Full Cost: Equity

Full Cost: Equity

Through our work to date with both nonprofits and funders, we have found that full cost is a powerful tool to address resource disparities and advance equity. Full cost takes a holistic, contextualized view to understand needs in an organization, and orients funding decisions around long-term outcomes instead of current organizational structure, which is often shaped by the very disparities we seek to address.

Full cost acknowledges the needs of each organization are different and change over time.

NFF’s 40 years of lending to and consulting with nonprofits has taught us that every nonprofit operates with unique conditions that directly influence its full cost needs and ability to cover them. The conditions are often shaped by past and present practices that extract wealth from communities of color to enrich white communities. The fact that our society remains segregated by race and class, and that giving tends to follow existing network lines, means those of conscience must actively work against the tide to correct for these injustices. Full cost provides a framework through which differences in the size, nature, and urgency of organizational need can be understood through a systemic lens and addressed to achieve equity.

Full cost requires we think long-term.

In our personal lives, we would quickly dismiss a financial advisor who recommends, “Spend every penny of your paycheck, leave nothing in your bank account at the end of the year.” We know that the well-being of our families requires a safety net for emergencies and long-term planning, for example, to move to a bigger house as the family grows or pay for college tuition. Yet common philanthropic practices often mirror the advice of the dismissed financial advisor. The full cost approach includes the fact that nonprofits require a safety-net and long-term planning if they are ever expected to make progress on the entrenched challenges of our society.

Full cost accounts for the limitations of existing data.

We know that nonprofits, particularly small, grass-roots organizations operating in communities of color, have developed strategies for continuing their work in the absence of equitable access to traditional sources of financial capital. These strategies include leveraging their social capital to bring in volunteer support and using their intellectual capital to implement clever workarounds. The limits on their financial capital often mean staff are critically underpaid, work long hours, and have low or no benefits. These costs, carried by staff and the community in the absence of adequate funding, do not appear on any financial statements. Yet they are real and impact the efficiency and effectiveness of the organization. The concept of unfunded expenses, part of the full cost framework, names and claims these hidden costs – the gap between current wages and fair wages, what it would take to offer health care to employees, the upgrade to high-speed internet – so they can become part of the data set on the organization’s full cost needs.

Full cost moves power from foundations to nonprofits.

Rigid funding frameworks are often driven by fear – fear that the nonprofit won’t do what they said they would do, fear that spending won’t be effective, fear that funds will be misused. To mitigate these fears, funders put in place control mechanisms that remove decision-making authority from the nonprofit. In this relationship, the foundation acts as a parent and the nonprofit as a child. Full cost shifts the relationship between nonprofits and funders to one of partnership. It allows nonprofit leaders to manage finances using meaningful data, and gives them the flexibility to use their own judgement about the highest and best use of dollars to meet community need. Nonprofits are accountable for the outputs (and in an ideal world, outcomes) they have agreed to.