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Monday, April 19, 2004

Those pesky indirect costs

The Board of Directors of Independent Sector, a service and research organization representing nonprofits, recently endorsed and posted a statement on the dreadfully dry but essential issue of operating costs. Authored by Paul Brest, president and CEO of the William and Flora Hewlett Foundation, the statement seeks to encourage a new dialogue between funders and grantees about who covers overhead, and how we can all move forward to something more productive than our current approach -- which could be summarized as 'suppress, ignore, deny.'

The core of the problem of indirect costs (light, heat, janitorial staff, clerical staff, filing, office infrastructure and other glamorous stuff) is that nobody wants to fund them. Foundations, individual donors, and corporations are all drawn to the juicy projects where the rubber actually hits the road (the new play, the educational initiative, the cool new building). They are less enthused and more leery of the humdrum back-office activities that make those cool projects work.

It's a massive structural flaw in what we do. And our collective response hasn't been particularly healthy: inflating project costs in our grants to cover overhead, denying the actual costs by burning out staff with more and more work without more pay, and distorting our own view of what our activities actually cost us in the true ecological sense (not just money, but energy, resources, time, attention, etc.).

The true cost of all this denial is that few cultural nonprofits truly understand their cost structures, and there's no real incentive to learn.

NOTE: I touched on a similar topic back in October, for newbies to this weblog. And I'm likely to drone on again...

posted on Monday, April 19, 2004 | permalink