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Info You Can Use: Figuring Out True Program Cost

January 27, 2015

by:

Joe Patti

After reading my post yesterday about how the federal government is requiring that non-profits receive at least 10% of grant/contract funding to cover indirect costs, you may be wondering how to accurately determine direct and indirect costs for your programs.

Getting an accurate picture of program costs is not only important for making sure you get proper allocations from government funded programs, but also for working toward a larger goal of providing boards of directors, funders and the general public with an accurate picture of the true costs of programs.

Providing an accurate picture is key in the campaign to diminish the use of overhead ratio as a measure of non-profit effectiveness.

In a piece on Social Velocity, Nell Edgington, emphasizes the need to present an accurate picture of costs and “break out of the nonprofit starvation cycle”

She also notes that it can help decide what programs really needs to be cut.

But don’t stop there. Turn this new knowledge about the financial impact of each of your programs into a strategic tool. Once you figure out what each individual program fully costs, you can compare the financial and social impact (how well it contributes to your mission) of each program to each other, like this in order to understand how well your entire program portfolio contributes to the money and mission of your nonprofit. Through this analysis you can determine what programs you should expand, which you should continue, and which you may need to cut.

She provides links to a rather detailed guide to determining the true costs of programs published by Bridgespan.

It isn’t an easy process. The estimated timeline in the guide is at least a month. Smaller organizations with fewer programs will take less time.

The guide discusses each stage of the process in detail, suggesting what staff roles need to be involved. It also provides some clear definitions and examples for what needs to be considered.

For instance, indirect costs:

Indirect costs can include general administration and management expenses (e.g. management staff salaries and benefits), infrastructure costs (e.g. rent and utilities, transportation, equipment depreciation, technical licenses), and other costs that are incurred for the benefit of all the programs within the organization (e.g. marketing costs, advocacy expenses).

It addresses questions about determining whether some salaries like those of the executive director and human resource personnel should be allocated across different programs or not.

(Just a note – The guide is about six years old and some of the internal links to templates and examples no longer work, but don’t be discouraged, most of them may be found in the appendix.)

Since there seems to be a slowly developing trend toward removing the stigma of overhead costs (that may evolve into a demand for a high level of transparency), nonprofits may want to start to invest in practices that will allow them to evaluate the true costs of their activities.

Finance, Fundraising, Info You Can Use

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Info You Can Use: Know Your Funding Rights

January 26, 2015

by:

Joe Patti

An event of note to be aware of is that last month the federal Office of Management and Budget said “that when governments hire nonprofits to provide services, those nonprofits legitimately need to incur and be paid for their “indirect costs”—which is government-speak for overhead and administrative expenses.”

According to Chronicle of Philanthropy, non-profits should receive at least 10%, if not more, “of the direct costs of their grant or contract to pay indirect costs.”

Given that non-profits are frequently anxious about revealing their true overhead costs for fear of having it count against them with donors and foundations, this mandate is seen as a victory because it starts to institutionalize the practice of covering those costs.

However, according to the Chronicle of Philanthropy story, the enforcement of these rules may depend on the self-advocacy of non-profits.

While the new rules are now the law of the land, the indirect-cost regulations must be interpreted and applied consistently by tens of thousands of individuals in fragmented departments, agencies, and offices at “pass through” entities (usually state and local governments and large nonprofits) that use federal funds to hire nonprofits to provide services in their communities.

The regulations are already in effect, but the multiple levels and layers of government have not learned about or communicated the existence of the new rules, let alone provided consistent training programs, to employees scattered across these pass-through entities.

Making matters worse, there has been no transition time for the thousands of jurisdictions to purge and modernize their outdated statutes and regulations to enable them to comply with the new federal requirements.
[…]

Unless we all take concerted action, it’s quite possible that we will slide back to what had been the status quo: inconsistencies in our nation’s archaic, patchwork government-nonprofit grants and contract “system” that have left nonprofits at the mercy of often contradictory policies and practices of disconnected federal, state, and local government departments, agencies, offices, and employees. Arbitrary, unjustifiable caps on indirect costs could remain routine.

The author of the piece, Tim Delaney, chief executive of the National Council of Nonprofits, encourages foundations to lend a hand with this advocacy. He points out that often grant makers end up filling the indirect cost gap that government entities may refuse to cover. Correct practices could mean a savings for grant makers who would no longer need to provide this assistance.

As an arts organization, you may be thinking that you don’t have any government contracts so this doesn’t apply to you. However, notice that these rules apply to pass through agencies which, depending on the program, may include arts councils and other organizations receiving funding from places like the National Endowment for the Arts.

The Council of Non-Profits has put together a guide to help people know their rights and advocate for them. It presents different scenarios where you may be told these new rules don’t apply and how to respond to them.

Two points brought up in the guide that lead me to think these rules apply to state and regional arts councils: One- it doesn’t matter whether it is called a contract or grant or any other term, the rules are based on the substance of the transaction.

Two – Sub-recipient non-profits who are required to acknowledge part of the funding is received from the federal government are covered under these rules.

If you have been required to acknowledge part of the funding is received from the NEA, these new rules are applicable to that program unless specifically excluded by by legislation.

Fundraising, Government Relations, Info You Can Use

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If You Got The Data, She Wants To Study It

January 21, 2015

by:

Joe Patti

Reader Heather Grob responded to my recent post asking about more information regarding propensity score matching to learn more about arts audiences.

Heather, an associate professor in the St. Martin’s University School of Business writes,

Hi Joe,

Yes, I have used propensity score matching in a different venue than the arts. It was in a study looking at workers’ compensation pension outcomes. When you have a subject where there are selection biases (for example, that the more educated are more likely to participate in the arts) then propensity scoring can help to control for the outcome to more precisely estimate the effect on outcomes.

I think you explained it pretty well to a lay audience. I imagine it would be useful to use when you have a lot of data on attendees and non-attendees (or season ticket holders and not is more likely).

If anyone has data they want to “play” with, let me know. I’m interested in doing more studies on socioeconomic phenomena in the arts. –Heather

I wasn’t sure anyone would respond to the post with more information much less be interested in getting their hands on data to study. If someone is interested in learning a bit more about their audience and potentially their community, if the data is available, you may want to follow up with Heather.

Audience Relations, Info You Can Use, New Initiatives

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The Good, The Bad of The Ugly Glasses

January 20, 2015

by:

Joe Patti

Even though most news outlets have only been carrying the announcement that Google was stopping sales of Google Glass in the last few days, for some reason I have known about it for a month or two now.

When I did originally hear about the decision to review and revamp the glasses in light of problems and negative perceptions, I had a moment of schadenfreude because I bristle at the intrusiveness of Google Glass on privacy. I was pleased by the news that I wouldn’t have to contend with people either engaging with me in ways I didn’t approve of or using the technology to further disengage from their surroundings.

This being said, I will concede that wearable technology is inevitable and something the non-profit performing arts community needs to develop policies and procedures for.

There are definite benefits of this type of technology for arts organizations. Arts and Management Technology Laboratory at Carnegie Mellon University put out a paper this past summer about the positive and negative implications of wearable technology in a performing arts environment.

Some applications mentioned in the paper, “Performing Arts in the Wearable Age,” are fairly obvious because they take what is already happening with handheld devices and tablet computers and move them to platforms like Google Glass. Among these are: allowing musicians to get rid of music stands and have score scroll past their eyes; providing background information about the show and performer being looked at to audience members and replacing supertitles with your choice of language translation before your eyes.

The authors also talk about providing point of view experiences to audience members, something I imagined in one of my first blog posts. Imagine being able to see what the actor sees both on stage and backstage. Even more, imagine being able to “perform” opposite your favorite actor and be kissed, slapped, slain, etc by them.

What I hadn’t envisioned was its use as an evaluation tool, allowing students to see themselves perform through the eyes of their instructors or see what their instructors see when they themselves perform.

What never occurred to me was how useful this sort of technology might be for interactions at front of house. The authors mention better fidelity of communication between different staff members versus walkie talkies. They also note that individuals would be able to provide service to customers without directing them to a house manager or the box office because information would be fed directly to their devices.

“Virgin Atlantic has been testing Glass in certain airport terminals since February 2014. Once the customer identifies themselves, gate agents and staf members can aces flight information, seat details, and personal preferences. The result is streamlined, personalized service: the customer receives individualized information suited to her particular journey and needs, with the airline employee processing check-in more quickly and efficiently.”

As soon as I read that, I envisioned a situation where a volunteer usher could do a much more effective job if a glance at a ticket immediately scanned the people as attending and coached the volunteer with directions either visually or with an in ear audio cue. (i.e. Ah, you are through the even side door on the right, go through the door marked row L-O, your seats are about 2/3 of the way toward the center.”

Not only that, I imagined late seating could be facilitated if the customer was wearing something like Google Glass. All they would need to do is glance at their tickets before they entered the theater and the glasses would cause their seats and the one at the end of the correct row to “glow” when they looked at them. Ushers wouldn’t need to try to point them out in the dark with a flash light and it would be apparent someone else was sitting in the seats before the late comers started edging down the row.

Now you may be thinking that your ushers are a bit older and might be uncomfortable with handheld scanners without trying to access information through worn technology. My thought is that each unit would be programmed for a certain task so that the ticket ripper would only check people in and get directional cues while someone else’s accessory would perform more tasks. That way you assign people with different comfort levels to specific roles or specific devices.

While this is all exciting, issues of intellectual property and privacy would need to be resolved and the authors of “Performing Arts in the Wearable Age,” acknowledge many of them. The tricky thing, of course, is that nearly every piece of technology ends up getting used in a manner the creators never envisioned so trying to anticipate all the implications for the performing arts are nearly impossible.

If a performer is transmitting what they see as they walk backstage, then obviously greater operating discipline needs to be instilled backstage (language and state of undress being only some of the issues.) But what happens when someone hacks into a piece of wearable technology that everyone thinks is off and the result appears on tabloid websites?

Arts in an Age of Technology

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