Ice on water
Category: Better World
Why focus on development overhead rates is bad – a follow up
I posted a link to Dan Palotta’s TED talk a few days ago and while I still believe it is a good talk to listen to, I would like to add some additional voices to the discussion. So before we begin, I want to say thanks to Ian over at KM on a dollar a day for providing me with an additional feedback and ideas on the topic!
This post here by Alanna Shaikh summarizes some of my feelings towards the talk very well. The main reason of why I posted the TED talk (and yes, you should still listen to it!) was that the talk highlights that obsessing about overheads is not helpful and counterproductive to good development work. Alanna Shaikh comments:
I agree with Pallotta on overhead. The need to keep overhead low leads to distortions in NGO programming, distortions that make quality worse. Some organizations accept donated materials they don’t really need, because the value of the materials increases the program budget and therefore makes overhead a lower percentage of costs. Others play games with how they charge staff member time, so they can assign more salary to programs. Those are just two examples; there are more. Overall, the obsession with overhead costs takes time and effort away from real work planning and evaluation even when it doesn’t actually make programs worse by forcing the inclusion of useless donations or limiting staff availability. (Source)
I think that’s really well said. In fact, I would like to start a collecting some cases / examples of how the focus on overheads had bad impact on development and I’m even more interested in learning about good practices to keep organisations focused, lean and cost effective while not obsessing about overheads too much. Do you have any inputs or ideas for me? Thanks!
Listen to this TED talk: Why we should NOT focus on NGO overheads
I do my work on the UN Job List since I believe that the UN system needs good people to be really great. This relates to getting the right kinds of people to join the right causes in this world. And so I listened to this TED talk from Dan Pallotta on how to look at NGO / Charity work. I’m not sure I fully agree with all his points but the way he talks about indirect costs (“overheads”) is very good (minute 12 into the video).
With regards to overheads, it is frustrating to see the incentives in organisations stacked up against saving money in the process of doing good: With the wrong focus on “overheads” cost savings between projects are often discouraged. So what happens? Well, in order to keep overheads low, organisations have an incentive not to share resources since a USD $10 Expense in indirect costs (that could be used in all projects) would make the organisation look “expensive”. What happens instead is that the resources are put into projects directly and thus eliminating savings through sharing. If you assume the same USD $10 resources in use in two different projects you effectively double the costs vis-a-vis simple sharing of the resource. Sometimes these cases are not quite as obvious but if you are faced with the decision to invest into a system that could automate a lot of manual processing work or have projects do the manual processing themselves, more often than not organisations are hesitant to invest into infrastructure even if this would save significant resources for projects.
So I agree with Dan Pallotta that focusing on results, on growth and on how much of the overall challenge at hand has been resolved is far more important than achieving arbitrary ratios of indirect costs.
That’s what they call March these days…
Lovely red light
Winter
Blue
Winter day
Happy New Year!
I hope that you are able find some quality time to spend with friends and family in this hectic time. The year 2012 has been a very exciting year for me personally as well as for the UN Job List, since it enjoyed another year of incredible growth. And more than that, what I appreciate is the commitment and the dedication that some of you show in spreading the news about the UN Job List and providing great feedback and good ideas for improvements to me.
To those of you who work towards making this world a better place: I really hope that all of us will succeed a little in this endeavor in the coming year.
With this I would like to wish you all the best for a successful 2013!
Cheers,
Sebastian
Winter sun
