Partners in Philanthropy   Partners in Philanthropy
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mmaude@develop-net.com

How Much Money Should You Be Raising?

A three-step model for measuring potential and predicting success

I was sitting through a two-day educational session about integrated health delivery systems. The audience included board members, senior management, and selected physicians from the medical staff. While the presentations were interesting, they had no relevance to philanthropy. Suddenly, though, one speaker had my attention. Dr. William Cleverly of the Center for Healthcare Performance Studies in Columbus, Ohio, was talking about assessing and targeting financial performance for hospitals. In determining financial strategy, he suggested that the organization's fund-raising goal was one factor to be considered.

I was electrified. Here at last was someone in health care (an economist, no less!) who recognized the important role that philanthropy has in a hospital's mission effectiveness and financial success. I leaned forward in my chair eager to hear what he was about to say. But that one sentence was all he had to say about fund raising. What a disappointment!

The situation may be familiar to you. Our fund-raising efforts were successful largely in the realm of planned gifts, with most of the funds placed in the endowment or reserves. The foundation board was composed of high-profile community leaders, but they were floundering. The board had no idea how much money it should be raising; therefore, it didn't know if it was successful — or even needed. The chief executive officer refused to use contributions for operations, and a multimillion bond issue had been issued for expansion and renovation of facilities. We were all proud of our high quality, financially successful medical center that had been named one of the top 100 hospitals in the country. However, from conversations with board members, I knew that questions were nagging them. Was the foundation vital to the hospital's success? Was it making a real difference in the health status of the community?

Here was an opportunity to engage senior management and the board in an effort to integrate development with the medical center's mission, strategic planning, operations, and performance evaluation. Since finance drove decision-making at the hospital, the key was the financial plan and the key player was the medical center's chief financial officer. Dr. Cleverly's remarks provided a potential pathway to change the process.

Typically development is disconnected to financial planning or is considered at the conclusion of the process. Perhaps at your health care organization, you are expected to "shoot the gap," to raise enough money to close the gap between revenue and expenses. Or you may have a new board member who thinks the organization ought to be able to raise twice as much as last year and wants to establish a "pie-in-the-sky" goal. More likely, you increase your annual goals incrementally, taking a safe and reasonable approach based on past experience, a "steady-as-you-go" goal.

Whatever your situation may be, I have found that goal setting is a problem for most health care organization development operations. Health care organization and foundation board members must understand how development fits in with operations. Likewise, chief executives and chief financial officers need to realize how development can directly impact the organization's financial strategy. It's important for management to recognize how philanthropy fits into the big picture. They need to step back from focusing solely on finance and take a hard look at the organization's mission, vision, and strategy.

Organizational planning

Chief development officers have to be recognized as credible players within senior management teams. That means they must speak the language of their chief executives and chief financial officers, establish significant contribution goals relative to their organization's operating margins, and meet their goals. They must participate actively in strategic and operational planning. They have to assert themselves and be accepted as full partners on their teams.

Similarly, the foundation board (or the health care organization's board development committee) must be a full partner in the organization's strategic and financial planning. Fund raising, if it is to be effective and to have a substantial impact on the organization, cannot be a mere auxiliary function. It must be fundamental to the organization's mission and values. Those involved in development must play an authentic role in developing the organization's vision and strategies and making decisions governing the health care organization. Otherwise, it will be difficult, if not impossible, for board members to become so committed that they will strive for fund-raising goals that stretch their capacity to give and use their leverage or "personal capital" with others.

Another factor is critical to this process from a fund-raising perspective. Donors, particularly major gift donors, view their gifts as investments. They want assurance that their gifts will have impact. How will organizations change the lives of the people they serve as a result of receiving contributed capital? What evidence can be documented to demonstrate that they are making a difference? Donors are becoming increasingly insistent that hospitals measure and evaluate program outcomes, just as they do clinical outcomes to meet quality review standards.

This is new territory for many not-for-profit organizations. Dr. Robert Sheehan reported in The Excellence in Philanthropy Project1 that only 14 percent of chief executives reported having reliable impact measures. More startling was that 75 percent of those organizations' board members used different criteria! Chief development officers need to champion donors' interest in making wise and effective use of their charitable investments.

In most institutions, the traditional strategic planning process does not incorporate development at an early stage. We need to change both attitudes and planning models (see figure 1). It is critical to incorporate realistic fund-raising goals when determining the financial feasibility of programs and services selected to implement the hospital's mission and vision. This is not solely a staff responsibility. For the process to be effective, board members must be involved in formulating strategy to meet the hospital's goals. It is through this process that commitment arises and board members become self-motivated.

The result is many people working together toward a common purpose, rather than the chief development officer attempting to persuade, prod, and pressure board members into fulfilling responsibilities they had little part in determining. The process requires an openness among senior managers that few relish. They must be willing to be questioned and challenged, because this is initially an educational effort. They also need to be open to change when many of them believe they already know what is best for their areas of responsibility. The relationship between management and the board must be a genuine partnership that creates a new and more complex dynamic. Otherwise health care organizations will continue to see board members sitting on the sidelines and will miss the opportunity to take advantage of the expertise, wisdom, and commitment board members have to offer.

Goal setting

The model I am proposing (see figure 2) for establishing development goals requires the intimate involvement of the foundation board or board development committee. This is the only way I have discovered to engender the depth of commitment and internal motivation necessary to achieve goals that significantly stretch their expectations.

The proposed model has three components, which should be carried out sequentially. Each component should be applied to analyze the giving history and establish goals separately for unrestricted, temporarily restricted, and permanently restricted contributions.

Forecast annual fund performance. This task is best performed by the development staff with the assistance of the board. Excellent tools and instructions are provided in James Greenfield's Fund-Raising Cost Effectiveness2. Here are the basic steps:

  • Analyze current giving. Look at the source, the cost effectiveness of each activity, and the amount of staff and volunteer effort required. The historical experience (three years ideally) of each activity will help justify the results to be projected for the ensuing year.
  • Define program strategies. This may include eliminating, modifying, and expanding current programs, as well as adding new fund-raising activities.
  • Establish activity goals and allocate resources. Measure results regularly, and take action to compensate for any shortfalls. Meeting goals is vital to establish credibility within the organization.

Determine major gift potential. This step, which actively engages board members, is highly dependent on their prior involvement in organizational planning. If they do not clearly perceive that their efforts to raise funds are vital to the organization's vision, this step will not produce credible goals. This time-consuming process is most effectively done throughout the year by a major gifts committee. However, every organization has to start somewhere. Use these steps:

  • Identify major gift prospects. Estimate gift capacity and rate gift propensity. Evaluate each prospective donor (see figure 3) to ensure that projections are realistic.
  • Develop a strategy for each prospective donor. This process involves the board members, who should develop a firm commitment to action and results.
  • Adjust goals to account for reality. Major gifts frequently are pledged over a period of years and may take the form of non-cash assets such as real estate, which may take some time to convert to cash. Also, donors' gift commitments may be at levels less than requested. To adjust for this, the goal for actual receipts during the year may be reduced by as much as 50 percent. Additionally, donors' calendars don't always conform to organizational needs. Therefore, the goal may be reduced further to allow for donors who may not be ready to make a commitment or to transfer assets during the current year. Using this process to establish major giving goals should earn the confidence of the chief executive and the chief financial officer.


Project planned gifts. These are "marginal contributions" since receipts typically cannot be predicted with certainty. However, gifts received can be listed for expenses that would otherwise go unfunded or added to an endowment or reserve account.

Organizations with considerable experience of bequest receipts can develop rational goals by using the following steps:

  • Research the history of undocumented bequest receipts. Go back as many years as possible. Undocumented bequests are those of which the organization was unaware prior to the donor's death. Then use regression analysis to establish a trend or a minimum baseline.
  • Calculate the present value of planned gift expectancies. If possible, project donors' life expectancies. The organization should not budget planned gift expectancies, but a list of "approved but not funded" items can be created in the event one or more are realized during the year.

Benefits: Trust and commitment

This model offers two substantial benefits. One, it establishes goals that are integral to the hospital's financial performance using a method that evokes confidence from chief executives and chief financial officers. By addressing their concerns and using their language, chief development officers can gain their trust and respect.

Two, board members are inspired and fully committed to making a difference in the organization's ability to realize its vision for serving its constituency. By fully participating in strategic and financial planning, board members voluntarily take responsibility for determining and achieving the organization's development goals.

The result will be board members who can answer the questions Peter Drucker poses in Managing the Non-Profit Organization 3:

  • What should I hold myself accountable for by way of contribution and results?
  • What can I contribute?
  • What results do I want us to achieve?

Significant change in how we raise funds has to start with the board's commitment to make a difference, to assume responsibility, and to take the lead. This goal setting model can empower the board to do just that.

Endnotes:

1Sheehan, Robert M., Jr. "How Do You Know If Your Organization Is Accomplishing Its Mission?" The Not-For-Profit CEO Monthly Letter, Vol. III, No. 11, September 1996, p. 2.

2Greenfield, James M. Fund-Raising Cost Effectiveness: A Self-Assessment Workbook. John Wiley & Sons, Inc. (New York, NY: 1996).

3Drucker, Peter F. Managing the Non-Profit Organization. HarperCollins (New York, NY: 1990), p. 142.

Michael R. Maude, ACFRE, FAHP
President
Partners In Philanthropy

 
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