Nonprofit management principles and practices

Non Profit Management

The primary objective of forming a nonprofit organization is to provide services to the community. The term "nonprofit" is used for those types of business, which are formed on the principle that profits will not be distributed to the owners. Majority of the non-profit organizations are organized under the cover of corporations, which are formed under the corporation law of the state in which they are operating. States have their own legislations for the formation of non-profit corporations and some of them allow the formation of other forms of organizations such as a trust or an unincorporated association. The Internal Revenue Service (IRS) has exempted those organizations from taxes, which are serving any kind of charitable, religious, scientific or educational purposes.

The typical structure of a non-profit organization includes three major areas. These are control, programs and central administration. The control or governance function of a non-profit organization is responsible for overall strategic planning, decision-making, guidance and control of the organization. Effective governance is necessary to keep the activities of the organization in line with its objectives. Moreover, the goals and objectives defined by the top management of the non-profit organizations are to be materialized. This can be done through effective utilization of resources, owned by the organization, to organize different programs for the benefit of the society. The success of these programs is then measured in terms of their outcomes. Outcomes are usually measured by analyzing the impact of organization's services on the society. Finally, to keep the functions of the organization running, it employs some expert staff in it's central administration. As non-profit organizations are limited in terms of resources, they try to keep the cost of hiring administrative personnel as low as possible. This issue is itself a challenge for these organizations.

Challenges faced by non-profit organizations:

The major challenge faced today by the non-profit organizations is that of "devolution." The terminology of "devolution" is used by the non-profit professionals for the cutbacks in the federal funding for non-profit organizations. Recent legislations passed by the Congress have reduced the obligations of the federal government in providing assistance to the needy and the poor. Federal government has adopted a new strategy for the distribution of grants and funds for several social programs. According to this new arrangement, funds will be assigned to states, allowing them to allocate these funds on their own decision. Although, with the decentralization of funding operations, there will be lesser bureaucratic red tapes and more control at the local level but the services programs initiated by the non-profit organizations will be exposed to great level of risk because of reduced federal funding. From the absence of federal contributions, most of the non-profit organizations will be facing significant financial problems because they receive around 30 to 40% of their funding from federal sources. To worsen the situation, these organizations are faced with a continuous increase in demand for human services, which is very difficult to fulfill in the current scenario.

Devolution has created several challenges for the leaders of non-profit organizations. Now they have to run their functions with increased efficiency with reduced level of resources. In this regard, they have to redefine their operating procedures and try to search for other sources of funding. With the lack of funds for human services, non-profit organizations will have to adopt several traditional "for profit" organizational strategies like strategic alliances and restructuring.

Another challenge faced by the non-profit organizations is of fees and fundraising. Fees is usually charged by these organizations for the services provided by them and is to be paid by either the person receiving it or a third party such as the government or any other charity organization. However, a fee is not the primary source of revenue for the non-profit organizations because their fees rarely cover the cost of the product or service being provided. This is the reason why non-profit organizations search extensively for additional revenue sources and get involved in different fund raising activities. Interestingly, the services provided by the non-profit organizations are of high worth to the communities but it is extremely difficult to measure the outcomes of these services. It may take years to experience a significant change in the behavior of the society because of the efforts of any organization. As a result of this limitation, non-profit organizations are unable to demonstrate results of their efforts and therefore donors become hesitant to make their contributions, hence limiting the sources of funding for them.

As mentioned above, leaders of non-profit organizations have to extensively rely on external sources of funding to meet the demand of the society for human services; they must get engaged in activities. Fundraising, however, is not a very pleasant job to do. It requires considerable effort on the part of the top management of the organization. They have to allocate sufficient amount of time in fundraising activities, which makes it very difficult for them to keep a balance between fundraising activities and other organizational assignments.

Non-profit organizations seek for several sources of funding. The primary source is grants awarded wither by the government, charitable foundations or even corporations, to support specific social development programs. Although, grants provided by the government are based on a rough estimate of the cost of services provided by a particular agency but funding awarded by corporations are to be used with caution as the organization has submit a report on the program's activities and expenses incurred during the program. In addition to these major sources of funds, non-profit organizations contact individuals as well for donations. These donations are collected either through establishing close relationship with the community members or by asking individuals to become a member of the organization. Although donations are small in volume but they come from a large number of people, making it a significant source of funds. Even within the individuals there are some people who make sizable contributions and are referred to as "major" donors. Organizations usually allocate substantial time and energy to attract such major donors. Several special events are also organized by these organizations to raise funds. (Dove, October 1999)

Fundraising is a full time job and therefore may distract the attention of organization's leaders from other important activities such as organizing and managing different human services programs. If the leaders will get increasingly involved in fundraising activities, devoting lesser time to operational tasks of the organization, their subordinates will loose direction. This will in turn negatively affect the performance of the organization and will limit its ability to effectively make positive contributions for the society. To increase the efficiency of the fundraising efforts non-profit organizations should strive to bring improvements in their programs. In addition to this, the leadership of the organization should be committed to achieve its goals or objectives.