How to Build Efficiency in the Back OfficeLucy M. Morgan

Introduction

I used to work for a nonprofit that supported scientific research from Antarctica to Alaska. Colorful images of scientists were richly displayed in reception areas and hallways highlighting them garbed in their bright red parkas climbing on white snow-capped mountains, emerging from fire-engine red helicopters and beaming with the warm glow of scientific discovery. The vibrant images also adorned web pages and scientific magazines engaging visitors, volunteers, and funders in the research mission of the organization. Perhaps you’ve lived vicariously through similar images in magazines like National Geographic or Scientific American, dreaming of a life of discovery and adventure, working on grant funded programs from the jagged edges of ice-blue glaciers with your own red parka hood pulled tight against the blowing snow. There is no doubt the latest research projects are an area that funders and volunteers alike can get excited about!

Now picture a sponsored program helping disadvantaged youth or at-risk elderly people improve their lives. The images change from ones of rugged adventurism to a more emotional pull at the heartstrings. Now the views may show the frailty of an elder combined with the anticipation and thankfulness of experiencing heathy foods provided by nutrition grants. The colors may fade, and a stark black and white image showing the years of suffering and wisdom emerge. Or perhaps the colors remain but shift from images depicting nature’s raw fury to the simple joys of children at play without fear, or the guarded hope of a teenager exploring the chance of a future brighter than they ever imagined.

Contents2 Introduction

4 The Future of Back Office Efficiency

6 Nine Best Practices for Building Efficiency

10 How Leaders Can Support Back Office Efficiency

12 How Software Can Support Back Office Efficiency

14 Conclusion

14 About the Author

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Have I succeeded in connecting with an emotional response? Making a difference in people’s lives is what nonprofit organizations

do every day. But here is the inconvenient truth: Very few funders,

volunteers, or employees are passionate about back office

spending. How many framed Excel® spreadsheets have you seen

in the reception areas of nonprofit headquarters? It’s time for brutal

honesty. Indirect support activities and spending don’t have

the “sex appeal” of direct program spending.

So the challenge becomes this: How do you balance the need to support

the parts of the program or project that funder’s love with the part they

love to hate: indirect support costs. In other words, how can you drive

back office efficiency and still provide the assistance that sponsored

programs need to run efficiently and effectively?

In this article, we will look at ways to present your organization as the

most attractive grant recipient to funders while building a strategic

approach to back office support that minimizes wasted efforts and costs.

The Million Dollar Question:Q: How do you build efficiency in the back office while

ensuring that you have effective internal controls and service to internal and external customers?

A: Investments in automation collaboration, not silos

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The Future of Back Office EfficiencyIf you had a way to forecast the crash of the stock market in 1929 or the collapse of the US housing bubble in

2008 where Case-Shiller home price index reported the largest price drop in its history, would you take steps

to prepare, or would you live in a state of denial? History demonstrates that there will always be people that

embrace change to their advantage and those who will resolutely refuse to accept impending disaster when

all signs point to the inevitable.

In today’s world of nonprofit funding through federal grants and private foundations, it’s not a great surprise

where the future of back office upkeep is headed: Funders want to minimize spending on support services

to the furthest extent possible. Smart organizations that plan for back office efficiency and take steps to

position overhead costs in the most attractive range for funding opportunities will win the funding game.

Where Things are Heading…

In 2013, when federal grant regulations went through their first major overhaul in decades, a new concept

called the “de minimis” 10% indirect cost rate surfaced. This bold new approach (if you can call slashing the

reimbursable part of support costs an innovation) signaled the federal government’s commitment to drive

down indirect spending on federally sponsored programs. For those of us tracking the new 2 CFR Part 200

effect on federal grant management, it is no surprise to read news stories of the new administration targeting

universities to reduce their stratospheric indirect cost rates.

But some organizations reject this. The Washington Post described a culture of denial in many universities.

“There is a cultural aversion to thinking about cost,” according to Carol Twigg, president of the National Center

for Academic Transformation. According to reporter Steven Pearlstein, “Among faculty members, there remains

a deeply held view that equates spending with quality, considers ‘accountability’ an assault on academic

freedom and sees ‘productivity’ as merely code for charlatan anti-intellectualism.”

But the winds of change are blowing. Science Magazine reported that the Trump Administration wants to

rip nearly $6 billion in funding from the 2018 budget for the National Institute of Health (NIH) by reducing or

eliminating overhead payments to research institutions and universities. And this downward pressure on

overhead is also happening in the non-federally sponsored program world.

Reduced Overhead Expectations

Even nonprofit organizations not funded by federal grants are experiencing reduced overhead expectations

from organizational and individual donors. The Nonprofit Times reported in 2012 that the average American

believes that nonprofits should spend no more than 23% in overhead costs. The public’s appetite for lower

overhead rates is even lower than the Better Business Bureau’s Wise Giving Alliance (WGA) recommendation

to keep overhead costs at or below 35%.

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Investments in Automation

One of the ways to lower indirect costs is to strategically invest in automation. Many organizations struggle

with antiquated software or generic tools that aren’t designed for managing grants from foundations and

funding agencies.

Here is a quick litmus test of your organization’s need for better automation solutions:

• How many Excel® spreadsheets are required to produce the level of reporting required by

your funding sources?

• How many Excel spreadsheets are required to compile financial reports such as budget vs. actual

reporting for program managers and other internal users?

Excel is a powerful tool, but when you are relying on people to transfer data into spreadsheets and manipulate

it to do their jobs, you have a system rife with inefficiencies. Is it time to consider investments in automation at

your organization?

Collaboration, Not Silos

Finally, the future of back office efficiency requires collaboration across a broad range of employees from program

staff to back office support departments such as finance, human resources and information technology. When

there are organizational silos, the efficient flow of information stagnates and stops.

Here are some examples of siloed behavior:

• Program staff do not share reports for funding agencies with non-program staff

• Financial staff doesn’t provide budget vs. actual reporting by individual program for program managers

• Grant writers and grant managers do not work together during the grant development application phases

• Decisions are made during the grant lifecycle without the involvement of others outside the “silo”

• Staff is resistant to change or innovation

• Blaming other departments is rampant

Let’s face it. Building an efficient and effective back office requires a new approach to how organizations look

at overhead costs. Let’s look at some ways you can promote back office efficiency at your organization…

more efficiency

more automationRelying on people to transfer data into spreadsheets creates inefficient systems that are hard to manage —much less troubleshoot.

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Nine Best Practices for Building Efficiency

• The right people create a culture of innovation.

1. Define an innovative culture.

2. Support adoption of innovation.

3. Screen for culture fit.

• The right practice generates the best solution.

1. Put costs where they belong.

2. Provide training on the best practices.

3. Communicate your success to funders.

• The right productivity leads to a reduction in sharing deficiencies.

• Look for ways to reduce friction.

• Understand the requirements.

• Prune non-productive activities.

Nine Best Practices for Building EfficiencyAnytime I think of ways to improve a process while reducing costs,

I immediately think of the Scott Adams cartoon Dilbert with the pointy

haired boss ordering Dilbert and Wally to “work smarter, not harder!”

Realize when you start talking about efficiency, it is inevitable that

many people’s minds will immediately jump to layoffs, or even worse,

tune you out as yet another “flavor of the month” from senior management.

In reality, building efficiency into the back office starts with improving

communication and implementation skills across the organization with

a primary focus on these three key areas:

• Right people

• Right practices

• Right productivity

Let’s dig into this in more detail…

The right people create a culture of innovation.

How many times have you heard the phrase “That’s how we have

ALWAYS done it!” (Did I get the right amount of whine in my voice as

I said ALWAYS?) This expression should ring out like fingernails on a

chalkboard to anyone looking to drive positive changes at an organization.

If you do not support a culture of innovation, it is unlikely you will

resolve the foundational inefficiencies at your organization.

Here are three practices that build a culture of innovation at your

organization through supporting the right people:

Practice #1: Define an innovative culture.

Many organizations stumble in seeking efficiencies because they don’t

get specific enough for employees to understand what is expected of

them. Glittering generalities may sell laundry soap, but are not the way

to support the right people in your organization pursuing more efficient

business processes. If you want to support an innovative culture, get

specific about what that means.

• Do you run quarterly pilot programs?

• Are individual contributions and ideas for innovation recognized

and rewarded at the all-hands meeting?

Get specific about the physical manifestations of how your organization

defines innovation.

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Practice #2: Support adoption of innovation.

Now that you have defined what an innovative culture looks like and what it expected of employees to support

innovation and efficiencies, explore ways to support adoption of innovation. This may mean a mindset shift

from a “no mistakes” culture to an exploring and testing culture. Innovation happens through practice and

mistakes. As Thomas Edison observed as he worked to perfect the design of the lightbulb, “I have not failed.

I’ve just found 10,000 ways that won’t work.” As you go down the path to build back office efficiency, ask

if your organization truly ready to support employees ability to test a variety of solutions on the quest for a

better designed organization.

Practice #3: Screen for culture fit.

Finally, are you screening for the right people from both a skills and culture fit perspective? One way to get the

right people ready to drive organizational efficiency is to screen for people who support an evolving organization.

Here are some questions you may want to consider in building a culture of innovation and change:

• Can you give an example of adaptability when dramatic change is required?

• Can you identify some of the likely problems that could surface in this process?

• Can you walk through the steps you would take to solve a real problem you would face in this position?

Involve the human resources department in the screening process to support hires that are a good fit for

driving back office efficiencies.

The right practice generates the best solution.

Using the right practices can position your organization as the best solution for potential funders and donors.

Often these practices are often not expensive to implement, but require a shift from the old way of doing things.

And if you’ve ever been a change agent, you know that building the right practices over time can sometimes

feel like you are building the Grand Canyon one drop of water at a time.

Here are three practices that make you more attractive to funders:

Practice #4: Put costs where they belong.

As I travel to deliver grant management training to organizations and individuals, I am constantly amazed at

how many organizations miss the low-hanging fruit of strategic classification of costs. Putting costs where

they legitimately belong on the program side can drive down your overhead costs with very little change

to the existing resources and personnel. The two most common examples I see organizations missing are

classifying all of facility costs and dedicated support staff as overhead rather than having the programs pay

for the facilities and staff that directly support them.

Charging programs for the facility costs directly related to their program has long been allowed by most funders.

Typically, costs are allocated by calculating the square footage of a building that is used directly by program

staff, then comparing that to the square footage used by non-program staff. This information is used to develop

a “percentage of facility use rate” to allocate costs to the various programs and indirect support functions.

This calculation is applied to allocate use of common areas, such as lunchrooms, hallways, and bathrooms,

by the same square footage percentage. The cost of utilities, insurance, and maintenance are similarly allocated.

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In the world of federal grants, there are new opportunities to classify dedicated support staff in the program

costs—provided grant developers and grant managers plan ahead. The rules in sub-section 200.313 are

relatively simple: charges for administrative and clerical staff are normally treated as indirect costs but may be

included as direct charges if all of the following conditions are met:

1. The administrative or clerical services are integral to the federally sponsored project or activity

2. The individuals involved can be specifically attributed to a project or activity

3. The costs have been explicitly included in the program budget or have the prior written approval of the

awarding agency

4. The personnel costs are not already included in indirect cost. In other words, no “double-dipping”!

Non-federal sponsors may likewise be open to similar classification, provided the program directly benefits

from the assigned personnel.

Practice #5: Provide training on the best practices.

Training is often the boost that supercharges efficiency. Many initiatives fall flat because training is inadequate,

or ongoing support and onboarding is non-existent. If people are unsure about how to proceed with new

processes, they will revert to the comfortable alternative: what they have always done.

Likewise, if there is not ongoing support after the initial training, with comprehensive training provided to new

employees, the process naturally degrades over time. Think of the game “telephone” that you may have played

as a child. A phrase is repeated and passed from one person to the next until the end message becomes

unrecognizable from the original intent. The same is true of best practices if there is not regular “tweaking”

of the message through ongoing support and training.

One of the reasons my training company has always provided ongoing support to our trainees is that we want

to avoid the “telephone” phenomenon. We want to ensure that the skills and support trainees experience initially

is periodically “tuned” like a musical instrument to keep the true tone of the training.

Practice #6 Communicate your success to funders.

Too often, grant writers and grant managers think that interaction with funders should be a game of “hide and

seek.” The new age of accountability with transparency and disclosure requirements demonstrates why that

is the wrong approach for successful organizations.

Instead, include what you are doing to drive back office efficiencies in your communication. Address initiatives to

reduce overhead costs so funders clearly understand the mindset of innovation and improvement at your organization.

It’s time to communicate what you are doing RIGHT to your funders, donors, and other stakeholders.

The unstruck bell never rings!

The right productivity leads to a reduction in sharing deficiencies.

One definition of productivity is yielding results. For the right kind of productivity, you need to deliver the right

results. In the case of back office efficiency, the right results would be improving the results while reducing overhead

costs. One way to do this is to reduce the roadblocks that impede sharing of information and assistance.

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Here are three practices that reduce sharing deficiencies:

Practice #7 Look for ways to reduce friction.

Is there resistance to change in a part of the organization? Do you find that efficiency initiatives hit a department

or personnel roadblock and then run into the organizational brick wall? If you are frustrated by the pace of

change or the amount of effort required, perhaps you need to start by looking for ways to reduce friction

within your organization.

One way to accomplish this is to make sure people are on the same page with their expectations and

understanding of what success means at the organization. I’m a big believer in getting people in the room

together to work through problems when possible. Sometime, it takes senior management stepping into the

fray to clarify what is expected expected and what is not expected of staff members.

Practice #8 Understand the requirements.

I encourage organizations in which I train on grant management to understand the rules so they know how to

bend them to their advantage. (This is the part where I like to add the “bwa-ha-ha-ha” laugh of the evil genius.)

All kidding aside, organizations that know the requirements are more likely to present efficient operations in

form and substance in form and substance to funders. The trick is to make sure the knowledge layer is more

than one person deep at the organization. The more that are broadly understood among all levels of staff,

the lower the cost of compliance and corrective actions will be. In other words, the less the back office staff

needs to run around with the organizational “pooper-scooper” cleaning up messes, the more productive they

can be on things that really matter.

Practice #9 Prune non-productive activities.

For many years, I had a large flowering tree in my backyard. I thought it was a flowering crab apple because

it would flower very early, but never produced any fruit. In Colorado, we often have late season cold snaps

that freeze all the blossoms off the tree. One summer in frustration, I started chopping off branches and

trimming the tree. Imagine my surprise when that next year, our “crab apple” tree turned out a bumper crop

of apricots. Until we started pruning our tree, it didn’t energize and reach its full potential.

All organizations large and small have their own share of non-productive activities. Those once purposeful

tasks were started years ago, but there is no longer a need for them. They seem to live on because everyone

is afraid to stop them. Data is collected and reported even when it no longer needed. Try asking yourself

this: If no reporting happened for a week or a month, which piece of information would people ask for to do

their jobs? Which of those items is actually used in decision making, or reporting to funders or government

officials? Prune what is not needed, and you will be amazed at the quantity of “fruit” produced.

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How Leaders Can Support Back Office EfficiencyIn my previous article, How to Build Trust with Strong Internal Controls,

I spoke of seven practices for building organizational buy-in when

implementing any big transformation at an organization. When practiced

step-by step, these initiatives can become organizational habits that

grease the wheels of change.

The practices are:

1. Strive for integrity and transparency.

2. Set clear expectations.

3. Build relationships.

4. Follow through with commitments.

5. Educate others.

6. Communicate consequences.

7. Reward improvement.

But without leadership on many levels of the organization, change initiatives can sputter and stall out.

And that is why I wanted to share three ways leaders support back office efficiency.

Guide climate change.

For a number of years, my sister and I spent part of each summer hiking a section of the Colorado Trail, a four

hundred mile trek that takes you from the western side of Denver to Durango, Colorado, across the Continental

Divide. We spent a lot of time reviewing the best route, pick-up locations, approaches, and support crew for

our “sag” wagon.

In our first day out, I misread my basic trail guide and set up a pickup at a non-existent trailhead and a “no signal”

cell phone area. Panic ensued as we realized we would have to hike down through the miles we had just climbed

to let my husband know that he couldn’t reach us as planned. Talk about an inefficient process! I realized that

traveling down this new path would have been much easier if we had a better guide. So after hiking back down

the mountain to our drop off spot, we went to the store to track down a more helpful trail guide. I wanted one

that would tell me what was needed for success and the best hiking climate to reach our goals.

When it comes to building back office efficiency, it is easy to become lost and not reach the destination as

intended without the right guide. Ask yourself:

• Who is the right person to lead this initiative?

• Would the organization increase the chances of success by taking more of a team approach?

• What part of the organizational climate needs to change to make the plan succesful?

Once you’ve discovered the right person or people to lead the environmental “reset” at your organization,

start thinking about who else you can enlist in a broader leadership role.

Three Ways Leaders Support Back Office Efficiency:1. Guide Climate Change

2. Encourage Broader Leadership Roles

3. Build Ownership of Efficient Practices

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Encourage broader leadership roles.

When it comes to building broad support around a change management issue such as overhead reduction,

you will increase your probability of success by encouraging broader leadership roles at your organization.

Here are some ways you can do this:

Give leaders a chance to learn.

There is a common misconception that leaders are born, not made. In most cases leadership is a skill to be

learned like any other. However, too often organizations unconsciously discourage broadening or leadership

roles because they do little to develop leaders over time. If people don’t feel up to the challenge of

leadership, or are intimidated by learning the “ropes” there is probably not enough new

leadership development going on at your organization.

Leaders must be grown and encouraged over time!

Give leaders a chance to succeed.

No one wants to take on a role with no chance of success. Make sure that leaders have a path to accomplish

the goals set before them. Eighty percent of teachers surveyed by Bain and Company in 2013 said they did

not want an advanced leadership role because of the unachievable demands they saw placed upon leaders

like principals. If no one wants the leader’s job, it will be impossible to accomplish the goals.

Increase chances for success to happen!

Build ownership of efficient practices.

“It’s not my job!” is my second least liked phrase after “That’s how we have always done it!” Both approaches

demonstrate a lack of ownership by individuals and the organization.

Building ownership around any change must include a sense of personal responsibility for the outcomes,

and belief that each individual makes a difference. This is true whether you are creating more efficiency in

processes, implementing new software, or shifting to a mindset that supports internal and external customers.

Picture instead a climate that allows a lack of ownership for efficient practices. In this scenario, people cling to

outdated modes of operation, and are afraid to board the “change train” for fear of being criticized when things

don’t go as planned.

If mistakes are not tolerated, people will go a long way to avoid even the chance of improvement because the

risk of being punished for trying something new is greater than the reward for driving efficient practices to their

successful implementation. Look at the balance of risk vs. reward at your organization and you will quickly see

whether or not you are encouraging an ownership culture that will get behind efficiency initiatives.

Build an organizational culture of ownership by rewarding people who do the right things for donors, funders,

and employees.

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How Software Can Support Back Office EfficiencyChanges to federal grant regulations and to public opinion in recent years have placed greater pressure on

nonprofits to moderate indirect costs and improve operational efficiency while continuing to deliver quality

programs. Effective management of these costs can be challenging for organizations relying on outdated

technology or commercial software that lacks robust grant management and fund accounting capabilities.

In today’s environment, it’s vital that organizations make strategic investments in software designed specifically

to help nonprofits streamline operational processes, demonstrate fiscal responsibility to stakeholders, and

secure future funding.

As a complete cloud fund accounting solution, Financial Edge NXT™ delivers all the tools you need to automate

financial processes, understand and manage indirect costs, improve collaboration across teams, and increase

efficiency to maximize your mission impact.

Maximize existing funds with the ability to better understand and control costs.

• Review actual vs. budget performance, and create automatic alerts and spending rules

to keep your organization from going over-budget

• Manage tight approval controls around spending, and maintain compliance

with funding requirements

• Instantly access grant requirements, restrictions, and performance with intuitive,

user-defined dashboards

Breakdown communication silos at your organization and create more opportunities

for collaboration across teams.

• Securely share reports with program managers and other non-financial staff

• Connect your finance and development offices with seamless integration between Financial Edge NXT™

and Raiser’s Edge NXT™, the world’s leading constituent management system

Manage complex grant requirements with ease, freeing up time for your staff to

focus on other strategic initiatives.

• Create grant specific reports and budgets within the system, eliminating the need to manually

manipulate data on external spreadsheets

• Maintain detailed grant records for convenient access to budgets, reports, activity, and more

• Track reimbursable expenses and automate direct and indirect allocations across grants

With Financial Edge NXT, not only do you get a world-class fund accounting solution, but you also get the

added benefit of partnering with a technology vendor that has been dedicated to helping nonprofits achieve

their purpose for more than three decades. Blackbaud’s industry-leading nonprofit management solutions can

streamline and automate processes across key functions—including accounting, constituent management,

fundraising, and more—enabling you to take your organization’s funds further and grow your mission.

ConclusionOrganizations that rely on funding from donors and funding agencies will face increasing pressure to reduce

overhead costs. One way to bring down support costs is to increase back office efficiency. Organizations can

strategically support effective programs by making a regular commitment to having the:

• Right people

• Right practices

And don’t we all want our organization’s process for managing back office costs to be seen as a model of

efficiency? Then we can all get back to the projects and programs that make our hearts sing:

• “Cool science”

• “Cared for elders”

• “Teens at-risk no more!”

Take steps today to drive down the percentage of funding dollars that are used in overhead functions, so that

your program or project can become more attractive to donors and funding organizations passionate about

supporting its mission.

About the AuthorLucy M. Morgan is an author, speaker, GPA-approved trainer, and grant management authority. Lucy is

a highly regarded trainer whose passion is to teach people how to do more with their federal funding

regardless of the economic and political climate. Her books, training tools, and seminars provide people

of all professional backgrounds with the practical tools necessary to build their own careers and make a

bigger difference in the world.

© August 2017 Blackbaud, Inc.

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