There is a lot of buzz about sustainability during these challenging times.
Traditional sources of revenue have been squeezed by stay-at-home orders, public health concerns and reductions in government funding. Special events, performances and classes have had to be postponed or cancelled. A program that had been a large percentage of an agency’s budget may have suddenly dried up, while a relatively small program may have experienced an uptick in demand.
It is almost impossible to plan with so many factors still unknown!
I recently read Nonprofit Sustainability: Making Strategic Decisions for Financial Viability by Jeanne Bell, Jan Masaoka & Steve Zimmerman. The book is not new, but I had not come across it previously. It provides a step-by-step guide for nonprofit business analysis.
1. Determine programs/business lines/special event
Identify the key programs of your organization and attribute earned/grant/contract revenue as well as staffing and overhead costs to each program
2. Determine the "profitability" of each program/activity/event
Nonprofit is a bit of misnomer. All organizations need to generate revenue in excess of their day-to-day needs as summarized by the phrase: "no margin, no mission." Tax laws simply constrain what nonprofit organizations can do with any net surplus.
3. Determine the "mission impact" of each program/activity/event
An important consideration at this step is to select criteria that represent the fulfillment of the organization’s mission. The following criteria are offered to help sort through relative impact of each program/activity/event.
- Alignment with core mission
- Excellence in execution
- Scale or volume
- Depth
- Filling an important gap
- Community building
- Leverage
These criteria may be further refined by weighting some more heavily than others.
4. Nonprofit Sustainability Matrix Map
The authors propose a matrix with financial profitability on one axis and mission impact on the other axis, thereby creating four quadrants.
- High Impact - High Profitability
These programs are called Stars. Organizations should seek to invest and grow these programs.
- Low Impact - High Profitability
These are the Money Trees. It is advised to cultivate these activities to maintain their revenue and seek to add elements that enhance their mission impact.
- High Impact - Low Profitability
Programs that fit into this category are called Hearts. They are often core to the organization but require donations and grants to maintain. Organizations are advised to keep these programs but to contain costs so that they do not weigh down the overall sustainability of the whole.
- Low Impact - Low Profitability
If analysis identifies a program or service in this category, it is time for a hard look. Such programs may have run their course, or duplicate services offered by another organization. The authors recommend that these programs be closed or given away.
The Matrix Map provides a relatively quick and easily understood graphic to aid in strategic planning.
Conclusion
Sustainability = doing what is required to meet the needs of the present without compromising the ability of future generations to meet their own needs and the capacity to endure. Sustainability encompasses both financial sustainability (the ability to generate enough resources to cover costs) and programmatic sustainability (the ability to develop mature and modify programs that are responsive to constituencies over time).
If you are ready to reevaluate your organization’s sustainability outlook, please contact me. I would love to learn about your organization’s needs.
