23/03/21
by John Cammack
Over recent months, whether international development organisations have had enough ‘reserves’ has been a key factor of whether they have been able to continue. Even those that have had reserves, have now largely used these up in order to survive. For many, things are still on the edge but, as soon as possible, we need to repair the damage done to reserves and try, if we can, to build them up.
But what can we do? IMA’s short course Financial Sustainability and Resilience looks at how we can manage and replenish reserves. Here’s a short preview from the course about what reserves are…
Two stories
A personal story
In my first year of work, I received a salary of 10,500. My expenses for rent, travel to work, food, and entertainment cost me 9,750. I put 750 into my savings account.
The second year I again received 10,500 as salary, but in addition to my expenses of 9,750 I had to pay health costs of a further 1,000 – a total of 10,750. I took the extra 250 that I needed from my savings. It left 500 in my savings account.
An organisation’s story
In the first year we started, we had 10,500 from donations. Our project expenses, travel, newsletter production, and meetings came to 9,750. We put 750 into our savings account.
The second year we again received 10,500 and paid our expenses of 9,750; but this year we also had a new health project costing 1,000 more – a total of 10,750. We took the extra 250 from our savings account. We were still able to keep 500 in our savings account. We started to call the money in our savings account our ‘reserves’. We do not need it yet, but we may do in future years.
Extract from: John Cammack (2014), Building Financial Management Capacity for NGO's and Community Organizations, Practical Action Publishing
John Cammack’s book presents practical ways to build financial management capacity in an international development context, although much of it applies to any non-profit organization. It describes good practice in the specific tasks of financial management, such as planning and budgeting and financial controls, and gives examples of how groups and organizations build their own capacity. It explains other financial management aspects such as building reserves that can be built into an organization’s structure to make it sustainable.
This book should be read by programme staff and managers of non-government organizations, larger community-based organizations (CBOs), and charities, as well as by professionals working in large NGOs and donors, working with their partner NGOs and CBOs. The content can also be used in university and college courses for international development workers, as well as in training courses.
This year’s Value for Money training had an excellent mix of participants ranging from private sector, the donor community, research, and the INGO sector; and from America, India, Somalia, Finland, Canada, the UK, Kenya and Spain – a perfect international mix, if we can get an Australian participant next time we will have representation of all continents! This sharing of different sectors, cultures and countries contributes greatly to our ability to share learning on the strengths and weaknesses of different VfM methodologies in different contexts, and gives us a practical inside view of key players' roles and understanding of VfM. IMA International conducts this workshop with the leading UK think tank NEF– the New Economics Foundation, incorporating the best current practice in economic theory, as well as the practical application of existing and emerging tools.
We began the week by exploration of the mainstream approaches and rationale of Value for Money thinking, progreesing on to look at how to embed VfM in project cycles and M&E (from Outputs, Outcomes and Impacts) together with how Economy, Efficiency and Effectiveness fit across project and programme cycles. After all this hard work and thinking it was certainly time for an evening stroll around the Tate Art Gallery and a well-deserved group dinner!
After wider thinking about VfM practice we introduced the in-depth exploration and practical applications of different tools including multi-criteria analysis and multi criteria decision-making, Cost Benefit Analysis (CBA), Social Return on Investment (SROI), triple bottom line outcomes: social, economic and environmental, and valuing social and environmental impacts. The final day looked at VfM from an organisational perspective, from readiness, systems, structural alignment, decision making, and of course, how we can communicate good Value for Money.
To find out more about our open courses, please go to training.
by Petra Veres and John Cammack
Sustainability is a buzzword, but what does it mean for organisations? Being sustainable, and especially financially sustainable means that the organisation has the ability to adapt to new circumstances and to develop resilience in uncertain times. Those organisations which fall into the category of “financially sustainable” have a greater potential to bring broader societal benefits even during unforeseen global challenges. Their service is not, or is less affected by external impacts, such as a decreased income due to restrictions or lack of funding by donors.
It is a complex task to establish a financially sustainable organisation. An organisation, as such needs to have its budget in order and manage its cash flow effectively. This way not only the impact of its programmes but the organisation’s credibility with partners, donors and other stakeholders can be improved. The organisation needs to manage its reserves or organisational savings and core costs effectively as these can be affected by external events. The latter, which refers to rent, water, electricity, salaries, telephone charges, travel expenses and technological equipment need to be covered by either the organisation itself or with the support of donors, otherwise the organisation will not be able to plan easily for the future. A financially sustainable organisation needs to develop a financing plan which allows to review the needs of the organisation and how income can be generated in various ways. If the core costs are suddenly not maintained, due to lack of external support or a rise in unpredictable necessities, such as additional technological equipment, the organisation’s sustainability is disrupted. In the response to these unforeseen expenses or loss of income reserves play a crucial role. Holding savings enables the organisation to continue its work even if income or fundraising is not as high as expected, or when money is not received or received late. This way money not budgeted can be spent if an opportunity or emergency arises. [1]
The establishment of a financially sustainable organisation needs time but more importantly, it needs skilled and knowledgeable professionals. So, what skills and knowledge are we talking about exactly?
The above-mentioned practices will require professionals, regardless of their role, with good basic understanding of financial management: How is cash flow managed within their organisation? How does their organisation extract funding? Does this funding go towards core costs and reserves or only to project delivery? They will need to be able to plan and monitor budgets, communicate effectively about finance with donors, partners and other stakeholders and manage their expectations for project funding and financial reporting.
Being financially sustainable is desired for any organisation which wants to be able to deliver programmes effectively and plan easily for the future. Yet, why should we focus on it more during the recent pandemic? How did this global uncertainty affect different types of organisations and how can we sustain resilience and responsiveness?
The recent pandemic brought changes in where donors are directing their funding and how they support their partners and grantees. For some organisations to be financially sustainable and resilient is not only a necessity for project delivery but for survival. The access and utilization of resources differs from one organisation to another in different country contexts. It is evident that larger organisations’ funding may not be tremendously affected by the global pandemic as they are able to extract funding from a larger pool of resources. Large international NGOs and INGOs are relatively well positioned as well as they have the support of their donors, network of local professionals and financial base similarly to big for-profit implementing partners, whose infrastructure remains attractive for donors. However, midsize and small local NGOs and Charities will face hardship to a larger extent.[2]
Programmes need to cope with lockdown requirements, travel restrictions and health concerns while responding to different and additional needs. While the cost structures and parameters of programme delivery changes and the duration of this shift is unknown, international and local organisations’ cash flow and liquidity becomes critical and sensitive to changes. There’s no doubt that those who deliver the programme need more flexibility from their donors and partners at the moment.
Funders have increased their flexibility due to the uncertainty in current grant agreements. They’ve been allowing organisations to use money for sick pay, relaxing reporting deadlines, adapting activities while acknowledging that agreed timeframes might change, and activities might need to be adjusted accordingly.[3]Yet, this flexibility might be only a short-term solution and by time, funders might begin to direct their funding towards COVID-19 alone, on specific health related programs and cut back on other funding projects.[4]
There is a high need from large organisations to increase efforts in cooperation and sympathize with their smaller partners, while for small, local organisations to be more accountable and transparent in their financial management. Regardless of what organisation people work in it is essential to understand various needs and expectations of partners. With the basic set of skills and knowledge in finance professionals, working in an NGO, Private sector, UN agency or government ministry, will be able to increase these efforts and build their and their partner organisations’ capacity.
At IMA International, considering the rapid change of the sector, we are offering a Sustainable Finance training course for professionals working in International Development. This IMA course will cover all the finance basics, and how they operate in uncertain times –budgeting, financial sustainability and resilience, financial controls, and using financial information in decision making and communicating about finance. It also has a module covering how to a build a partner’s financial capacity. The training will enable participants to meet others from different parts of the world and engage and understand challenges in different organisations. It is a very flexible training, which helps practitioners to use finance skills to build their own, and partner organisations’ financial capacity even during uncertain times.
If you are interested in this modular course please email us at post@imainternational.com.
[1] Cammack, J. (2014) Building financial management for NGOs and community organizations, Practical Action Publishing.
[2] Cornish, L. (2020) Interactive: Who's funding the COVID-19 response and what are the priorities? DevEx.
[3] Bond (2020) How is Covid-19 affecting NGOs’ finances and operations?
[4] Kumar, R. (2020) For the global development community, COVID-19 poses big questions. DevEx.
Participants from, Shell, UN, Mercy Corps, DAI consultancy and the Qatar Foundation from Nigeria, Lebanon, Mozambique, Ethiopia, Japan and America took part in our Value for Money training course in sunny Cape Town. Here are a couple of their testomonials "The diversity of the class IMA attracted made it very lively. The trainers did an excellent job of integrating the various perspectives in a practical and helpful manner. Learning VFM has been very interesting and inspiring." Suan Hanson, Director of Operations and Finance, DAI, Ethiopia. "This is simply excellent. Measuring project/program impact and effectiveness has always been a challenge to donors and implementators and more to the beneficiaries. I am now better equipped to consider 'what matters to all stakeholders' in my project design and implementation." Wakeel Olayiwola, Team Lead Social Performance, Shell, Nigeria.