Governance Strategy and Sustainability Are the Hidden Value of Charity Overheads
2nd August 2024

For years, the charity sector has been overshadowed by the notion that low administrative costs are synonymous with organisational success. This perspective, though appealing to donors, is deeply flawed. Administrative costs are fundamental to delivering long-term impact, ensuring good governance, and maintaining donor trust.
In her article on Giving Evidence, Caroline Fiennes highlights the dangers of focusing too narrowly on overheads rather than outcomes. Her observations are supported by a wealth of research, including studies by the Stanford Social Innovation Review (SSIR).
These studies demonstrate that charities with well-funded administrative structures consistently outperform those that are underfunded.
What Are Administrative Costs, and Why Are They Vital?
Administrative costs cover a broad spectrum of activities that underpin a charity’s ability to operate effectively. These include monitoring and evaluation, which ensure that programmes deliver measurable impact.
Administrative costs also cover governance activities, such as board management, governance advisory, and statutory compliance. In addition, they fund staff recruitment and training, which helps charities attract and retain skilled professionals. Finally, administrative budgets enable strategic planning and risk management, safeguarding the organisation’s future.
These costs do not detract from a charity’s mission. Instead, they make it possible to deliver impact in a sustainable and accountable way. Far from being a drain on resources, administrative spending represents an investment in the efficiency, sustainability, and transparency of the organisation.
Governance as a Cornerstone of Success
Good governance is at the heart of every effective charity. It ensures that the organisation operates ethically, complies with legal requirements, and makes sound strategic decisions. Administrative budgets support critical governance activities such as board development and training, which equip trustees with the knowledge to oversee operations effectively.
Administrative spending also supports transparency measures, including independent audits and detailed impact reporting. These measures help build donor confidence and demonstrate accountability. Governance activities also include policy development and risk management, which ensure the organisation is prepared for challenges and opportunities.
The Charity Governance Code sets out best practices for charities, emphasising the importance of regular training, strategic oversight, and independent evaluations. Strong governance is essential for maintaining public trust and ensuring that charities deliver on their promises.
The Hidden Costs of Underinvestment
Underfunding administrative costs can have far-reaching consequences. The practice of “starving overheads,” described in the SSIR’s article The Nonprofit Starvation Cycle, leaves charities unable to invest in their infrastructure, staff, or long-term strategy. This often results in burnout among staff due to inadequate resources and support. It also compromises programme quality, as organisations are forced to cut corners to save money. In some cases, it can even cause reputational damage, particularly when poor governance or a lack of transparency comes to light.
Charities that fail to invest in their administrative functions may achieve short-term savings, but they risk long-term harm to their mission and beneficiaries. Effective administration is not an optional extra. It is fundamental to achieving sustainable impact.
Moving the Conversation from Costs to Impact
A shift in mindset is needed across the sector. Rather than focusing on how much a charity spends on admin, donors and funders should ask more meaningful questions. They should ask what outcomes the charity has achieved. They should enquire how the organisation ensures good governance and accountability. Finally, they should seek to understand the charity’s strategy for long-term sustainability.
As Fiennes argues, a charity’s effectiveness should be judged by its impact and not by its overhead ratio. Resources like Effective Altruism and Giving What We Can provide guidance on evaluating charities based on their results rather than their budgets.
Building a Stronger Future
Charities must advocate for full-cost recovery to ensure funders understand the necessity of administrative spending. Funders, in turn, should recognise that robust infrastructure and governance are not luxuries. They are essential components of a well-functioning organisation.
Organisations such as the National Council for Voluntary Organisations (NCVO) and the Charities Aid Foundation (CAF) provide resources to help charities and donors understand the importance of investing in overheads. By prioritising outcomes over cost-cutting, the sector can build stronger and more resilient organisations that are capable of delivering lasting impact.
Final Thoughts
Charities must balance the use of charitable funds while ensuring these costs add value. Without investing in governance, infrastructure, and people, they cannot deliver quality services, maintain trust, or plan for the future. It’s time to move beyond the outdated notion that low overheads equal effectiveness. Instead, we should champion organisations that are transparent, well-governed, and able to demonstrate the impact of their investments in administration.
For further insights, resources such as Giving Evidence, the Charity Governance Code, and the NCVO offer valuable guidance on how administrative costs underpin a charity’s success. The focus should not be on how charities spend, but on what they achieve.
Bridgehouse can help your charity demonstrate its impact through effective governance, strategic planning, and transparent reporting, ensuring you build trust with stakeholders and achieve long-term success.
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We would be pleased to answer any queries or have an informal chat to discuss your possible governance needs.
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