The Overhead Myth: A Success Metric Conundrum

Richard Larkin, technical director for nonprofit accounting at BDO, recently contributed a telling article to the Nonprofit Quarterly following the issuance of the GuideStar, Charity Navigator and Wise Giving Alliance’s letter calling for an end to the obsession with nonprofit overhead costs as a proxy for measuring mission efficacy and effectiveness. In his article, Richard offers insight on why evaluating nonprofit success has become a trying task for nonprofits and donors alike. He further discusses how true success is measured only by outcomes, which generally comes from data that are never found in financial statements—if they can be obtained at all. Here’s a brief excerpt from his article:

In the nonprofit world, however, there is no common, easily understood measure of success. In fact, having a large positive bottom line may be an indicator that the organization is not doing as much as it could to fulfill its mission. The true measures of success for most nonprofits are statistics related to its programs, but such data are difficult even for management—much less outsiders—to obtain and understand.  For example, an obvious measure of success for an educational institution would be how much students learn from attending classes. But, much to the chagrin of educators and public policy makers, actually measuring this learning is very difficult for a variety of reasons. (Think about how a church might measure its own success—souls saved per pew-hour preached? And where would those data points come from?)…

Read the rest of Richard’s article in the Nonprofit Quarterly here.