Opinion

Taking control of costs

Finance | Gareth Jones | 1 May 2009

As government funding inevitably dries up, charities will increasingly have to fall back on their own ingenuity to leverage their assets effectively and to manage costs. Two ideas that have come up recently make attempts  to address this and bear further examination.

The first of these is to pool the resources of charities with large property portfolios  and create a single entity to provide the costly maintenance and management  these properties require. The theory is  that this would avoid the need to outsource to professional property management companies, thus saving the VAT, marketing and profit elements of their costs as well as providing the economies of scale needed to afford quality internal systems and processes in the consortium vehicle.

This all sounds good but there is a danger of leaning too hard on the motherhood and apple pie notion that there are huge savings to be made by cutting out the profit margins and marketing costs of commercial providers, especially in the current climate where none of them is spending any money on marketing nor making any profit. And contrary to some characterisations, ordinary businesses often take great pride in delivering a good service at a competitive price and are not always milking vast profits out of their activities. This might make it harder to reduce overall costs than it at first appears.

Other factors can also come to the fore in the absence of an ordinary business motive, for instance an inclination for staff to trade off between bonuses and quality of life, potentially obliging the enterprise to be more heavily staffed than a commercial equivalent, in turn leading to a higher cost basis. And any kind of co-operative can lead to conflicts of interest between partners, especially when one or two of them dominate the management or drive the vision.

Charities should team up and create economies of scale if they can and property maintenance may be an area where this  is possible. These models are certainly  worth exploring but they aren’t always as easy to deliver in practice as in theory and basing anything on the notion of beggar  thy neighbour is always prone to coming  a little unstuck.

Coram’s field of dreams

The second idea is Coram Foundation’s delightful plan to build a substantial campus for children’s charities at its central London site. The provision of high-quality affordable office space, together with a theatre and other meeting room mod cons is not unique. Can Mezzanine has been doing something similar with great success for a while and another provider like Coram will make a valuable additional contribution.

However, Coram is adding other dimensions to the concept by planning  to dedicate space to incubation units for small innovative children’s charities and potentially offering a backbone of well resourced finance and human resources expertise to tenant organisations.

Small and medium-sized charities, like all SME businesses, struggle to afford sufficiently professional resource in finance and HR and their progress can be stunted as a result. This simple but brilliant idea works on many levels and should facilitate the work of the hosted organisations by providing them with a quality home and core services and a campus of like-minded organisations in the same field to interact and cross-fertilize  ideas with. We plan to look at this ambitious project  in more detail in the June issue.

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