To make resource‐related decisions in a way that maximizes an organization's effectiveness and promotes its mission, nonprofit leaders need to have a clear picture of the full costs of operating their programs and services.
The authors studied individual nonprofits and confirmed their findings by interviewing their executives.
While most nonprofits have a good understanding of the direct costs incurred by their programs, many don't account for indirect costs. Full cost data can provide invaluable input to decisions about how to allocate resources among programs, whether to expand into a new location, and what level of funding is required to sustain the organization's operations.
Larger studies are needed to confirm whether nonprofit executives conclude that investing in more accurate cost accounting provides a substantial payoff.
Resource‐allocation decisions based on accurate cost data present nonprofit executives with their best opportunity to concentrate resources on activities that will effectively achieve their organizations’ goals.
Corporate executives who volunteer to help nonprofits need to be aware that the financial data needed for strategic decision making often isn't available. Moreover the culture of the nonprofit sector resists adopting accounting systems that measure true costs.
