Donors reluctant to fund ‘core costs’ like digital – report

Study suggests charities would benefit by understanding why donors and funders do not appreciate role of operational expenditure like digital transformation.

James Hayes | 28th Jun 18
Image of money being thrown at a computer. According to a report by Charity Futures and Behavioural Insights Team, donors’ psychological attitude toward charities’ operational expenditure, such as digital strategy and tools, may be steering them away from giving in a sustainable way.

The struggle faced by charities to secure funding of core operational costs such as financing a digital strategy could be helped by a better understanding of the way donors behave, a new report has said.

According to To The Core: Behavioural Science and the Sustainable Funding of Charities, published by think-tank Charity Futures in collaboration with social purpose company Behavioural Insights Team, donors’ psychological attitude toward operational expenditure may be steering them away from giving to charities in a sustainable way.

Many donors and funders are often unaware that core costs can be a generator of additional value to a charity’s activities – they may allow a charity to provide training to increase volunteer digital skills, or hire a digital expert, the report points out. Such investments can help to foster long-term improvements in functioning.

However, the report suggests that donors’ ‘behavioural biases’ – the facets of human psychology that lead us to make decisions that are not always economically rational – are driving an aversion to core costs.

The report further suggested that charities that are most upfront about their core costs may even be at a disadvantage, as donors and funders continue to believe that they maximise their own impact by directing every penny to ‘the front line’, which may not necessarily include the technological tools charitable agents need to ensure ‘front line’ delivery happens most effectively, for instance.

Charity Futures says the report shows that charity leaders need to continue to advocate the need for digital and non-digital infrastructure funding from every source. To do this effectively charities need to better understand donors’ in-built behavioural biases, the think-tank argues.

The report highlights a need for further research to uncover which interventions could increase core cost funding and change donor attitudes.

“Charities must emphasise to the public the paramount importance of back office systems support to their operations as the message is not getting through,” said Sir Stephen Bubb, Director at Charity Futures. “This is not an issue which will simply die down.”