cost-effectiveness

Saving administration costs or saving lives?

By Lucius Caviola & Nadira Faulmüller

Imagine a car company advertising as follows: “90c of any dollar you pay for your car goes directly to building cars. Only 10% of our expenses go into planning, designing, and advertising them.” Such a campaign strategy would seem patently bizarre; when buying a product few of us are interested in how much went into administration, all we care about is what we get for our money. Overhead ratio (the proportion of money going into administration) is irrelevant; only cost-effectiveness matters.

This common sense approach to purchasing goods or services does not seem to translate into the non-profit sector, however. Consider the following advertisement by the organisation CARE:  “More than 90 percent of our expended resources – among the highest of all philanthropic organisations – support our poverty-fighting projects around the world. Less than 10 percent of expended resources go toward administrative and fundraising costs.” Continue reading

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