Humanitarian Aid 101: #3 – Getting the lowest price is not the same thing as being “efficient.

27 Jul

If I was to ever teach an intro-level course in humanitarian principles and action, it would go something like this:

Lesson #3. Getting the lowest prices or running the least expensive program is not the same thing as being “efficient.”

Be sure to check out my guest post of today over at the Peace Divided Trust blog, “Re-thinking Efficiency.” I could almost have simply re-posted that post here for Lesson #3.

I get where the “less expensive is better” line of thinking comes from. Aid providers of all sizes are strapped for cash (very often swimming in GIK, but strapped for cash). At a very basic level, obviously, having less cash means that you have to make some hard choices about where you’ll put those hard-won donor resources. This is a reality of life.

The problem is that for the past forty-plus years, the stance of far too many NGOs has been to try to do more with less. I’ve written before about how aid costs what it costs. Contrary to the mis-education of the public (and also ourselves) in past decades about what it all costs, aid (relief and development) is in actual fact a very costly endeavor. We have broken down budgets and sometimes inappropriately removed “overhead” in order to indulge ignorant donors (not stupid, ignorant) who wanted their donations to go “directly to beneficiaries”, and we have somehow arrived at the conclusion that fixing poverty is financially cheap. It’s a seductive fiction, meant mainly to appeal to apathetic rich Westerners in the late 1960’s: “See? You can make a difference just by opening up your wallet. The problems of the third-world poor are uncomplicated and inexpensive to remedy. A water well in remote Kenya costs only $50…”

And few things could be farther from the truth. Your $100 does not buy a cow that lifts a family in Sumatra out of poverty. There is no such thing as zero overhead – and any organization who makes such a claim is either lying or internally clueless. It costs money to spend money. And it costs a lot of money to run humanitarian aid operations and development programs properly.

Why? Well, very simply, because quality and sustainability matter. There is just no substitute for doing it properly from the beginning. You need what you need. And that costs money. And spending money requires sometimes hard decisions, getting priorities right. If you need someone with a degree in agronomy who can also speak and write fluently in English, you need someone with a degree in agronomy who can speak and write fluently in English. There is no viable substitute. The cash you saved by going with a retired pastor who speaks only some English will come back to haunt you when the final evaluation rolls around… and if not you, it will haunt the community you thought you were helping in 10 years time when it’s time to undo the damage done by your badly implemented program.

We’ve spent far too many years incorrectly assuming that “good stewardship” and “efficiency” were synonymous “get the lowest price up front.” But it’s time to recognize that we pay now, or we pay later. Or worse and more to the point, we’re gone and those beneficiaries who’d put their trust in us will pay later.

It is important to correctly estimate what we really need to do properly what we say we’ll do for those for whom we say we’ll do it. We’ve spent far, far too long simplistically trying to get the lowest price. Obviously this is not an excuse to live expat aid worker lives of wanton excess. Obviously this is not license to blow donor cash on boondoggle, pet projects and expensive but useless junkets. I’m not talking about always going with the platinum option. There is plenty of needless spending in the humanitarian industry that truly does need to be eliminated. But we need to be consistently investing in the stainless steel option.

When it comes to running programs properly there are no shortcuts, there are no inexpensive strategies. Aid costs what it costs. Try to cut and squeeze below that and things don’t go well for those we claim we’re trying to help. And when our programs don’t actually help because we didn’t resource them adequately, they’re worse than inefficient: they’re failure.

11 Responses to “Humanitarian Aid 101: #3 – Getting the lowest price is not the same thing as being “efficient.”

  1. David Week 27 July, 2011 at 3:27 pm #

    It’s true that cheap does not mean efficient, and that’s true in the capitalist world too.

    I think you have identified one reason why aid suffers from cheapskate syndrome: unsophisticated investors, who don’t know value, and therefore look only at cost.

    Another reason you have identified is a general scarcity of cash, making it the constraint which has to be closely managed.

    Three other factors:

    • No two aid projects are identical, and so its hard to get a feel for the “right price”. If someone tries to sell me a $400 smartphone, I know that’s unreasonable, because of all the other smartphones on the market. A $400 ballpoint pen: that’s whacky. But it would help to publish typical costs: $3000-15000 for a sustainable village water supply, including training community engagement, and governance, in East Asia, depending on terrain. $3 a head to deliver polio vaccines. Whatever: these are not the correct figures—I don’t know what the correct figures are. But I do know that there are ARE correct figures. $4000 per classroom in East Asia for rural schools; $2000 in Africa; etc. Benchmarks help establish what is “value for money.”

    • It’s hard to put a price on intangibles, when they’re not being bought and sold. What is a good village governance system “worth”. I have no idea how you would even begin to answer that. But until you do, you can’t say whether the cost of bringing it about is money well spent, or a bad investment. To show value for money, you have to be able to quantify that “value”.

    • There’s no return on true efficiency. If I know that by doubling my initial investment in a community project, I’m going to get five times as much social value over the first five years… well that would be nice to know. But the fact is, you’re not going to get your money back. If I double my initial investment in a factory, and that means I get five times the financial return: then I DO get my money back. So in the social sector, there’s no feedback system which pays people to invest in being truly efficient.

    These are structural problems. I have no idea how to get around them.

  2. Chiranjeet 27 July, 2011 at 8:32 pm #

    Bravo.Extremely well written.Touches the reality I am going through in my work at the moment.You write very well and I am a big fan.please continue these thoughtful articles.As an aid worker with over 15 years in Aid work in Asia I find a deep echo in your world view.

    kind regards,

  3. ehtisham 27 July, 2011 at 8:38 pm #

    you’re right that no organization can run an overhead-free operation. but since the amount from overhead is a percentage of the total money flowing through the organization, you’ve got an interest in making sure more money is spent, as quickly possible. so odds are that you’re going to choose an ag specialist at a higher salary, even if one of equal competence is available at a lower rate, because you’ll be able to bill the donor for more. your org will have nicer offices, it will be able to make more nice shiny pamphlets. your burn rate will be higher. only an org that drastically misunderstands the business would hire the local pastor.

    just because some dev projects fail doesn’t mean that implementers care about results. what makes you think that aid implementers care about sustainability? from their (your) perspective there is no reason to be bothered about what happens to that ag project in the long run. you’ll have moved on to the next country, the success story about the project will be online, and no one will be the wiser when it fails. in fact, you may even benefit, if you or your org are hired for follow on work.

    as an individual aid worker, you’ve got no interest in efficiency. doing your job efficiently (best quality, lowest cost, least amount of time) is exactly counter to your interest. you want to collect as much per diem as possible, bill as many days as you can, and give the appearance of competence in a field where professionalism is nothing more than just that, appearance.

  4. Anonymous 27 July, 2011 at 11:55 pm #

    ehtisham – that is the most cynical thing I have read in a long time.

    author – “You what you need.” I think you accidentally a word.

  5. Amelia 28 July, 2011 at 3:28 am #

    @etisham, I was a bit confused by your overheads argument as it doesn’t reflect my experience with NGOs for the majority of the time. Yes, we’ve all heard the burn rate argument, but I’ve rarely had the experience of hiring the more expensive person because they are more expensive… now, consultancies.. that’s a different kettle of fish. I wish when working for NGOs that I saw the ‘charge them donors good’ approach to staff recruitment as it’s usually the other way round.
    Also your argument seems to be based on a grant driven, time bound approach. Most donors private and public are pretty interested in sustainability – although you could argue they don’t spend much money to find out if it happened.

    …Now… artificially bumping up your income so you can justify high overheads… THAT I’ve seen a lot!

    Anyway, that wasn’t really what I wanted to say, I just wanted to say thanks J for posting the ‘topic du jour’ for my day. Today I am mostly working on an HEA budget for Child protection… and resisting the temptation to cut all the costs because it looks like a lot of money. I should have learned from bitter experience that it costs a lot of money to deliver something that is worth having and donors as well as me will just have to suck it up!

    I am also kind of pissed off with the number of donors who seem to think that getting something from a to b in an emergency (or in a development project for that matter) happens by some miraculous wave of a wand and not via needing lots of minions to do the hard graft of procuring, checking,unpacking, assessing, identifying, delivering… and probably clearing up afterwards! And that’s not even talking about the quality aspects of working with distressed, exhausted people in a way that is supportive and helps them…. sigh… I should just shut up and get back to the budget now. Right?

  6. Jamuna 28 July, 2011 at 10:27 am #

    Your post is well-timed for me. After having pursued my post graduation in social psychology I joined a UK based funding and development agency in India that works with partner organizations who work with street children. My role was training and capacity building of partner organizations and staff. I have been in this sector for 4 years. While planning a move and applying for a new job, I was told by the “new” implementing agency I had applied to that I am way too expensive for them. Please note, I am not.
    But I appeared “way too expensive” for them because it is an NGO that encourages management professionals to come volunteer with them. These management professionals, mostly women who have kids and can devote very little time to work and wish it to be flexible, but still have husbands with high paying jobs, are able to volunteer for what they call “piddly” amounts and hence do not see the point in paying me – even though I have experience visiting grassroot NGOs across the country, supporting programme planning, monitoring and evaluation and capacity building.
    I was told they have a lot of “good volunteers” out there who will do good work for them for no money. Maybe that is true.

    I only wonder where I stand! Is it that as a 29 year old professional who has worked in the field for 4 years (and wanting to add years to it) – I get nothing unique to the table, nothing that “other good volunteers who intend to do some “social work” and have good intentions” also get with them?

    I am thoroughly confused today. It seems what I do is not worthy enough to be paid.

  7. Vincent Guérard 28 July, 2011 at 7:17 pm #

    I have just discovered your blog while sipping an iced lime juice in an overheated Hanoi… and… well… thanks for adding the sweetness to my drink.

    It is always pleasant to read here and there professionals acknowledging… well… that what we are doing in the humanitarian sector is just professional, and costly. Although I know a fair share of our “hardcore” colleagues who would rather ride a donkey for 3 days than taking a car to get to a site.

    And yes, there is quite a gap between cost and cost-effectiveness. I would even say that, through my work ( I do cost-effectiveness analysis) I have seen that the big NGOs with the big guns quite often deliver better outcomes despite short-term funding (yes, a 3-year agreement to me is short-term for the development sector), especially when compared to some (and not all of them, sure) local “sexy” NGOs that just looked so nice on the proposal. And who wants to know they were created 2 days after an RFA announcement?

    @ehtisham: come on, isn’t your point a bit PC here?

    Regards, Vincent Guérard, general director @ urban care,

  8. angelica 30 July, 2011 at 3:28 pm #

    amen to everything except, what the F is a boondoggle?
    @davidweek I agree that accountability is key to the future of development. I have to agree with @ethisham that I have seen people do “aid dumping” to make sure that their budget was spent and could get at least the same assigned the next year, so we need to revise how needs and effectiveness are measured. cheap is definitely not better. cheap sometimes means we are just adding to what others are doing, because often no one is reaching the hard to reach because it is so hard to explain to donors (who are ignorant, not dumb as you rightly pointed out) why what you are proposing costs double than the guy next door. SO, a lot of education of what aid really is and why sometimes it needs to cost silly money (or pack up and go home)

  9. Fast E 1 August, 2011 at 5:00 am #

    I’d like to see institutional donors hold themselves to ‘7% overheads’ the way they try to hold NGOs who are actually implementing the projects. I find it ironic and hypocritical that those living in glass houses atop ivory towers think they are ‘adding value’ by micro-managing from 30,000 feet, scrutinizing budgets to cut $100 here and there for field staff, supplies, etc., while their Total Cost of Employment is hundreds of dollars an hour.

  10. Joe Turner 2 August, 2011 at 2:51 am #

    OK, my turn to ask a dumb-ass question:

    Surely there is an issue of two tails (rather than just the one suggested in the article). There must be at least a potential issue with overpaying for goods and services?

    We all know situations where this happens: British local and national governments were recently found to be vastly overpaying for IT hardwear; I once met someone who wanted to bid to supply UN development contracts because they would be vastly profitable… and so on.

    So whilst it is true that something cheap-but-crap is no substitute for doing the thing properly, it must also be true that NGOs/aid agencies can and should put in place proper procurement procedures to ensure they are purchasing things at the right price.

    Like many other things, procurement is a profession and there is no substitute for being professional about it. Same with recruitment, of course. If an NGO does these things badly, the chances are that it will end up with a crappy program.

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