Why "lean M&G" is so important

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April 05, 2017

Why "lean M&G" is so important

By Robby Vanrijkel

Manager, Programs InsideNGO

Many organizations are on a similar path

Whether you call them Management & General expenses (M&G) or General & Administrative expenses (G&A), international NGO leaders know that maximizing the value of general operational expenses is one of their biggest challenges. While this allocation method has made our lives simpler by providing an easier way to allocate indirect costs, there is the continual puzzle of trying to overcome restrictions or caps placed on so-called overhead costs by funders. There have been some wins in this area, as evidenced by the Ford Foundation increasing its overhead rate cap to 20%, and by the recently revised Bill and Melinda Gates Foundation Indirect Cost Policy that adjusted how indirect costs can be allocated (while retaining that these expenses be capped at 15%). 

While these two changes are examples of progress in the overhead debate, these wins take time to achieve. In the meantime, due to overhead cap restrictions, many organizations are having to use more unrestricted funds to co-fund what we’ll refer to in this blog as M&G expenses. As a result, several InsideNGO member organizations are taking a hard look at M&G and developing strategies to establish a leaner infrastructure. During a recent members-only C-suite forum event at InsideNGO, the CFO of one organization detailed his NGO’s strategy regarding M&G costs. I’ve summarized it with his permission, omitting the organization’s name to share this example more widely in the sector. 

Case Example: The Problem

To start, this NGO recognized that while M&G and programmatic support costs had grown over the past few years, total program costs had remained flat, driving indirect rates up. Since this situation was unsustainable, the NGO assessed what the true cost of M&G was for them. Currently at 19%, the organization has set a goal to reduce the percentage to a more routinely fundable rate of 15% (especially by non-USG funders and private foundations). The benchmark computation that the NGO is using is different from the Negotiated Indirect Cost Rate (NICRA): Total M&G costs/Total program costs (including program support with no exclusions).

Case Example: The Strategy

To accomplish this goal, the NGO will be required to reduce M&G by $3 million over three years ($1 million per year). So how will this be achieved? The NGO is using what it calls “lean principles” that include the following actions and behaviors:

Actions

  1. Continuous improvement to seek small, incremental streamlining changes in processes to improve efficiency and quality. Staff engagement is key.
  2. Standardization of processes that is well documented, understood, and easy to use.
  3. Automation so that functions are software-enabled and paperless, freeing up staff to perform more analytical work.
  4. Decentralization so that staff delivering the service should be as close to the work being supported as possible. Pure corporate functions should be in headquarters, while support to program should be as near as practical.

Behaviors:

  1. Self-sufficiency where users rely as much as possible on useful tools (often developed by those covered by M&G) to explain and demonstrate how things work, complemented by periodic face-to-face trainings.
  2. Pitching in where staff help during times of need regardless of the task or reward. Seasonal workflows require a periodic shifting of resources to get the job done.

For now, this case example is a work in progress—we’ll be checking in and sharing progress and challenges after the one-year mark. 

Join the Conversation

The resounding response by those that participated in the InsideNGO C-suite event was to keep the discussion going on this topic. Everyone agreed that NGO leaders don’t want to reinvent the wheel. There is a strong desire among our community to share experiences, strategies, and experiences to achieve lean M&G.

Have you made some steps at implementing lean M&G? InsideNGO is looking for 5-8 organizations to be part of a “Lean M&G Working Group” that will help us generate case examples, strategies, and lessons learned that can be shared back with the community. If you are interested in being part of it, please contact me at rvanrijkel@insidengo.org.

If you’re interested in reading more on this topic, two essential reads from McKinsey are Can you achieve and sustain G&A cost reduction? and Maximizing the value of G&A.

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