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.