Sustainable NGOs: A Director’s Guide 2

leadership ngos sustainability
Monday, 7 August, 2006 - 13:00

Part 2 – Getting the Sustainability You Want

Directors want to know what sustainability is, how to measure it, and who does what to get it. This article offers the shortest, clearest and simplest explanation of its mathematics and management possible today.

Errol Goetsch's second article informs you about everything you need to know to measure, monitor and manage sustainability follows below.

Errol Goetsch’s Director’s Guide to SEXI NGO’s (Sustainable, Excellent and Impactful)

Understanding sustainability:

It’s a number!

Ever looked at labels on food? Sometimes they list their ingredients as a % of a child’s or adult’s “RDA”. This reminds us that we humans (like all organisms) have a required daily allowance of proteins, carbohydrates (some would add chocolate) etc. and also air, water etc. to live. Equally, NGO’s (like all organisations) have a required daily allowance of people and assets and work – measured in the money they cost. Sustainability is a score: the % of money we earn of the money we need for people, assets and work.

It’s a fortune teller!

High sustainability means you can do more now (i.e. succeed) and live longer later (i.e. survive). The less you get of the money you need, the weaker you are and the sooner you die. Your score tells your fortune.

It’s a reward!

The six numbers that decide Sustainability test strategy (how much you earn) and operations (how much you spend). You need to grow and balance both. Sustainability is your reward for good governance.

It’s emotional!

Yes, sustainability is measured by money, but is won through three emotions in donor hearts: RESPECT (= lots of money), LOYALTY (= money for a long time) and TRUST (= untied money for overheads).

three numbers: covering how much money you need to earn to achieve your mission (% of vision to achieve this year): three numbers: covering how much money you need to spend to achieve your mission (% of vision to achieve this year):
A. From new (first-time) donors B. To new work (new projects, staff, assets, support)
C. From old (repeat) donors D. To old work (existing projects, staff, assets, support)
E. For overheads (i.e. not tied to projects) F. For head-office support for projects
Get the info from Strategic Plan – your targets for the year – and Funding Proposal (your mix of Project Plan and Budget) Get the info from your Operations Plan (the combination of your Project Plan(s) – your people at work - and Budget(s) – your money at work)
The 6 numbers are processed in the following way: Income HAVE New   Old Income   Free    
A
X
C
X
E
=
Sustainability
Income NEED B D F Score %
New   Old   Overheads    

Follow this example! In 2005, an NGO had the following income and financial needs:

A. New Income 200,000 Money from a first-time donor New Income (i.e. Respect)
B. New Income 400,000 Money for new projects or organisational overheads
C. Old income earned 600,000   Old Income (i.e. Loyalty)
D. Old income 1,200,000 Money for established projects and organisational overhead
E. Untied income 300,000 Money free of restrictions .i.e. can be spent on organisation Untied Income (i.e. Trust)
F. Untied money 600,000 Money needed by organisation outside of what needed for
  Respect   Loyalty   Trust    
Income 200,000
X
600,000
X
300,000
=
Sustainability
Income NEED 400,000 1,200,000 600,000 Score %
50%   50%   50%   12.5%

It’s not the project!

Donors wanting NGO projects to be sustainable are confusing the project with the head office. NGO projects don’t earn money, are NEVER sustainable and don’t need to be. NGO head offices earn the money, ALWAYS need to be sustainable, and often aren’t. Train donors to pay the head office to run the project, not pay the project and bypass the head office. Does your donor know this? Send this article to check.

Measuring sustainability:

It’s easy!

You can measure your sustainability without consultants or financial wizards. You need 6 numbers.

Do the math!

As long as every score is 100percent, the NGO is sustainable. As soon as scores dip below 100 percent, sustainability quickly falls to 0 percent This NGO scored 50 percent, three times – but 12.5 percent is only 1/8th what it needs to be. This may shock those of us who muddle along. Doing everything half as well as should is disastrous! This is because work is a sequence of events where everything afterwards depends on how well things went before. Scores are multiplied, not added, together because results are the product, not the average, of our work.

New X Old X Untied = Sustainability  
100%   100%   100%   100%
90%   90%   90%   72.9%
80%   80%   80%   51.2%
70%   70%   70%   34.3%
60%   60%   60%   21.6%
50%   50%   50%   12.5%
40%   40%   40%   6.4%
30%   30%   30%   2.7%
20%   20%   20%   0.8%
10%   10%   10%   0.1%
0%   0%   0%   0.0%

Want explanation?

Let us say that we have two evenly matched soccer teams, Team one and Team two. Let us imagine that in a normal game, they would end on a score of 4 – 4. Consider what happens if Team one decides to play with

  • 50% of its players i.e. six, not eleven (so Team two has five extra players)
  • 50% of the time i.e. for the first half, not the second (so Team two has 45 minutes unopposed)
  • 50% of its game plan i.e. it defends or attacks, but never defends and attacks (giving team two a free run)

With these limitations, will the end score still be 4 – 4? Of course not! Team 1 will struggle to score as many as 4 and Team 2 will struggle to score as few as 4. In fact, as Team 1 gets comparatively weaker, Team two gets comparatively stronger, so if Team 1 scores only half, Team 2 can score double, and the end score becomes 2 – 8. If Team 1 scores one quarter as much, Team 2 can score 4 times as much, so the end score becomes 1 - 16. The gap between Team scores grows geometrically. This shows how the opportunity cost of doings things badly (or not at all) escalates if unchecked. NGO’s must do all its work to get a score, and do all the tasks well to get a good score, because missing or messing a task introduces a 0 or near-zero, and the NGO can fall apart.

Take an example!

Is LoveLife sustainable? No. Sustainability requires enough new money, enough old money and enough untied money. LoveLife has old money coming in (from past donors on contract), but no money (no new donors) and no untied money (everything is tied to projects). Even if it gets all the old money it needs now (100% loyalty), no respect or trust gives a score of 0% x 100% x 0% = 0%. Not the time to send your CV.

Managing sustainability:

Manage Sustainability all the time!

Use the year-start strategic planning session to set the targets for sustainability. Use the operational year to achieve sustainability. Use year-end to celebrate sustainability.

Use all your people!

No one person has the job of winning sustainability – it is a team effort of 6 different jobs for your Board, staff and 4 managers:

Tips for Directors:

  • The Board - Raise Targets! Sustainability involves earning lots of money to survive and spending lots of money to succeed. A good Board sets high targets for what the NGO’s managers will earn and spend;
  • The Staff -  Raise Actuals! Sustainability involves good governance – both setting high goals and reaching them. A good workforce does the marketing work to earn big and the operational work to spend well;
  • Marketing Manager -  Build Respect! Getting new donors depends on Respect. Make new big promises that inspire new donors to be generous. Feeding 1000 children is 100x more respectable (gets 100x more money) than 10;
  • Operations Manager - Build Loyalty! Keeping old donors depends on Loyalty. Keep the promises you made to donors and they will stay. Report and prove to donors you fed the 1000. They’ll extend their funding cycle;
  • HR Manager -  Build Trust! Untied money depends on donors trusting you. Trust is the % of the promises that Operations keeps of the promises Marketing made. Get HR to only hire people who can make big promises and only hire people who can keep them. Keep those promises and donors will relax their restrictions and free you to spend as you see fit i.e. spend money on overheads. HR;
  • Finance Manager -  Keep Score! Marketing, Operations and HR build sustainability, but Finance sees what’s entering and exiting the bank. Get Finance to record money as old or new, and report if overheads are met, and where Marketing, Operations and HR spends the money. Count on Finance to count.tself committing them to their jobs above. Get answers monthly on the numbers and what they say of the managers and mean for year-end.

Worried about the maths? Get the automatic spreadsheet for this from Errol Goetsch at errol@xe4.org and the XE4 Foundation at www.xe4.org.

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