What Does It Really Cost to Deliver Life-Saving Aid?
Every few years, I get a certain kind of call from my mother. There has been a flood in Pakistan, or an uptick in the violence in Syria, a string of bad harvests in Ethiopia, and she wants to donate to an organization that will help the people affected by that crisis.
The problem is that she doesn’t have a clue how to judge which organization is doing what, and how well. Of course, she’s checked out Charity Navigator or Guidestar and read about the various organizations’ overhead ratio and their mission statement. But it doesn’t actually tell her much about what the organization can achieve in the affected area, and how far her donated dollar will go.
It’s nice to know that the organization spent only 7 cents of her dollar on overhead, she says, but what exactly did the other 93 cents achieve?
Is the organization building shelters, or providing micro-loans, or disseminating health information?
How does she really know that those interventions make the most difference in the lives of clients, for the limited donor money available?
As an economist, when I hear those kinds of questions, two words immediately come to mind: cost analysis. This is the specialized term that we use (because overcomplicating matters is kind of our modus operandi) to describe a fairly straightforward idea — figuring out how much it costs for each thing that is achieved.
At the International Rescue Committee, this might mean knowing how much it costs in administration and management for every dollar of money transferred to displaced families in Lebanon, or how much it costs per child that learned to read through an IRC education program in the Democratic Republic of the Congo.
We ourselves cite cost figures like this often enough, saying how many dollars it costs to pay for a year of schooling or a safe birth, but in actuality these figures mostly reflect the materials costs of school supplies or the medical equipment, which is not the same as the full resource cost of delivering care and services in emergency settings.
It may surprise you, the reader, to know that the vast majority of non-profits do not know these things. The humanitarian sector succeeds in tracking its finances up, down, and sideways; the IRC, for example, has nine separate accounting codes, leaving aside the dozens of other ways that donors ask us to track our expenses. But nowhere in that morass of data is a system for linking costs to specific outputs (how many latrines we built, how many children we taught to read) or outcomes (how many cases of cholera were averted, how much literacy rates increased) actually achieved.
To figure this out for any particular program is a challenge, to say the least. As the head of the IRC’s cost analysis team, I may have to sift through anywhere from four to 20 documents to find the data I need. If I open all of the different spreadsheets that allow me to see what a program spent in a certain time period in one place, my computer usually crashes.
Despite the challenges, the IRC is committed to learning how much it costs to deliver key interventions, so we can apply our available resources better and reach as many people as possible with life-saving assistance.
By the end of April 2016, the IRC will finalize 10 separate studies showing the cost per output for key humanitarian interventions — life-saving actions, like treatment for severely malnourished children and case management for survivors of gender-based violence.
It has taken our team nearly a year to assemble and analyze all this data, and I’m looking forward to the sleep I will get once we release the studies!
But the work is not done. Our biggest achievement this past year was not simply producing the analyses, but understanding where all this data lives within the IRC and establishing a standardized methodology and process for assembling it. The next step is to plug into these systems automatically and build a tool that allows anyone anywhere in our organization to quickly and easily understand the linkage between resources used and outcomes achieved.
The vision is that insights from cost analysis can be embedded within program management and aggregated upwards into organization-wide metrics that give us real insight into what has been achieved for the money we spent. This vision is why I came to the IRC, and this keeps me motivated to power through countless spreadsheets day after day.
Understanding the best ways to deploy IRC resources should not be a one-off exercise confined to an academic report; rather, it will serve as a part of the daily practice of the organization and encourage others to embark on a similar exercise to conduct rapid, rigorous costs analyses of programs.
When a project coordinator completes their expense report at the end of each quarter, it should take minutes, not days, to match that spending against the outputs or outcomes the project achieved, allowing him or her to use this information about cost-efficiency to move resources in real-time to where they are most needed. Those quick analyses will then feed upward to dashboards read by country directors and donors, who can then learn faster and in greater detail than ever before the kinds of programs that make the greatest positive impact on people’s lives.
That is still in the realm of vision, and we have an uphill struggle to get there. It’s hard to convince people to abandon a metric that has been a staple of fundraising for years, especially when making that switch may mean exposing some less-than-flattering results. The IRC itself perpetuates the overhead myth in our printed and web materials, and it’s not easy to get people to shift from an intuitive one-number judgment to a more complex and outcome-focused understanding of efficiency. But we won’t make much progress in reforming humanitarian finance if we keep thinking about costs in isolation — we have to do the dirty work of understanding how what we spend relates to what we achieve.
Eventually, that information can replace the vague overhead ratios and mission statements that currently constitute “aid transparency,” and my mother can know for certain what her dollar can achieve at different organizations. Setting up these processes to conduct rapid, rigorous analyses may be complicated but the concept is simple, and we owe it to donors and clients alike to build a system that makes use of this learning every day.
The International Rescue Committee responds to the world’s worst humanitarian crises, helping to restore health, safety, education, economic wellbeing, and power to people devastated by conflict and disaster. Founded in 1933 at the call of Albert Einstein, the IRC is at work in over 40 countries and 26 U.S. cities helping people to survive, reclaim control of their future and strengthen their communities.
This work was conducted by the Best Use of Resources initiative at the IRC, and funded with UK aid from the UK government.