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For several nonprofit organizations, the art of making tradeoffs is a condition of continued existence as well as a key component of success. With inadequate means to address considerable social challenges, nonprofit leaders continually make choices about the most efficient way to allocate available resources among contending priorities…
That is why resource-allocation decisions present nonprofit executives with their best opportunity to focus resources on activities that will efficiently achieve their organizations' objectives. (Swords, n.d, online)
Considering the significance of these choices, it is worrying that the financial systems in many nonprofit organizations aren't designed to support either short-term or long-term strategic decision making. Particularly, most financial systems do not add to organizational knowledge about the true, total costs of providing services, running programs and otherwise running the organization. Working without this information, nonprofit executives frequently have to make vital resource-related decisions on the basis of instinct, the skills and knowledge of the program staff, or the priorities of the organization's funders. (Swords, 2002, pp 113-114) Consequently, they run the risk of weakening their organizations' missions by failing to assign resources to the programs and services that have the highest impact.
To make resource-related decisions in a way that enhances an organization's effectiveness and promotes its mission, nonprofit leaders need to have a clear picture of the full costs of operating their programs and services. ...
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