How Nonprofits Can Maximize Impact With Limited Budgets
Before the COVID-19 pandemic, nonprofit organizations across the U.S. were already stretching relatively small budgets to address chronic issues, such as homelessness, relationship abuse and financial exploitation. Now, many nonprofits have closed their doors for health and safety reasons. Those left standing face even greater demand for services in mental health, employment assistance, financial education, health care, pharmaceutical delivery and other areas affected by stay-at-home orders and unprecedented unemployment. All of this, as budgets are likely to shrink even further from the rapid economic slowdown.
Driven by their missions to serve and the magnitude of these problems, many nonprofits will try to help any and all clients who call on them. They may also offer a broad variety of services to address the gamut of client needs. But should they? Our model-based investigation into the design of nonprofit services suggests that nonprofits with limited budgets can create greater social impact by focusing on a few key services.
A Unique Challenge
Nonprofits that offer services to distressed clients face an additional, unique challenge: Clients regularly choose to receive a service that does not address the true causes of their distress. For instance, consider nonprofits that serve victims of domestic violence and abuse, such as Daya (Houston), Raksha (Atlanta) and Sakhi (New York City). These organizations predominantly serve immigrant women who have fewer legal options as abuse victims. During early interactions, clients are unsure of the nature of different services offered by these organizations and even the true nature of their own predicament. Not surprisingly, many clients choose services that are mismatched for their needs, resulting in a costly mid-course correction.
Nonprofits that help homeless clients — such as Georgia Works and First Step — encounter a similar problem. A homeless client may choose a job-training service or apply for disability assistance with the organization’s help. However, it may take months before it comes to light that the client does not have access to medical records or proof of education, or has a suspended driver’s license. Again, it’s surprisingly easy for a client to seek and obtain an unsuitable service, which compounds the effects of a constrained operating budget.
Many of these nonprofits employ a “deep intake” approach when a client enters their system. This involves a rigorous combination of questionnaires, interviews and behavioral tests, all of which offer the client an opportunity to assess the fit between their needs and the different services offered by the nonprofit. While these advisory efforts can reduce mismatches, providing guidance of this sort can consume weeks of valuable staff time even before offering any services. Thus, finding the right balance of guidance and service offerings is key to successful service design.
A Balanced Solution for Impact
We’ve been studying this problem over the last several years through our partnerships with Daya, Georgia Works and other similar nonprofits. When it comes to designing an “optimal” service portfolio, there are two key decisions any nonprofit should make: (1) What is the right combination of services to offer? And (2) how to allocate limited resources on different client-facing activities?
While all nonprofits share a common goal of maximizing social impact (by using quantifiable indicators), in practice, many nonprofits focus on output instead of impact. While output metrics are certainly important, they don't measure the real success of an organization in achieving its mission. We formalized an impact-focused objective for nonprofits that serve distressed individuals by considering quantifiable indicators, such as the number of clients served to resolution and time to resolution. In the context of domestic abuse, we found that an impact-focused nonprofit that has a budget of about $50,000 per month can generate at least 15% higher social impact than an output-focused nonprofit of the same size. An impact-focused nonprofit can also help those clients who receive services to reach their long-term resolution at least 19% faster than an output-focused nonprofit.
We understand that each nonprofit is different in terms of their budgets, the needs of their clientele and the areas of core competence in service delivery. Our framework allows nonprofits to calibrate and identify their optimal service portfolio. Plus, our analysis has revealed three rules of thumb nonprofits should consider in designing their service portfolio.
3 Rules of Service Design for Nonprofits
1. When funding is low, less is more.
Nonprofits can generate more social impact by offering a smaller subset of services. This is not a comfortable thought for mission-driven nonprofits that don’t want to turn away a client in trouble. However, it’s important to recognize that to help clients achieve resolution promptly and permanently, it is vital to focus on a few services.
2. With more funding, invest in guidance.
When more funds are available, the first investment should be in providing guidance to clients about the appropriate services rather than increasing the breadth of offered services.
3. Earmarked funding can reduce the impact of guidance.
Many benefactors offer funding for only certain types of services (or clients). While these funds are better than none at all, earmarking can affect the value of providing guidance to clients. Specifically, with a high level of earmarked funds, nonprofits can generate more social impact by offering a larger subset of services while investing less in providing guidance to clients in choosing services.
A research brief of the paper is available for download from the Ray C. Anderson Center for Sustainable Business at the Georgia Tech Scheller College of Business. The research paper, written in collaboration with Priyank Arora from University of Massachusetts Amherst is also available online for anyone who wants to dive deep into how the model represents key decisions of nonprofits and learn about implementation details.
Morvarid Rahmani is an assistant professor of operations management and an affiliate faculty of the Ray C. Anderson Center for Sustainable Business at the Scheller College of Business, Georgia Institute of Technology. Her research focus is on innovation and social sustainability.
Karthik Ramachandran is an associate professor of operations management and an affiliate faculty of the Ray C. Anderson Center for Sustainable Business at the Scheller College of Business, Georgia Institute of Technology. His research focus is on product and service design.