(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.