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10 Great Social Innovation Reads: August 2013

relaxed_reading_by_ouzo_portokali-d2zbw08It becomes increasingly obvious to me the longer I am in this space that philanthropy must change just as much, if not more, than nonprofits. And perhaps change is on the horizon, particularly with some key debates happening in the philanthropic world lately.

The biggest of which this month was the showdown between Bill Schambra and Paul Brest (among others) about whether philanthropy should be “strategic.” Add to that the on-going discussion Peter Buffett started last month about philanthropy as “conscience laundering,” and the growing drum beat against the nonprofit overhead ratio, and August was a mind-opening (I hope) month in the world of social innovation.

Below is my list of the 10 best reads in the world of social innovation in August. But please add to the list in the comments.

And you can see an expanded list by following me on Twitter, Facebook, LinkedIn, or Google+.

As always, the 10 Great Reads lists from past months are here.

  1. First up, Crystal Hayling offers some great advice for new philanthropists, but I would say her advice translates to experienced philanthropists as well. If we want to get better at solving social problems, we have to raise the bar on philanthropy.

  2. The big debate this month was about how “strategic” philanthropy should be, whether the best philanthropy comes from a community or scientific approach. Bill Schambra, from the Hudson Institute, and Hewlett folk Paul Brest and Larry Kramer went back and forth and back, and of course others chimed in. For me, the most thoughtful response was from  Scott Walter. It was an interesting debate, but I think at the end of the day they are saying roughly the same thing, with which I heartily agree, philanthropy has to get better at actually solving problems.

  3. As I mentioned last month, Peter Buffett wrote a highly provocative rant against philanthropy in July. And this month the debate raged on with some very interesting counterpoints from nonprofit leader Dan Cardinali here and from Nandita Batheja on the Idealist blog here. Buffett’s piece is certainly doing what any good writing should, provoking people to question their assumptions and think in new ways, even if they don’t fully agree.

  4. Adding to his growing opus, Bill Shore again argues that nonprofits must get bolder in their social change goals. This time Darell Hammond from KaBOOM! and Amy Celep from Community Wealth Partners join in.  But Phil Buchanan at the Center for Effective Philathropy doesn’t heartily agree.

  5. More and more data points to the fact that women are becoming a major philanthropic force. It will be interesting to see how they change the face of philanthropy as we know it.

  6. It’s always important to get a different perspective, and Brian Mittendorf at the Counting Charity blog provides a really interesting counterpoint analysis to recent concerns about the Clinton Foundation’s financial management.

  7. I have to admit it, I LOVE a good contrarian, and Arik Hesseldahl is one this month with his great post suggesting that there may be too much hype around Big Data (the idea that the enormous amount of data now available could yield tremendous improvements to the world as we know it). Although he is talking about Big Data’s promise for business and government, there is an equal amount of hype around what Big Data can do to solve social problems. As with everything, there is no magic bullet, so we would do well to understand Big Data’s limitations.

  8. There is much work to be done bringing the “old” world of philanthropy together with the “new” world of impact investing, so I love to see the two at work together, like Nonprofit Finance Fund’s new project helping the Maine Community Foundation launch an impact investing program.

  9. And then there was something completely different. If we are to ensure that the next generation cares as much, if not more, about fixing social issues, we must raise compassionate children, which gets harder to do in an increasingly segmented society. Perla Ni offers 5 ways to Raise a Compassionate Child In the Age of Entitlement.

  10. And lest we forget why we do this social change work, April Greene from Idealist reminds us.

Photo credit: ouzo-portokali

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What’s the Cost of Bad Decisions?

Hand flipping a coin

Note: This post originally appeared on the Social Entrepreneurship blog last year.

There is an economic concept that is beautifully profound in its simplicity, but often overlooked in the nonprofit sector. Opportunity costs are the cost (financial, time, resource, other) of what you have given up in making a choice between two or more options. Understanding the opportunity costs of decisions is particularly important when resources are scarce, as is the case in the nonprofit sector.

Key to the concept of opportunity costs is that you are consciously analyzing two or more options and what you must give up in choosing one over the others.  So, for example, a child who has to decide if they want a candy bar or an ice cream cone recognizes that in choosing the candy bar they are giving up the enjoyment of the ice cream cone. It seems so simple, yet in the nonprofit world it becomes much more complex.

Because the nonprofit sector is undercapitalized, money is king. A driving motivation in many nonprofit organizations is to preserve money, or go after money, at all costs.  So the idea of opportunity costs is often thrown out the window.

Say, for example, that a nonprofit leader is deciding whether to spend $45,000 to hire a grant writer or $75,000 to hire a Development Director.  The tendency would be to hire the grantwriter because they are cheaper, because in the world of nonprofits, cheaper is always better.

But let’s look at the opportunity costs.  In hiring a grantwriter, the nonprofit would save $30,000, but lose many times that amount in opportunity costs. If they had hired a skilled Development Director with experience raising money from sources beyond foundations (individuals, corporations, earned income), the difference in revenue brought in under the grantwriter versus under the Development Director could be in the hundreds of thousands.  In choosing the “cheaper” grantwriter, the nonprofit is actually costing the organization a huge amount–the opportunity cost.

Nonprofits are sometimes so strapped for money that they head out the door with a fundraising ask trying to get the quickest money, instead of the most money. Take Idealist’s campaign earlier this year to raise emergency funds for the nonprofit job board. They raised some good money, but what if they had waited to launch a fundraising campaign until after they put a new business plan together? With a solid, innovative plan in hand for completely revamping a struggling organization, they probably could have raised 10 times the amount they did raise. So for them the opportunity costs of not waiting to go public with an ask was potentially huge.

But the calculation of opportunity costs goes well beyond money. The value of a board member’s time in a nonprofit is huge. A good board member has the potential to forge relationships with funders, partners, governing entities and others that could grow or strengthen the work of the nonprofit. But often a board member’s time is instead used to organize fundraising events, sit in endless meetings, review mindless policies. If a nonprofit were to calculate the opportunity cost of choosing to have a board member pick out tablecloth colors for the next event (trust me, it happens) versus having them use that time to introduce the Executive Director to a new potential donor, the costs would be eye-opening.  A board member’s time, just like the money flowing to the organization, is not limitless.

Nonprofits cannot ignore opportunity costs, as if they don’t apply in their resource-strapped world.  Indeed, because nonprofits are so constrained for resources (money, time, staff, volunteers) they should be even more cognizant of opportunity costs and ensure that every last resource is put to its highest and best use.

Photo Credit: Freddy The Boy

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