It is early Fall. The senior management team is developing a proposal to determine budget priorities for the following year. The Board will have to sign off on this approach. As is often the case, there are competing beliefs about how and where to prioritize spending for the coming year, such as: balancing current program commitments or testing and learning from new initiatives; and investing in staff development or hiring additional personnel. Which priorities should take a back seat, and which are crucial in helping leaders focus their energies on strategy fulfillment?

What the seemingly hard numbers of budgets miss is the embedded values they represent. The kind that are about principles not dollars, that each entry reflects about the organization. Values should inform how an organization decides on budget priorities that support achieving big goals. Often these big goals, usually achieved in the long-term, would best be served by investing in staff, improving evaluation and infrastructure systems, learning and growing by testing new program ideas and approaches to work, and dedicating risk capital to organizational sustainability efforts.

So why doesn’t this happen very often? One important reason we have identified in our work is that compliance culture has incentivized playing it safe and thinking short-term. Compliance culture is a cycle where organizations focus on meeting the demands of their funders. Resources are focused on demonstrating to funders that they deserve the next influx of cash. This depletes their time and resources aimed at achieving the big changes they seek to make in the world.

As a result, the construction of a budget and its subsequent monitoring and oversight is focused on making sure that income covers expenses, and short-term project delivery is adequately resourced. When the primary role of the budget is to fund short-term outputs instead of aligning investments with long-term strategic goals, it reinforces a circular logic that makes it hard to escape compliance centric decision-making.

Why does this happen so often? Because it feels less risky. Because organizations with limited resources are hesitant to allocate money to future learning and trends analysis to inform the next successful program. Instead, they focus on current programs even if evaluation systems are minimal and effectiveness is unknown. What they suffer from is a common cognitive bias called loss aversion. The essence is that organizations would do more to avoid losing $50,000 in funding than risk developing ideas to gain that amount in new funding. This kind of thinking can lead to a slow death spiral for an organization as they eke out an existence year to year instead of focusing on the big changes they hope to make. Furthermore, the relatively small number of non-profit professionals who do feel comfortable with finances often emphasize ‘staying within budget’ rather than taking a step back and imagining how decisions about dollars determine organizational direction. In a compliance environment, who can be faulted for making sure operations stick within budget?

How can leaders justify re-routing money away from current projects to invest in testing and learning about new programs and new ways of working that may have greater benefit? How do senior leaders introduce proposals for well thought out investments that may even require spending from reserves (deficit spending) to a non-profit Board that typically lets the ‘Finance people’ handle the numbers?

We welcome your experiences as senior staff and Board leaders on how your organizations have addressed these issues. Email us at db@deepbreadth.co so we can continue to share our solutions with each other.