In July, we shared our plans to analyse the financial health of nonprofits in research and scholarship, with the aim to baseline the financial indicators of nonprofit organisations within the open research ecosystem, in order to develop measures of organisational health and well-being.
To gather the community’s early input and feedback on our approach, we hosted a community discussion earlier this week. Tania Hernández, our Research Data Analyst, presented our approach — including the goals of this work, further context on the financial ratios we proposed and their significance, example data, and questions we are considering as we look towards next steps for this research.
We deeply appreciate the thought-provoking questions, insightful reflections, and constructive feedback from the 20+ participating experts, who represented financial and organisational leadership for the non-profits explored in this work, and other members of the open research ecosystem.
Here, we share the recording, slides, and shared notes from the community discussion, as well as a summary of some of the questions raised during the session.
Questions from the community
- On the initial focus on 501(c)(3) / 501(c)(6) organizations: “What evidence is there to suggest that an initial focus on US 501(c)(3)/(6)s will provide information about the broader financial health of the scholarly infrastructure ecosystem, and what consideration has been given to biases this may introduce?”
This follows our approach to building the initial prototype for the Catalog of Open Infrastructure Services (COIs). Our goal with this initial exploration is to build a prototype for this analysis — to understand the questions to ask regarding the financial health of organizations in the open infrastructure ecosystem, with the public filings and information available from these organizations. We recognize the biases introduced through only looking at US-based nonprofits, and we intend to expand our analysis to other types of organizations in the open research and infrastructure space in other countries, first prioritizing those where public data is available.
- On the validity of the desired thresholds: “What work has been done to determine if the proposed “broad standards” are specifically useful for analyzing the financial health of scholarly infrastructure organizations, as opposed to, say, public charities?”
It is a goal of this analysis to look at ratios, indicators, and thresholds that are specifically relevant to the open infrastructure/open research ecosystem. We start by learning from and building upon the commonly accepted standards in the nonprofit sector by looking at practitioner and academic sources (e.g., Covens, 2020; Ittelson, 2017; Prentice, 2016; Sanchez, 2021). We also understand that in order for these ratios, indicators, and thresholds to serve the open infrastructure community, they need to factor in the realities specific to this sector, and be iteratively developed with the community’s input and feedback. Following the completion of this analysis, we commit to sharing the preliminary findings with the organizations involved in this initial phase, engaging in more dialogue to solicit additional feedback, and continue to explore the questions that surfaced in our community call to further improve this work.
- On thresholds regarding earned revenue: “We view [programme service revenue] as a more stable way of funding a service-providing organization than relying on grant funding or donations. Do the ratios regarding this sort of revenue reflect that?”
We recognize that programme service revenue, as reported on Form 990s, lacks the nuance needed to determine how diverse sources of funding accounted for in that line item are in reality. We proposed this mix of reliance ratios as a way to look at the diversification of revenue sources, to provide diagnostics across the broad open infrastructure and research ecosystem. We will continue to explore ways to factor in this feedback so as to not miss the importance of earned revenue for nonprofits in this space as a means of diversifying off grant-based support. We appreciate the community’s feedback that there could be diversification within these gross revenue streams (e.g. multiple programmes within programme service revenues) and will share back our findings in the coming weeks.
- On personnel expense ratio: “Can you also explain the judgements you are planning to make around staff expense ratio?”
This is one of the ratios we feel can help indicate organizational funding priorities, in that this helps us identify where we see patterns across providers and nonprofits that may warrant more exploration. For example, from the discussion, we understand that some organizations in the open infrastructure and research space (ourselves included) spend more than the established threshold (70%) (suggested by e.g., Give.org, 2022, Ittelson, 2017) of their total revenue on staff wages, salaries, and benefits. This is a great example of the work we hope to do to adjust these thresholds based on the specific context of organizations in this space, so we can better advocate for resourcing support for open infrastructure providers and services. We also deeply appreciate the suggestion to more closely examine contractors' costs versus personnel costs as a potential indicator of continuity and organizational health.
Covens, M. (2020, May 1). What percentage of total expenses should go toward program expenses. North Texas Nonprofit Resources. https://www.northtexasnonprofitresources.org/blog/1090
Ittelson, T. R. (2017). Nonprofit accounting & financial statements: Overview for board, management, and staff. Mercury Group Press.
Prentice, C. R. (2016). Why so many measures of nonprofit financial performance? Analyzing and improving the use of financial measures in nonprofit research. Nonprofit and Voluntary Sector Quarterly, 45(4), 715-740.
Sanchez, M. (2021, May 12). Nonprofit Ratios: How to Use Them and What They Measure for Your Organization. Warren Averett. https://warrenaverett.com/insights/nonprofit-ratios/
Give.org (2022, August 12). “BBB Standards for Charity Accountability.” https://give.org/donor-landing-page/bbb-standards-for-charity-accountability.