October 2009

Core support: to fund or not to fund?

The question as to whether donors should make grants to cover an organisation's core costs, as opposed to specific projects under its remit, is of both symbolic and practical importance. Looking first at the practical aspect, it seems clear that an organisation in good financial health stands the best possible chance of delivering excellent programmes, of achieving the goals that it set out to accomplish.

Yet most funders prefer a parallel school of thought; which is that by giving money to a particular project, as opposed to the organisation's general administrative overheads, their money is likelier to have the greatest effect. This school, though well-intentioned, is based upon a misunderstanding - and an underestimation - of what a charity needs to be effective.

This confusion can be damaging to nonprofits, and consequently to those that they serve. It is widely believed that low overhead costs are an indicator of a good organisation, and this can be extremely counter-productive: the Nonprofit Overhead Cost Project, an in-depth quantitative and qualitative study carried out by the Urban Institute and Indiana University, found categorically that low overheads leading to inadequate infrastructure limit non-profit effectiveness. There is much common sense in these findings: any organisation that cannot invest in the necessary human resources, information technology and other vital elements to back up its activities will not be as good as it could be.

With such findings in mind, we have written "Supportive To The Core", the latest publication in our Think Philanthropy series: the 25-page paper, containing case studies with foundation trustees, donors and grantees, explores the various merits of providing an organisation with unrestricted funding. Yet this is not to say that project grants are rarely if ever desirable. Our aim is instead to encourage funder and grantee towards a closer understanding of each other's goals, so that they can then establish what kind of support the grantee truly needs; so they can nurture a productive partnership, to the benefit of donor, charity and community alike.