Spring cleaning: Considering program sustainability

There has never been a better time to consider the sustainability of your program activities and take action to address unsustainable programs. Whether your organization is in an unusually strong financial position because of COVID relief funds or in an unusually precarious financial position because of the disruption caused by COVID, you should take advantage of this moment to move the organization forward by identifying and discontinuing unsustainable activities. Start with this question:

Can your not-for-profit organization survive and thrive in its current form?

That’s the core question of sustainability for not-for-profit organizations, and it’s coming up increasingly often. But how does one answer such a question? And why is having a response so important? What if the answer is that your organization (or some part of it) is not sustainable?

Let’s start with “the why.” Articulating an answer to this question at your not-for-profit organization is important because:

1. It challenges the status quo. Considering whether your organization is viable for long-term survival can be an eye-opening experience, perhaps even a little alarming. There is a temptation to be satisfied with a “steady as she goes” mentality that assumes people don’t really want to be tasked with more change right now; but is simply continuing doing what you do the way you’ve been doing it a sustainable path?
2. It informs strategy and direction. Identifying that your organization’s sustainability is not assured helps decision-makers focus on those items that most severely challenge your sustainability. Identifying and establishing a plan to address those challenges is critical when considering strategic direction.
3. It forces an up-to-date evaluation of your operating environment. There have been a lot of changes in the last two years. The global pandemic and related governmental response, accompanied more recently by a tight job market and heightened inflation, have driven significant changes in the environment in which your organization operates. Is your organization positioned for today’s environment or the environment of yesterday?
4. It drives performance improvement. Most people, and most organizations, when faced with the thought that their very existence is at risk, are motivated to improve the situation. Focusing your organization’s people on performance improvement necessities is an important step in making those improvements.
5. It establishes or reinforces organizational culture. Do these types of potentially difficult or even contentious conversations happen in your organization? Should they? Apprehension about or openness to considering sustainability says something about your organization’s culture.

My guess is that you can think of additional reasons why it is worthwhile or even critical to pose the question “Can our not-for-profit organization survive and thrive in its current form?” I’ll assume you’re on board with why this question should be asked.

Now on to the task of responding to the question. Consider the following:

• Do each of your operating programs generate enough revenue to cover expenses? If not, how do you cover the resulting financial deficits?
• Are the time, effort, and financial costs of each of the organization’s programs worthwhile in the context of the furtherance of the organization’s mission?
• Are current programmatic expenditures the most effective use of the organization’s funds? If you could, would you allocate funds to something else that might be more effective?
• How do other providers of similar services fare on these questions? In cases where other providers are doing better than your organization, why is that?

This is not a purely financial analysis. But to really address these questions, you need to have a financial reporting process that gives you a useful and realistic sense of your organization’s programs’ financial performance. Do you have information on programmatic activities that generate a financial surplus, those that break even, and those that operate at a deficit? Ideally, you can go beyond just the bottom-line financial results of the program, but also have statistics such as the cost and revenue for providing each unit of service or, even further, the cost to achieve certain desired programmatic outcomes for a program participant as well as how much revenue you generate for achieving that outcome.

To the extent you don’t have this information readily available, it is worthwhile to spend a little time to at least identify programs that are generating financial losses, even if you can’t quantify those losses in detail. However, the inability to report financial results in a useful manner could be a sign, in and of itself, that your organization’s sustainability is questionable.

At this time, there are some unique challenges to evaluating a program’s financial viability. Many not-for-profits have obtained material amounts of government COVID relief funding. These non-recurring funding arrangements may serve to mask operational deficits generated by programs. Be sure that the effect of this COVID relief is understood and that the true recurring or expected go-forward financial results of each program are incorporated into the sustainability evaluation.

For those program activities that generate financial losses, articulate how you have historically managed to cover those deficits. Consider if there is something more effective you could do with the funds you expend covering the losses in these programs. Brainstorm ideas for improving financial performance.

Set aside your ego and ask others in the organization to do the same. Your people likely take great pride in these programs as well as a healthy amount of ownership or stewardship. Objectively considering sustainability may feel like giving up. But this process should be looked at as helping to ensure the greater success of the overall organization.

For this exercise, having a trusted advisor who brings an independent, objective point of view to the discussion is of great value. People within your organization, including yourself, may not be able to objectively look at the programs and activities they hold close to their hearts. Ask someone you trust or an advisor with experience in this type of analysis for help.

Start with measurable and quantifiable metrics. Organizations should also consider measurable elements other than the financial bottom line when evaluating programs, including statistical data like number of people served, units of service provided, or data on the people “graduating” from your program because they no longer need your services. Understand what these statistical measures say about your program sustainability.

Elements such as your organization’s impact on the overall community, community-wide health outcomes, and levels of poverty, literacy, or overall quality of life, are of less direct importance to a program sustainability analysis because they are harder to relate directly to any one program activity. Articulating an objective consideration of these factors is worthwhile but is typically not a driving factor relevant to sustainability.

Most not-for-profits have a mission statement that summarizes and supports the organization’s reason(s) for being. This can serve to give the organization and your people a sense of “who we are.”  But don’t let this limit your aspirations to be sustainable as an organization. The sense that every organization must stay within their specific programmatic focus is no longer practical and, in some cases, limiting your organization to its traditional focus is by itself a threat to the organization’s sustainability.

So, what if you go through an evaluation of sustainability and conclude that the organization, or a program of the organization, is not sustainable? Be brave. It’s not easy to acknowledge that a program activity is no longer viable. Consider these steps:

• Define how much the organization could save by discontinuing the unsustainable program activity. Articulate this in the context of other mission-promoting activities your organization could take on or expand with those funds.
• Get a sense of how other providers of similar services are doing with their programs. This may provide ideas for improving your organization’s performance. It may also create an opportunity to work collaboratively with those other providers for mutual benefit, or even to identify another provider who could take the program over from you.
• Identify program stakeholders (funders, donors, those receiving services from the program in question, your employees working in that program, and other providers of similar services in your community) and consider how their needs and interests will be addressed when you discontinue your organization’s program.
• Communicate with your organization’s management team and governing board regarding the evaluation you’ve conducted and your conclusions. Work to achieve consensus.
• Document the organization’s considerations and conclusion, including the ultimate disposition of the program activities if your organization will discontinue them. To the extent you elect to continue an unsustainable program, document the plan for bringing the program to a point where it is sustainable.
• Communicate with stakeholders regarding planned changes. Acknowledge that this is a challenging process, especially when staff reductions and/or re-assignments are involved. But also communicate the long-term benefit to the organization.
• Execute the plan. Make sure to emphasize the importance of communication throughout.

Throughout these conversations, remind people that the point here is to ensure the organization’s larger mission continues by discontinuing activities that are not sustainable. It’s the kind of Spring-cleaning exercise that can pay dividends for many seasons to come.

Jeff Paille is a CPA and partner at the Bonadio Group and has consulted with tax-exempt organizations for almost 30 years.