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Challenge 47 in the series 50 Reasons Why It Is Hard to Run a Nonprofit
A workforce development nonprofit runs four programs. Three of them are producing measurable outcomes. The fourth — a legacy initiative started by a founding board member — serves 12 participants per year at a cost per participant that's triple the others. Nobody has evaluated it in five years. Nobody has proposed cutting it, either, because the board member who launched it still serves on the board.
The organization's strategic plan says its top priority is expanding the three programs that work. Its budget tells a different story.
Forget what your strategic plan says. Look at your budget. Where the money goes is where your priorities actually are. If those two documents don't match, you have a misallocation problem.
Nonprofits don't misallocate resources on purpose. It happens through inertia, politics, and the absence of the kind of performance data that would force hard conversations.
Legacy programs persist because nobody evaluates whether they're still producing results — and the evaluation might force a decision nobody wants to make.
Funders distort priorities by offering $100,000 for a program tangential to your mission. You take it because you need the money, and three years later you've built a team around something that was never core to your work. (I wrote about this version of mission drift in an earlier post — funder-driven mission drift is one of the most common forms.)
Board members champion initiatives that reflect their interests more than the community's needs, and because they're major donors, nobody pushes back.
And some organizations starve their back office while overspending on programs that don't perform, or the reverse. What matters is whether your spending pattern matches your strategic priorities.
Of all the "market failures" I catalog in Managing Your Nonprofit for Resilience, misallocation may be the most damaging — because it's entirely self-inflicted. Every dollar going to a program that doesn't produce results is a dollar that could be going to one that does. For a nonprofit with a $500,000 budget, even a 15% misallocation — $75,000 going to the wrong things — represents the equivalent of a full-time program staff member who could be serving clients, writing grants, or building partnerships.
The harder cost is the opportunity cost of decisions not made. When your budget is locked into legacy allocations, you can't respond to new needs, new funding opportunities, or new evidence about what works.
Evaluate every program on a three-year cycle. No program should run for more than three years without a formal assessment of cost per outcome, participant satisfaction, and alignment with mission. If a program can't demonstrate its value, it should be restructured or sunset.
Tie budget decisions to outcomes data. When you allocate next year's budget, put outcomes data next to every line item. Which programs produced results? Which ones consumed resources without clear evidence of impact? Every dollar has to be justified by something more than history.
Make it normal to end programs. Build a formal sunset process — with timelines, stakeholder communication, and staff transition plans — so that ending a program is routine good management rather than a crisis.
Separate donor wishes from organizational strategy. If a donor wants to fund something that doesn't align with your strategic plan, you have two options: decline the gift or revise the plan. What you can't do is take the money, run the program, and pretend it doesn't affect your resource allocation.
Figuring out where your money should go — and having the discipline to move it there — is one of the most practical things a nonprofit leader can do. It's the kind of operational thinking I focus on in Nonprofit Good News Premium.
Print your current budget. Next to each program line item, write the number of people served and one measurable outcome. If you can't fill in both columns for every program, you've identified where your next evaluation needs to happen.
This is part of an ongoing series based on the 50 challenges outlined in Appendix 1 of Managing Your Nonprofit for Resilience (Wiley, 2023). Each post names one challenge clearly and offers a practical reframe with steps you can take this week. For deeper coverage of nonprofit strategy, risk, and resilience — including tools you can put to work immediately — check out Nonprofit Good News Premium.