Although nonprofits generally have a good understanding of their revenues, knowledge about costs can sometimes be less robust. This is particularly the case when it comes to the true, complete cost of providing services, running programs and otherwise operating the organization.
Lacking this information, nonprofit executives often must make important resource-related decisions on the basis of intangibles such as intuition, the skills and knowledge of the program staff, or the preferences and inclinations of the organization’s funders. As a result, they run the risk of undermining their organization’s mission (however inadvertently) by failing to allocate resources to the most appropriate programs and services.
Given the limited resources available to nonprofits (especially during financially challenging times), gaining economic clarity around costs is critical to inform key strategic decisions. However, this process of understanding the true costs of each program area can seem somewhat complex for anyone conducting an analysis for the first time.
For more, check out Nonprofit Cost Analysis: Introduction from the Bridgespan Group. Look at questions, such as:
- What is true cost analysis?
- Who should use cost analysis?
- How do you actually do it?