Counting the community benefit of grant-making

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(or why we give less than we think)

 As grant-makers we want to provide accessible funding, select grantees wisely and understand our impact.  The way we usually go about this is through contestable funding and robust processes for selection, accountability and sometimes evaluation.

All well and good – except for the compliance costs these processes generate for the community organisations applying for the funds, whether or not their applications are successful.

We know that every hour spent seeking and keeping grants is an hour not spent working with the community, but we rarely give compliance costs the attention they deserve, despite the fact that, as Albert Ruesga and others point out, fundraising frustrations are a leading cause of burnout for CEs of community organisations.

And once you factor in these costs it becomes clear that we are often less generous than we think.

A useful approach to working out the true community benefit of funding is by putting a value on the time spent applying for grants, and, in the case of successful applicants, on administering and reporting on them.

For successful applicants, this allows us to measure:

  • Net Grant – the money received by a grantee less the value of the time spent applying for and reporting on the grant  (thank you Clara Miller for this concept)
  • Grant Efficiency – net grant as a percentage of grant given.

You can also calculate how efficient the process is for the community as a whole by including the costs for unsuccessful applicants. This allows us to measure:

  • Net Community Funding – my term for the money a funder gives to the community, less the value of the time to apply for funding by both successful and unsuccessful applicants, less the value of the total time spent by successful applicants administering and reporting on the grant.
  • Community Funding Efficiency – Net Community Funding as a percentage of funding provided

Here’s a hypothetical example of these concepts:

The scenario:  You have $100,000 to give away in 10 grants of $10,000 each.

Assumptions: Let’s choose round numbers – assume that 100 organisations apply, they spend an average of 10 hours each applying then another 10 hours reporting on the grant, and the average rate is $50 per hour.

Net grant and grant efficiency for successful applicants:

  • Net Grant is $9,000 (ie $10,000 minus $500 [the cost of applying: 10 hours @$50/hour] minus a further $500 [the cost of reporting: 10 hours @$50/hour])
  • Grant Efficiency is 90%

Net Community Funding and Community Funding Efficiency for all applicants:

  • Net Community Benefit is $45,000 (ie $100,000 minus $50,000 [cost of all applications: 10 hours @$50/hour, 100 applicants] minus $5,000 [the cost of reporting on grant: 10 hours @ $50/hour, 10 grantees]
  • Community Funding Efficiency is 45%

Conclusion: A grant efficiency of 90% is not ideal – but a community funding efficiency of 45% seems to me to be unfair, unreasonable and unnecessary for all involved.  It’s also worth noting that the above scenario doesn’t include the costs incurred by the funder in administering the grants, which arguably reduces the net community benefit still further.  Sadly it is completely possible for particularly complex and competitive funding schemes to have negative grant efficiency.

Of course we can argue the assumptions above.  Furthermore, this situation is not confined to philanthropy – tendering and contract processes in government and the commercial world are similar and often worse.  But however we look at it, the net impact of our funding, once compliance costs are taken into account, can be considerably less than the total amount given.

Put a different way, some of our grant-making practices reduce the very impact we seek to make.

And yet those original goals – accessibility, selecting wisely, understanding impact – remain both valid and important.  Is there a win-win solution that provides the best of both worlds?  If not, how do you balance the seemingly conflicting goals of robust, accessible grant processes and low compliance costs?  While we don’t have any silver bullets, we have been thinking about this issue at Todd Foundation, and I want to explore this further in my next post.

Do you have ideas or examples of how funders can better address this?  Please share them below if so.

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5 Comments

  1. Kia ora, Kate. Thank you for a great post. Your article makes me wonder about all the grantee and funder behaviors, both pre- and post-award, that decrease the effectiveness of a grant. These include our failure or unwillingness to come to agreement with our NGO partners on the proper analysis of a given social problem, on appropriate strategies and tactics, etc. Also, if a funded project starts to fail, are we as funders there as judge and jury, or as partners who understand and can help address the challenges of NGO work? Do we have a clear and shared understanding of the true costs of addressing and fixing a given problem, and the time it will take to do so? Do we make grants in a one-off manner to this or that organization, rather than think in terms of a portfolio of organizations working together towards a shared end? And the list goes on. Each of these deficits, if it is a deficit, incurs some cost.

  2. Hi Kate, I like your approach at calculating the cost of funding. While it is all nominal, it puts a value on how much time it takes, and the cost to the community

    However, I wonder if the information that funders require needs to be reconsidered going forward. For example, IF (and a big if) the charity provides sound annual reporting (including their up-to-date auditied / reviewed financial statements) and does a good job of celebrating / sharing their non-financial performance (which the new Charities Services Annual Reports seek to ensure), perhaps there is hope that less time may be spent on writing the funding application, and more time accounting for the impact that their funding has made. Perhaps.. 🙂

  3. Thanks for the excellent comments – great food for thought.

    Scott – you raise a really good question. A question which has gone round the traps a bit is the ‘why can’t funders have a common application form?’ It’s never got very far but maybe now with DIA charities we could at least recommend some standardisation based on what should be sourced from the register rather than asking for info to be repeated. It would be a good topic to workshop.

    Albert – your comment about “judge and jury” is very apt. And because this is what we so often are, we invite the “marketing spin” in what gets reported…

  4. Kia ora, Kate–A terrific post…and I would only add that funders who identify as grantmakers need to remember that if the answer to a grant application is “no” the net grant is always a negative number!

    At Heron we have stopped all customized reporting (including all reporting on grants per se) and instead collect relevant annual reports/financials from all investees (nonprofit, for-profit, coop, public company, private company, government, etc.), interacting at the enterprise level.

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