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Real Cost Project: Barriers to Change

"Real Cost Project: Barriers to Change“ is a new report issued by the Real Cost Project, finds deeply ingrained practices, beliefs and perceptions in the philanthropic community that are preventing the adoption real cost funding practices. The report reveals a pervasive culture and mindset where “Overhead is Bad". The challenge is exacerbated by a lack of a shared language or common definitions around overhead and full costs as well as a lack of open and transparent conversations between funders and nonprofits.

The report calls for funders to examine their own grantmaking practices and policies regarding funding indirect costs, and for funders to engage in conversations with their grantees around what it really costs to deliver great outcomes.

In June 2015, the Real Cost Project held Regional Forums across the state of California to understand the barriers that were stopping grantmakers from adopting new practices that reflect the current needs of the social sector.

Representatives from more than 150 different foundations as well as government agencies and individual philanthropists participated in the Regional Forums. A new report, “Real Cost Project: Barriers to Change“, reveals common themes that surfaced from these forums and reflects the issues that participants viewed as the most relevant and urgent. Simultaneously, partners at California Association of Nonprofits (CalNonprofits) held similar forums with nonprofit audiences around the state and a summary of these findings are included in the appendix.

A summary of the findings and recommendations from these forums, can be downloaded here. Below are the major conclusions and recommended next steps:

The research conducted prior to the Regional Forums clearly highlighted that the issue of adapting grantmaking practices was more of a cultural issue than an institutional policy issue. And that there was a need to change the cultural norms and practices in the field. In listening to the field and engaging grantmakers through the Regional Forums, there was a strong belief that to change the culture of philanthropy, the sector would need to achieve two objectives:

  • Executive Buy in

Simply, change happens at the top.

In order for lasting and impactful change to occur in funding methods, executives and boards of trustees must fully understand the issues and be prepared to implement changes. There was strong agreement that this change could not be driven from the program officer level and that before program staff were trained or engaged with their grantees around real cost, it was essential that their organizational leadership were prepared to support change.

To that end, the Real Cost Project will be organizing a series of Leadership Briefings focused on Presidents and CEOs, senior foundation leaders, and Trustees with the goal to educate senior leadership on the changes in the socials sector that are driving changes to grantmaking practices; how a real cost funding approach helps to increase impact and outcomes; and why funders need to engage their grantees in open and transparent conversations about what does it really cost to achieve outcomes.

  • Engaging Grantees in a Real Cost Conversation

Before changing grantmaking practices, grantmakers need to examine their current practices – both formal and informal – and to engage in conversations with their grantees as to what does it really take for them to achieve their outcomes and how the funder’s grantmaking practices are helping or hindering the achievement of outcomes. Then once funders have an understanding of how their current practices are impacting their grantees, they can make the appropriate changes to their practices. That may mean increasing the percentage of indirect costs their grants cover, or moving to providing general operating support, or it may mean changes to the grant application or reporting requirements.