About The Author

David Grabitske

David Grabitske is the manager of outreach services at the Minnesota Historical Society in St. Paul, Minnesota.

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 How often has an organization continued to utilize an out-of-date computer, which slows other operations, just to avoid the expense of a new one?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”?

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3 Responses to Reduced Operating Expenses

  1. We have no xerox machine. ’nuff said.

    Reply

  2. Mary Warner says:

    There’s a message we’ve been getting from our accountant every year with our audit that shows one way we are undercapitalized:

    “Due to limited staff, the Society lacks proper segregation of duties.”

    From the accountant’s standpoint, this is about having several people available to cross-check financial data. Actually, this is one of the reasons we hire an accountant to audit our books every year – to serve as an outside resource for cross-checking our books.

    Reply

  3. Mike Worcester says:

    Claudia – Up until five years ago, our copier was the kind that had the top which moved. Try copying from a bound newspaper volume with that.

    Mary – We get the same message, as does our city. It is almost standard auditor’s verbiage when dealing with a small organization, be it a business, government, or non-profit.

    One aspect of this discussion is what kind of public activity we use our $$ for. Buying a copier sometimes is needed, but how much p.r. mileage can you get out of that. “Hey folks, look…we bought new collections management software!” Again, from an internal standpoint, it is needed, will be used, and have a big impact on your organisation’s effectiveness. But to the casual reader, it might engender a hearty “meh”.

    So where is the balance in that? I really don’t know. But one asset we have is our boards, who typically authorize those expenditures. They should be the natural defenders of those decisions.

    Thanks!
    Mike (the island to Claudia’s rock)

    Reply

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