This is the second of a three part series by Non-Profit Consultant, Derek Link, on energy, mission, and organizational entropy. Part 1 appeared on February 5, 2010.

You’ll have to read my previous post Organizational Entropy Part I: What the Heck is Entropy? on entropy of organizations before this one, or it may not make sense at all – which it may not anyway, or it may not anyway if the first one didn’t make sense. Nevertheless, here goes, and damn the torpedoes.

I see lots of grants from foundations that seek to give away money but which DO NOT FUND “indirect” costs. In other words, whatever it costs your organization to run the program, tough, you will have to find funds for those administrative costs another way.

I always wonder to myself, what is the color of the sky that these organizations live in? I decided that sky must be a green one, one that rains money. Who pays for their administrative costs, I wonder? Why would they be opposed to paying for a little healthy administration?

So my question – you may have thought I’d drifted away from it for good by now – is whether spending money on administrative costs represents energy/resources that are essentially wasted? Can the work of an organization be done without administrative work? Would it be feasible to give grants only for the good work it is actually going to do but none of the support structure? How would an organization complete its mission if it were giving away shoes to shoeless people in Tanzania and all grant makers said every penny must be spent on shoes and/or shoelaces and nothing else?

Is not administration a necessary part of the work? After all, someone must go to Tanzania to assess the need for shoes, someone must negotiate with local organizations to assist giving shoes out in an orderly and effective manner, someone must inventory the shoes, someone must make arrangements for shipping, someone has to write and sign paychecks to staff, and endlessly so on. Why is this work considered superfluous entropic waste?

Perhaps the answer partly lies in the fact that some non-profits are paying huge salaries to their employees and consultants – ours excepted. It may be that grant makers have seen some of their precious resources wasted by conflagrant administrators. The decision to ban all use of funding for indirect costs may well arise from bad experiences.

To answer my own question, I must conclude that administrative/indirect costs can be entropy, i.e., wasted resources or energy; However, reasonable administrative costs are a necessary part of getting the work done and are supportive of accomplishing the mission. Inadequate administration can actually get in the way of getting the shoes from point A to feet B. Poor administration is probably entropy, busily gobbling up energy and resources of an organization.

Good non-profits make an effort to prove the efficacy of their administration. The fact that grant makers feel the need to set policies restricting administrative costs dictates transparency and a high level of accountability among administrators and Boards. In order to convince grant makers that administrative costs do not represent entropy and in fact are a necessary part of the work mandates that all resources are clearly spent to support the motion of the mission, and are not wasted, thereby creating unnecessary friction.

***************

Part 3 of this series will discuss specifically how organization’s fall into a state of entropy.  It will be published on February 10, 2010.