Quotation Burkart, Christian, Wakolbinger, Tina, Toyasaki, Fuminori. 2018. Funds allocation in NPOs: the role of administrative cost ratios. Central European Journal of Operations Research, 26, (3), 307-330.


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Abstract

Performance measurement of Non-Profit Organizations (NPOs) is of increasing importance for aid agencies, policy-makers and donors. A widely used benchmark for measuring the efficiency of NPOs is the overhead cost ratio, consisting of the total money spent on administration and fundraising relative to the budget. Donors generally favor a lower overhead cost ratio as it ensures that more money directly reaches beneficiaries. Unlike fundraising expenses, administrative costs do not contribute to advertising the actions of an NPO even though they account for a significant proportion of overhead cost. Reducing administrative expenses is a logical consequence from a financial viewpoint, but might negatively affect NPOs through the resulting administrative capacities. This phenomenon is known as “Nonprofit Starvation Cycle”. This work provides an analytical framework for analyzing NPO decision making concerning administrative costs. The paper provides answers to important research questions on the optimal level of administrative spending, the influencing factors and the effects of available information on NPOs. The research shows that focusing on financial performance measurements can result in reduced utility created for NPOs. Less transparency often leads to increased utility for NPOs, but more transparency can increase NPOs’ utility if the information available exceeds a certain threshold. Fluctuating donations are challenging for NPOs’ planning and may impact administrative capacities negatively.

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Publication's profile

Status of publication Published
Affiliation WU
Type of publication Journal article
Journal Central European Journal of Operations Research
Citation Index SCI
WU-Journal-Rating new STRAT-C
Language English
Title Funds allocation in NPOs: the role of administrative cost ratios
Volume 26
Number 3
Year 2018
Page from 307
Page to 330
Reviewed? Y
DOI https://doi.org/10.1007/s10100-017-0512-9
Open Access Y
Open Access Link https://link.springer.com/article/10.1007%2Fs10100-017-0512-9

Associations

People
Burkart, Christian (Details)
Wakolbinger, Tina (Details)
External
Toyasaki, Fuminori (York University, Canada)
Organization
Institute for Transport and Logistics Management (Details)
Research Institute for Supply Chain Management FI (Details)
Competence Center for Sustainability Transformation and Responsibility WE (Details)
Research areas (ÖSTAT Classification 'Statistik Austria')
1121 Operations research (Details)
5300 Economics (Details)
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