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Why Administrative Costs Are Not a Very Reliable Indicator

Three of the leading humanitarian aid evaluation agencies in a joint call under the title “Overhead Myth” (implying: “administration myth”) have pointed out that the percentage of administrative and fundraising costs is a very poor indicator for assessing aid agencies. The following reasons are given:

  • Often, available data on the administrative burden is inaccurate, but mostly the criteria applied is not universally relevant.
  • Research shows that higher administrative costs correlate with better results from aid organizations.
  • Underspending in administration negatively influences the quality and sustainability of activities.

Although administrative costs are a useful indicator for detecting abuse in a few extreme cases, in practice it is even desirable that most aid organizations invest more in administrative tasks such as project appraisal, planning, training and internal systems. These allow the aid organization to improve its work. Fundraising activities are also necessary for aid organizations to ensure the continuation of their activities. More meaningful than administration costs would be factors such as transparency, actual results achieved and the quality of the organizational structures.

Further information: Süddeutsche Zeitung: “Mehr Ehrlichkeit, weniger Schönrederei” (“More honesty, less fair play”)