Full Cost: History
Despite the resourcefulness of sector leaders and the generous intentions of the funding community, the data show that organizations, no matter how well managed, frequently lack the resources to cover the full cost of running their organizations. According to NFF’s 2018 State of the Nonprofit Sector Survey, two-thirds of nonprofits struggle to offer competitive pay, half are operating with three months of cash on hand or less, and 86% are anticipating demand for their services will increase. The data shows these same dynamics have been plaguing the sector since NFF began the State of the Nonprofit Sector Survey in 2009, and we know from our ongoing work in the field that the challenges started long before then.
Recognizing these dynamics, and the urgency of addressing issues of equity in finance, NFF reinstated its longstanding campaign for full cost funding beginning in 2014:
The Impetus: A critical window of opportunity to achieve real change in full cost funding practice opened in 2014 when, at the Federal level, new standards for indirect cost recovery were established by the OMB Uniform Guidance Super Circular. NFF sharpened and expanded the full cost content and messaging that has been at the heart of our work for thirty years.
Pilot: In 2015 and 2016, NFF partnered with the California Community Foundation, the Weingart Foundation, and 12 Los Angeles-area nonprofit organizations to pilot an initiative to enable nonprofit and foundation leaders to explore the concept of full cost together. The community research firm Harder+Company evaluated the pilot program and found that participants were overwhelmingly positive about the experience. Funders came away understanding how resources can be responsibly and strategically invested to cover full costs, while nonprofits came away understanding how to ask for what is necessary to achieve their missions.
"As a result of the training, I have been reminded to not shy away from presenting the full cost to projects and having the necessary discussion with funders about how to adequately fund our needs. As a result, we have worked to more accurately budget for the full cost as opposed to simply letting some overhead slide." – Nonprofit participant
Publication: In early 2016, Nonprofit Quarterly (NPQ) published a groundbreaking article by Claire Knowlton, Director, NFF Advisory Services titled “Why Funding Overhead Is Not the Real Issue: The Case to Cover Full Costs,” laying out the argument for the importance of full cost funding on a national platform.
Funder Efforts in California: In 2015 and 2016, Philanthropy California (an alliance of Northern California Grantmakers, Southern California Grantmakers, and San Diego Grantmakers) launched a joint statewide initiative to increase the impact of philanthropy across California. This learning project sought to answer the question “What will it take for grant makers to change their grantmaking practices to support a real cost funding approach?” The project convened member organization staff and executives to discuss barriers and opportunities to funding real costs.
"[The training has] given me a broader picture of all the underlying costs to effectively run a nonprofit, some of which are ‘invisible’ (such as sweat equity) and not obvious or commonly known." – Funder participant.
Full Cost Project Launch: In 2017 and 2018, NFF and Philanthropy California joined forces for our second phase of work – renamed the Full Cost Project – and incorporated the insights and guidance we garnered in our early phases of work to build a movement for change. In partnership, we convened a series of highly successful trainings across California that brought together nonprofits and funders to learn as peers, build skills to conceptualize and quantify the full cost of achieving outcomes, and begin making change to how we understand and communicate with one another.
The Harder+Company evaluation of the work showed 94 percent of nonprofit and 93 percent of funder participants had increased their skills and knowledge about full cost, and strong majorities of both groups brought learnings back to their organizations to create change. As a result of attending a single full cost training, participants were taking action: 56% of funders were reviewing or planning to review internal grantmaking policies and practices to make improvements using the full cost approach and 79% of nonprofits were shifting or planning to shift organizational practices, such as budgeting and fundraising, to incorporate a full cost approach. Respondents to the evaluation filled open comment boxes with 23 pages of praise, ideas, and recommendations for the next phase of work.
"I am incorporating many of the materials in our internal training. I regularly use the term ‘unfunded expenses’ with program staff and grantees. I keep the pie chart and supporting charts on my desk and often use them as reference materials for grantees and staff." – Funder participant