1. Introduction The nonprofit corporation exists solely to provide programs and services that are of public benefit. Often these programs and services are not otherwise provided by local, state, or federal entities. While they are able to earn a profit, more accurately called a surplus; such earnings must be retained by the organization for its future provision of programs and services. Earnings may not benefit individuals or stake-holders. Underlying many effective nonprofit endeavors is a commitment to management.
Twenty years ago, the term “management” was distasteful to many of those involved in nonprofit organizations because of its connotations of “business. ” Non-profits prided themselves on being free of the taint of commercialism and undue consideration of the bottom line. Now a consensus has developed within the nonprofit sector that nonprofits need management as much as for-profit enterprises. The nonprofits are, of course still dedicated to “doing good. ” But they also realize that good intentions are no substitute for organization and leadership, for accountability, performance, and results.
Those require management and that, in turn, begins with the organization’s mission. 1. 1 Origin of the report: The report prepared on “Non profit organizations: Basic overview” was a individual work given by our course instructor Mr. Golam Mohammad Forkan. It is in the course of marketing management (MKT 453) as a part of the syllabus. I have asked to submit this report by May 21, 2009. 1. 2 Purpose The main objective of the report is to analyze the basic over view of a nonprofit organization, its characteristics, nature etc. 1. 3 Limitation:
I have approached to internet, some journals newspaper etc. for information. Still some information could not be achieved which could have enhanced the report. The most important draw back of mine was time. 1. 4 Methodology Basically this report is based on secondary data. I have to depend on internet, some newspapers, journals, text book. I have also followed which learned in the class about non profit organizations. 2. 0 What is a “Nonprofit”? The word “nonprofit” refers to a type of business — one which is organized under rules that prohibit the distribution of profits to owners. Profit” in this context is a relatively technical accounting term, related to but not identical with the notion of a surplus of revenues over expenditures. Most registered nonprofits businesses are organized into corporations or associations. Most corporations are formed under the corporation’s laws of a particular state. Every state has provisions for forming nonprofit corporations; some permit other forms, such as unincorporated associations, trusts, etc. , which may operate as nonprofit businesses on slightly (but sometimes importantly) different terms.
Nonprofit attribute should be (1) Serving charitable, religious, scientific or educational purposes (2) No part of the income of which “inures to the benefit of” anyone. 3. 0 Key Roles of a nonprofit organization • Clients – Everything in a nonprofit is ultimately directed to serving clients. Clients are the “consumers” or “customers” of the nonprofit’s services. Note that services can be in the form of tangible or intangible products. • Board – The board is comprised of individuals from the community and, ideally, is representative of the organizations clients.
Law and theory dictate that the board is in charge, and directly accountable for the overall direction and policies of the organization. Powers are given to the board by the Articles of Incorporation (or other governing document, for example, Articles of Association, Constitution, etc. ). The board can configure the nonprofit in whatever structure it prefers to meet the organization’s mission and usually does so via specifications in bylaws. Members of nonprofit boards are generally motivated by a desire to serve the community and the personal satisfaction of volunteering.
Nonprofit board members may not receive monetary compensation for serving on the board. See the library topic Boards for description of the overall responsibilities of a board, key board roles, how meetings are carried out, etc. • Board Chair – A board chair’s role is central to coordinating the work of the board, executive director and committees. The chair’s role may have appointive power for committees, depending on what is specified about this role in the bylaws. The power of the board chair is usually through persuasion and general leadership.
See the topic Board Chair for an overview of the board chair role. • Committees – Typically, the board chooses to carry out its operations using a variety of board committees. The topic Description of Typical Committees for a description of typical board committees. • Executive Director – The board typically chooses to have this one person who is ultimately responsible to carry out the wishes of the board. The executive director is directly accountable for the work of the staff and supports the work of the board committees. Staff – Staff report to the executive director and may support the work of the committees. • Volunteers – Volunteers are unpaid personnel who assist staff, serve on committees and generally work under the direction of the executive director. Three Major Aspects of Nonprofit Structure Typically, the nonprofit operations are organized into major functions. These functions usually include central administration and programs. • Governance – The governance function of a nonprofit is responsible to provide overall strategic direction, guidance and controls. Often the term “governance” refers to board matters.
However, many people are coming to consider governance as a function carried out by the board and top management. Effective of governance depends to a great extent on the working relationship between board and top management. • Programs – Typically, nonprofits work from their overall mission, or purpose, to identify a few basic service goals which must be reached to accomplish their mission. Resources are organized into programs to reach each goal. It often helps to think of programs in terms of inputs, process, outputs and outcomes. Inputs are the various resources needed to run the program, e. . , money, facilities, clients, program staff, etc. The process is how the program is carried out, e. g. , clients are counseled, children are cared for, art is created, association members are supported, etc. The outputs are the units of service, e. g. , number of clients counseled, children cared for, artistic pieces produced, or members in the association. Outcomes are the impacts on the clients receiving services, e. g. , increased mental health, safe and secure development, richer artistic appreciation and perspectives in life, increased effectiveness among members, etc. Central administration – Central administration is the staff and facilities that are common to running all programs. This usually includes at least the executive director and office personnel. Nonprofits usually strive to keep costs of central administration low in proportion to costs to run programs. Characteristics of Non-profit Organization There are eight characteristics. It is our belief that enhanced awareness of these distinct characteristics will help boards and consultants to work more effectively in nonprofit organizations. 1. Passion for mission
The passion for mission is a great source of strength for nonprofit organizations. The institutionalized impulse to “change the world” has brought about much important advancement in American society. As strength, the passion for mission taps incredible creativity, energy and dedication for the work of an organization. However, zeal for the mission can lead staff board and volunteers to discount “business” realities, to turn strategic differences into interpersonal conflict, and to work with an urgency that borders on a crisis mentality. 2.
Atmosphere of “scarcity” There are factual and perceptual components to scarcity in nonprofits. Most nonprofit leaders could do more work if they had more money, more access to decision making, more talented board members, etc. They are often, in fact, “under resourced”. Since money takes a lot of energy to acquire, hyper-cost-consciousness is often present. In addition, organizations may carry an altruistic sense that “most of our resources should go to the clients”. As a result, many nonprofit organizations frequently have underdeveloped infrastructures.
Nonprofit staff are often more willing to spend time (their own volunteers’, board members’) rather than money to get work done. 3. Bias toward informality, participation and consensus A sense of friendliness and welcoming atmosphere with little attention to hierarchy are often described as attractive dimensions of nonprofit culture. Taken too far, informality can limit the appropriate exercise of authority, over-participation can inhibit appropriate division of labor, and the tendency toward consensus can bog down decision making. 4. Dual bottom lines: mission and financial
Tension between mission and financial results is fundamental for nonprofit organizations. (One can debate to what extent this is unique. For-profit organizations have increasingly focused on the importance of mission, relative to the priority of return on investment. Governmental organizations have increasingly focused on the importance of mission relative to the priority of political impact). Internally, the tension between bottom lines influences many strategic decisions as well as the sense of “how well the organization is doing” at all operational levels. Externally, some takeholders of a nonprofit care about both bottom lines (funders, competitors, and regulators) and some stakeholders care primarily about mission (clients and community). The complexity of dual bottom lines figures in many consulting engagements. 5. Program outcomes are difficult to assess Most nonprofit organizations have limited program evaluation capacity. This is partially caused by the absence of standardized program outcomes in most fields. In child care for example, standards for adult-child ratios exist, but little is standardized in terms of the quality of care delivered.
Similarly, arts groups, advocacy organization, mental health agencies and community development corporations face substantial challenges in measuring their effectiveness. Furthermore, most nonprofit organizations do not have the benefit of unambiguous market feedback to let them know how well they are serving their clients. (Nonprofit organizations exist because neither the market nor government is providing the service; most are funded in part of completely by sources other than the direct beneficiaries of their work. ) Thus, assessing cost-effectiveness and comparing alternative actions is difficult.
Different individuals also may make different assumptions about the relationship between cost and effectiveness. Some groups essentially ignore the issue assuming their efforts are as effective as they can be. 6. Governing board has both oversight and supporting roles The governing board of a nonprofit has dual roles: it is responsible for ensuring that the public interest is served by the organization, and–unlike private sector boards of directors or government boards and commissions–is expected to help the organization be successful. The first role is analogous to protecting the interest of stockholders or voters.
The second role complicates the distinction between governance and management because, in this role, board members do staff-like work. As helpers, board members may raise funds, send mailings, paint buildings, or do the bookkeeping. This can lead to confusion about when, and how, it is appropriate for board members to be involved in initiatives. Furthermore, board members often are not expert in either nonprofit management or in the organization’s field of service. They may either be unprepared to make decisions, or may give up their authority inappropriately to staff. 7. Individuals have mixed skill levels
As a function of passion for the mission, limited financial resources, and a shallow pool of candidates, nonprofit organizations often hire managers with limited management training and program staff with little program experience. Though the staff is often composed of professionals (e. g. social workers, artists and scientists), because most organizations are small, there is seldom much internal capacity to provide training for staff for the particular roles they are playing. 8. Participation of Volunteers Many nonprofit organizations rely on the active participation of volunteers.
Members of the Board of Directors are normally not paid for their work, and individuals contribute considerable time and effort in delivering services and providing administrative support. The contribution that volunteers make to the nonprofit sector is significant; indeed without volunteerism many needed social services would not be available to the public. However, volunteers usually have to juggle multiple commitments, and the relative priority they assign to their volunteer job may have to be balanced with their paid job, family responsibilities, and other volunteer commitments.
As a result, consultants working with volunteers have to be willing to meet with a Board of Directors in the evening, facilitate a board and staff retreat on the weekend, and find ways bring busy volunteers up to date. Finally, there may be resentment on the part of certain volunteers; that some people are being paid for work that they are doing for free, and that everyone should be volunteering. 5. 0 Current Major Challenge: Devolution “Devolution” is a word used a great deal these days among nonprofit funders and leaders.
Essentially devolution is the short-hand word for a strong trend of cutbacks in federal funding to nonprofits (especially for programs such as welfare (AFDC and certain SSI programs) and the resulting changes in responsibility for administering such programs. Legislation passed by the Congress reduces (and in some cases) eliminates a federal commitment to automatically provide assistance to the poor. Instead, blocks of funds (usually in reduced levels) will be passed through to states, allowing them to decide who will receive aid and who will not.
Thus, devolution is associated with the end of what is often called “entitlements” to services previously guaranteed by the federal government. While devolution provides opportunity for more local control and possibly less bureaucratic waste, human services programs will be at great risk due to reduced federal (and therefore state) funding. Nonprofits (which, on average, receive approximately 30 percent of their revenues from federal sources) will suffer significant loss of funds which may be very difficult to replace. Meanwhile, public demand for human services continues to increase. Devolution brings many challenges to nonprofit leaders.
They must operate more effectively in the face of reduced funding. They must consider substantial changes in the way they have operated. Concepts such as strategic alliances and restructuring will become commonplace. 6. 0 Revenue: Fees and Fundraising 6. 1 Fees Fees may be associated with these services and billed to either the person receiving the service (e. g. the parent with a child in daycare) or to a third party such as a government agency that supports such services. Unlike the private sector where the price of a product or service must cover all costs, nonprofit agencies rarely meet all their costs based upon sales and fees.
Instead nonprofits must engage in fundraising and seek additional revenue sources. It is important to note that while many nonprofits provide services that are valuable to our community, it is often difficult to measure the actual results of their services. Changes in an individual’s or a community’s behavior may take years to be realized. Nonetheless, nonprofits are challenged to demonstrate results as donors become savvier and funding sources become increasingly limited. 6. 2 Fundraising As noted above, nonprofit managers (and the board of directors) must engage in fundraising in order to meet the fiscal needs of their organization.
Generally, fundraising is not one of an executive director’s favorite tasks. It can be an all-consuming activity, tapping an executive director’s creative and social energy. Executive directors are constantly challenged to strike a balance between the time they devote to fundraising and program management. Too little attention to one area can leave an organization bereft of cash or quality services. There are several basic sources of funding in the nonprofit sector. The first is a grant. Grants may be given by government agencies, foundations or corporations, usually to operate a specific program.
As noted earlier, agencies receiving government grants to operate human service programs base their reimbursement on fees for the services. Grants from foundations or corporations are generally provided up front and require a report on program activities and expenditures at the end of the grant period. Nonprofit organizations will solicit individuals for funds, also. Individual donations may come from an organization’s membership or constituents (e. g. viewers of public television or residents of a neighborhood community). These are generally small donations, ideally from a large number of people.
Sizable gifts may come from individuals who are referred to as major donors. Cultivating relationships with major donors requires the energy and resourcefulness of the board and director. Many nonprofits will hold special events to raise dollars. These vary from bake sales to major events. Fundraising can be a full-time job (or a full-time obsession) for nonprofit executive directors. Executive Directors are challenged to balance their time between raising money and program management. If too much time is spent on fundraising, programs and staff may not get the direction and coaching they need.
On the other hand, if fundraising takes a back seat to program management, the organization’s cash flow will suffer. Two factors will enhance fundraising efforts. One is good programs. Programs that are meeting important community needs and demonstrating results will sell themselves. A board that is committed to its fundraising responsibilities will also be an asset to the organization. Board members who take their role in fundraising very seriously will promote the organization and help bring resources to it. It is important to note, however, how the political climate can affect an organization’s fundraising.
Foundations and corporations may choose specific issues or causes for priority in grant making. In the 1980’s organizations working with the elderly received major support from foundations and the government. These same organizations saw their support decrease as youth issues became a major focus in the 1990’s. 7. 0 Unique Nature and Struggles of Traditional Small Nonprofits The Heart of the Matter: Leadership and Management At the heart of any successful nonprofit is an effective chief executive and board of directors. These leaders must work as a team with vision, skill, and sufficient resources to accomplish the organization’s mission.
While leadership is shared, critical management skills must rest with the chief executive. However, the board must be sufficiently skilled in management to assess the work of this director and assist in strategic decision making. Values as the Bottom Line Values are the driving force in a nonprofit. The bottom line is the realization of a social mission, not profits. This poses complex problems for the leadership team. How are programs agreed upon, progress monitored, and success measured? How are priorities set and consensus reached? How are staff rewarded and what control systems are applicable?
Skilled consultants may be needed from time to time to assist the team in answering these qualitative, value-laden questions and focus on appropriate management systems. Nonprofit Personnel are often highly Diverse Diversity is reflected, not only by different races and ethnic groups, but ultimately by different values and perspectives. This strong diversity is a major benefit to the nonprofit because input from a wide variety of perspectives usually ensures complete consideration of situations and new ideas. However, nonprofit personnel must ensure they cultivate and remain open to the various values and perspectives.
Problems are Especially Complex for the Small Nonprofit The majority of nonprofits have small staffs and small budgets, e. g. , less than $500,000, which compounds the leadership and management problems they face, especially given their charters and the magnitude of community needs with which they deal. Those new to nonprofits may react that, because nonprofits tend to be small in size, issues in nonprofits should be simple in nature. On the contrary, the vast majority of organizations (regardless of size) experience similar issues, e. g. , challenges in planning, organizing, motivating and guiding.
However, when these issues are focused in a small organization, the nature of the organization becomes very dynamic and complex. Sufficient Resources to Pay Leadership May Be Lacking With lack of sufficient moneys, attracting and retaining paid management also can be problematic. Hard work with little career development opportunity encourages turnover of chief executives and staff. This can stall the organization’s work. Expertise that is brought in to advise the management may be lost once that leadership leaves. Lack of Managerial Training is Problematic for the Small Nonprofit
Many nonprofit managers have been promoted primarily out of non-management disciplines and do not have the managerial skills that are needed to run a nonprofit organization. Training and consultation can do much to help these new leaders/managers gain the skills they seek and help them up a myriad of learning curves that rainbow out in front of them. Chief Executives Wear Too Many Hats A nonprofit chief executive has to be a current expert in planning, marketing, information management, telecommunications, property management, personnel, finance, systems design, fundraising and program evaluation.
Obviously this is not possible, regardless of size. A larger organization may be able to hire some internal experts, but this is certainly not the case for the smaller organization. Furthermore, the technology of management progresses today too rapidly for the non-specialist to keep abreast of new thinking and expertise, whatever the size. Outside expertise therefore is often a must for both the large and small organization. Too Small to Justify or Pay for Expensive Outside Advice
Most nonprofits, even larger ones, often hesitate to spend money on administrative “overhead” such as consultants or other outside experts because this is seen as diverting valuable dollars from direct service. Of course, most nonprofits have no choice. They don’t have enough money to even consider hiring consultants at for-profit rates. Low-cost, volunteer-based assistance often is an appropriate solution. One-shot Assistance often is not enough While most consultant organizations want to teach managers “how to fish” rather than give them a “fish,” “fishing” (management skills) is not something that often can be learned in one consultation.
Especially in more technical arenas such as computerization, learning comes while grappling with an issue or management problem over a period of time. Building internal management capacity takes more time than a one-shot consultation. Repeat help therefore is not a sign of failure but of growth — a new need to know has surfaced. Networks are lacking Everyone outside the nonprofit sector observes, “Why don’t those chief executives get together more, share more ideas, undertake cooperative ventures? ” There are many reasons.
First of all, running a successful organization (delivering the quality service that fulfills the organization’s mission) isn’t enough. Most nonprofit directors run a second business — raising money to support the first. Both are complex and very time-consuming activities, especially when the director wears all the management hats. Second, developing networks or researching joint ventures is time-consuming, expensive and risky. Nonprofits Usually Have Little Time and Money Funders do not seem to think research and development activity justifies new expenditures; at least many are hesitant to fund what might not succeed.
While nonprofits may be more entrepreneurial than funders, they have little capital to risk. Collaborative planning will be enhanced by computerization and telecommunications, but these investments also are difficult to fund. In some ways, affordable consultants can substitute for expensive, up-front research and development costs, at least at the feasibility level. In many cases, they can carry an organization through the needed planning to actually develop a new system of collaboration, merger, or automation.
Nonprofits Need Low-Cost Management and Technical Assistance Nonprofits are valuable community assets that must be effectively managed. The need to provide affordable, accessible management and technical assistance to nonprofit organizations is clear for all the reasons stated above: the complexity of the task, the lack of board and internal expertise, the lack of time and money, changing needs, the learning curve, and, finally the importance of the results to the community. What is well done is based on what is well run. Typical Nature of Planning in Nonprofits
For most nonprofits, they don’t have a lot of time, money, or resources for sophisticated, comprehensive strategic planning. The focus is usually on the major issues facing the nonprofit and quickly addressing them. Typical major challenges for the facilitator are basic training of personnel about planning concepts and process, helping the nonprofit to focus and sustain its limited resources on planning, ensuring strategies is really strategic rather than operational/efficiency measures, and helping design small and focused planning meetings that produce realistic plans that become implemented. . 0 Principles of Ethical Decision Making in Nonprofit Many nonprofit ethical principles, such as honesty and treating people with respect, are parallel to those in the for-profit world. In both the for-profit and nonprofit worlds, a good rule of thumb when making a decision is to ask whether you would want to be treated the same way and whether you would be comfortable seeing your decision on the front page of the local newspaper. Honesty: Being honest is perhaps the most obvious ethical principle and the one that, when not followed, most quickly damages an organization’s reputation.
In theory, honesty is easy; in practice, it is more difficult. A few typical nonprofit situations come to mind. Are you being truthful when you present a rosy picture on a grant application, knowing that your organization, like all others, faces some problems? How honest are you when you estimate the proportion of your budget that goes to fundraising and the percentage that goes to programs? In both cases, being scrupulously honest might lose your organization some much-needed funding. Being less than honest, however, can be even more costly in the long run.
All nonprofit organizations need to consider the truthfulness of their statements, avoid exaggerations and statements that have an air of untruth, and recognize that omitting a statement can be the same as telling a lie. Openness: A corollary of honesty is transparency. Nonprofits can maintain the public trust by being particularly open about their operations. By law you must make your Form 990 available to the public, but you can and should do more to let the public know about your organization. Your Web site and your fundraising appeals should clearly articulate your mission, values, scope of activities, and uses of revenue.
You should also release audited financial statements and your annual report, if you have them, and you should provide information about your goals and accomplishment to Guide Star, which will post the information on its site. Your CEO or executive director and board should be fully informed about the organization’s finances, and their reports to the public should be scrupulously honest and consistent. Conflicts of Interest: Conflicts of interest appear with regularity in the nonprofit sector. Board members are often chosen because their professional abilities can provide a service to the nonprofit.
Moreover, they are likely to be involved with several boards in the same community. Volunteers, employees, and even clients can also face conflicts of interest. Should a lawyer on the board offer to do legal work for the nonprofit? Does it matter if the lawyer offers the services on a reduced basis or for free? Should the headmaster of a private school in a market with very high housing costs obtain a loan from the nonprofit to pay his or her mortgage? Should a major donor be given special privileges? Should a client/board member receive the organization’s services before other clients?
Can an employee ever accept a gift from a client? The first step in answering these questions is to recognize that a conflict of interest exists. In some states, the answer to the conflict is obvious. In New York, for example, it is illegal for nonprofit officers and directors to accept loans from the nonprofit. In other situations, such as when a board member can provide a service for less cost than the nonprofit could obtain otherwise, the answer is less obvious. Some argue that it is important to keep the interests separate in all instances.
Others argue that it is all right to provide such services, so long as the conflict is fully disclosed and the conflicted person does not vote on whether he or she should provide such services. Each organization handles such cases in its own way, assuming state law or its umbrella organization has not already dictated a decision. At the very least, these situations call for full disclosure and a disinterested vote. Privacy: Some types of nonprofits have always been particularly sensitive to privacy issues. Medical organizations, for example, must protect patient confidentiality, and libraries fiercely guard their patrons’ information.
The rest of us should also consider whether to protect our clients’ and customers’ privacy, even when the fact that they use our services is less sensitive. Donor lists create their own privacy issues. Although many nonprofits rent or sell their donor lists without asking the contributors’ permission, codes of ethics increasingly forbid doing so without at least giving the donor the ability to remove his or her information from such lists. The Internet adds another layer to this discussion, as donor addresses, credit card numbers, and other personal information can easily be sent to many unscrupulous people. Fundraising Issues:
Nonprofit fundraising raises special ethical issues. Among them is whether it is ever ethical to pay a fundraiser a percentage of the money raised. The Association of Fundraising Professionals (AFP) forbids this practice among its members, reasoning that donors who contribute to a nonprofit deserve to see those funds go to the organization. Complaints about this practice make up by far the largest number of complaints AFP handles. But fundraising has other ethical issues. Not only should the fundraising materials and solicitations be honest3 but the organization should use the funds for the purpose specified before the donation was made.
Sometimes, especially when situations change, it becomes difficult to keep these promises, but they should be kept unless the donor agrees to the change. What if a donor makes unreasonable demands on an organization, such as asking for benefits not accorded to other donors? Should you accept a large gift from someone for a purpose that veers from your mission? What if the donor will give money only if you forego funds from a different source? These are not easy questions, but they are ones that nonprofits deal with frequently, and they should be considered before such situations actually arise.
Treating employees, volunteers, and clients with respect: Finally, it should go without saying that employees, volunteers, and clients should be treated with respect. Nonprofits should never engage in discrimination or harassment. These are not difficult ethical issues; unfortunately, they are sometimes difficult for ordinary humans to follow. 9. 0 Conclusion All nonprofit organizations need to pay attention to ethical issues, for an organization without a clear ethical compass can lose the trust of the community, damage its clients’ interests, and indirectly hurt the entire nonprofit sector.
A nonprofit with a clear code of ethics, on the other hand, can concentrate on its mission and complete the good works it is set up to do. Our goal should be to have all our employees be as naturally honest as the one in a Grant land cartoon. This character turned down a gift, refused to divulge customer information, and kept competing bids confidential but thought he had not been confronted by any ethical situations. He just knew the difference between right and wrong.