# Overhead costs poor guide for charitable giving, finds report

- Link: https://fundraising.co.uk/2017/01/24/overhead-costs-poor-guide-charitable-giving-finds-report/
- Published: 2017-01-24T10:10:20+00:00
- Author: Melanie May

**Overhead cost ratios are a poor metric for judging the effectiveness of charities
and often lead charities to underinvest in skilled labour and necessary infrastructure,
according to a report published on [IZA World of Labor](http://wol.iza.org).**

The report, [_Are Overhead Costs a Good Guide for Charitable Giving_](http://wol.iza.org/articles/are-overhead-costs-good-guide-for-charitable-giving),
is by economist Jonathan Meer (pictured) from Texas A&M University. It states that
while donors often focus on overhead costs when deciding where to give, there appears
to be a little connection between this metric and a charity’s effectiveness.

In fact, the report finds, too great a focus on overhead costs can lead to counterproductive
outcomes for charities, such as underinvestment in infrastructure, staff, and administrative
support in an attempt to keep costs down, which then hampers their effectiveness.

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The report therefore suggests that charities first examine whether donors care about
overhead costs, whether they are good measures of charity effectiveness, and the
effects a focus on overhead costs has on charities.

Meer states:

> “This focus [on overhead] hurts non-profit organisations’ effectiveness by limiting
> their ability to compete in the labour market and by altering their administrative
> structure in a counterproductive way. Alternative measures based on the true impact
> of a charity’s activities would be far more useful.”

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