% on fund raising would be more efficient than an organization that spent 80% of its resources on fund raising, 15% on administration and 5% on program related expenses.
In theory, we should be able to compare the efficiency of various non profits by comparing the expense ratios reported on their SFEs. Alas, these reported ratios are not so reliable because non profits tirelessly diddle the accounting rules and definitions as to what constitutes a fund raising expense versus a program expense.
Program Expenses
Administrative Expenses
Fundraising Expenses"
To read the entire article from Michal Sack Elmaleh: http://www.managerwise.com/article.phtml?id=619
In manufacturing, efficiencies are easy to define. There is a whole area dedicated to this research and accompanying language. It's a natural component to producing better widgets, at a fast rate and at a lower cost.
But communities and their residents are not widgets.
In the non profit sector, organizations are constrained by a similar 'triple constraint' - time, cost and scope. Yet, this does not account for the life-force of non profit activities: volunteers. This missing line item is very difficult to define, value and conserve, unlike those dimensions of the triple constraint.
Examples of Efficiencies
Every day the local non profit sector is finding ways to be more efficient. Here are just a few of them.
1. Maximize Program Expenses: The Early Childhood Development Coalition (ECDC) helps to coordinate and streamline all early learning-related groups and their activities.
2 Minimize Administration Expenses: Golden Community Resources Society (GCRS) operates as an umbrella organization for multiple programs over multiple sites.
3. Minimize Fundraising Expenses: Events like Funders Forum bring many funders into one room, enables them to present to potential applicants and helps determine where funding/support fits exist within the community.
Further, one could have made 10 copies of this report and it would likely be outdated the day after. Or one could put this online in a very simple and cost effective website for the same cost, yet have the ability to update it as new information becomes available - often the next day!
Non Profit Efficiencies
Michael Sack Elmaleh is one of the very few people to have written about non profit efficicency and his explanation of the Statement of Functional Expenses (SFE) is by far the simplest.
“Accounting provides some measure of a firm's economic efficiency on its income statement. A large net income usually tells us that something has gone right, while a large loss indicates that something is amiss. The same cannot be said about a non profit's income statements (usually called the Statements of Revenue and Expense). Since the central goal of a non profit is to provide services, not earn large profits, the absence of a profit is not a mark against the organization. As an alternative to the income statement, accounting attempts to measure a non profit's efficiency on a financial statement called the Statement of Functional Expenses (SFE).
The SFE divides a non profit's expenses into three categories:
1. Program Expenses: goods and services distributed to fulfill the purpose of the organization.
2. Administrative expenses: costs of business management, record keeping, budgeting, and finance and other management and administrative activities.
3. Fund raising expenses: costs of fund-raising campaigns and events.
The underlying idea of the SFE is that an efficient non profit is one that minimizes its cost of fund raising and administration. The SFE allows us to compute the ratio of these three expense categories. We might reasonably expect that an organization that spent 80% of its resources on program, 15% on administration and 5% on fund raising would be more efficient than an organization that spent 80% of its resources on fund raising, 15% on administration and 5% on program related expenses.
In theory, we should be able to compare the efficiency of various non profits by comparing the expense ratios reported on their SFEs. Alas, these reported ratios are not so reliable because non profits tirelessly diddle the accounting rules and definitions as to what constitutes a fund raising expense versus a program expense.
Program Expenses
Administrative Expenses
Fundraising Expenses"
To read the entire article from Michal Sack Elmaleh: http://www.managerwise.com/article.phtml?id=619
