Basic Economic

Introduction Problem
to Non Profit Organization

1. Meaning
• The sole purpose of any business organization is to
earn profit. In other words, they work for self-interest.
However, there are some organizations whose basic
aim is to serve the society i.e. they work for the benefit
of the society as a whole. These are called not-for-profit
organizations or nonprofit organizations.
 Basic Economic
Introduction Problem
to Non Profit Organization

• They work for some Idealistic purposes. Their aim may

be educational, religious, charitable or social welfare of
the people at large.

• They are working in variety of forms ranging from small

to large.

• Small Forms : resident welfare associations (RWAs),

charitable dispensaries, religious societies etc.

• However, in large forms they are working in the shape

of hospitals, schools, colleges and bar councils etc.
 Basic Economic
Introduction Problem
to Non Profit Organization

• Employment
A groundbreaking report from the California Association of
Nonprofits called “Causes Count: The Economic Power of
California’s Nonprofit Sector,” reveals that in our state, nonprofits
make up the fourth largest industry by employment (generating
some 1 million jobs and supporting an additional 800,000
indirectly); contribute 15% of California’s Gross State Product; and
enjoy greater workforce diversity than the adult civilian workforce as
a whole.
 Habitat is a non-profit organisation
building strength, stability and self-
reliance through affordable housing and
sanitation facilities. It’s vision is a world
where everyone has a decent place to live.

Founded in 1983, it is one of the largest housing programmes in the Asia-Pacific

region.

It is affiliated to Habitat For Humanity International — a global non-government

organisation now present in more than 70 countries.

Habitat for Humanity was founded by Millard and Linda Fuller who developed the
concept of partnership housing with farmer and biblical scholar Clarence Jordan.

While habitat international have Christian roots, Habitat for Humanity India works
with people of all backgrounds, races and religions across India to build houses in
partnership with families in need.
 Basic Economic Problem
• Jonathan Reckford – CEO/President
• The average Habitat for Humanity International executive
compensation is $219,456 a year.The median estimated
compensation for executives at Habitat for Humanity International
including base salary and bonus is $222,920, or $107 per hour. At
Habitat for Humanity International, the most compensated
executive makes $518,000, annually, and the lowest compensated
makes $36,655.
•
American Red Cross
• Make a Wish foundation
• TFA – Teach for America
• The highest-paying job at Smile
Foundation is a Regional Head with a
salary of 11.3 Lakhs per year.
• The top 10% of employees earn more than
10 lakhs per year.
• The top 1% earn more than a whopping
26.5 lakhs per year.
•
 Basic Economic Problem

• In India the number of Non Profit Organisations are 1.2

million. These NPOs employs to 2.7 million paid
employees and 3.4 million full-time volunteers, a total of
6.1 million which is considerable given the fact that
central government employees in 2000 numbered only
3.3 million. Contrary to popular perceptions, as much as
51 per cent of the receipts are self-generated, and only
36 per cent come from the government as grants and
loans and a mere 7 per cent from foreign sources.
 Definition
Basic Economicof Problem
NPO

• The task of defining the nonprofit sector

is a difficult task because the
organizations constituting the sector are
so varied in legal status, organizational
forms, revenue structures, and operational
domains.
 Definition
Basic Economicof Problem
NPO

• A simple way to delineate nonprofit

organizations is to identify them by their
legal status.
• The legal definition approach is the most
unambiguous and straightforward method
for defining non-profit organizations.
 Definition of NPO
• In India, an organization can claim nonprofit status if it is

registered under any of the following statutes (CSO, 2009).

• The Societies Registration Act, 1860

• The Indian Trusts Act, 1882

• Public Trust Act, 1950

• The Indian Companies Act (section 25), 1956

• Religious Endowments Act, 1863

• The Charitable and Religious Trust Act, 1920

• MussalmanWakf Act, 1923.

• Wakf Act, 1923

• Public Wakfs (Extension of Limitation) Act, 1959.

 Definition of NPO
• All organizations registered under any of these acts are legally

nonprofit because these organizations are granted nonprofit status

and allowed tax benefits as per Income Tax Act, 1961.

• Limitations of Legal Definition

• legal definition, though easy to apply, suffers from serious

insufficiencies.

1. The major limitation of this system is that there is no common ground

for comparing the sectors across different national settings

2. Another limitation of a legal definition is that many nonprofit

organizations, especially those in a developing country like India,
function outside the purview of any legal frame work.
 Definition of NPO
• Morris (2000) identifies three common bases for defining

nonprofit organizations –

• kind of inputs,

• nature of output,

• and how the net earnings are distributed.

According to the first approach, an entity can be classified as for-profit,

household or nonprofit depending on the source of financial resources.

The key feature of this definition is that the finance is not raised from
the commercial market , but it is collected by the contribution of it’s
members and supporters.
 Definition of NPO

• Public purpose nature of outputs will determine

the nonprofit status of an organization.
Functional definition identifies nonprofit
organization’s by the nature of services they
provide. Provision of public services to serve the
public at large distinguishes nonprofit from other
organizations.
 Definition of NPO
• Finally one can categories an organization on the

basis of how it distributes its net earnings (Morris, 2000).

Non-distribution constraint is the distinguishing
characteristic of the third method. Hansman (1980)
describes a nonprofit organization as one that is not
allowed to distribute its net-earnings to its members or
any other person who has a control on the organization.
The above condition of non-distribution of profit is
recognized as the most distinguishing characteristic of a
nonprofit organization (CSO, 2009).
 Definition of NPO
• Non profit Organization is an
independent, flexible, democratic, secular,
people’s organization working for and/or
assisting in the empowerment of
economically and socially, marginalized
groups.
 Definition of NPO
• But making economic surplus during the course of

their operations is not prohibited for such organizations.

The restraint here is that the surplus, if any, is to be used
for the accomplishment of organizational mission and not
to be distributed among the members. However, the
members or other individuals associated with the
organization can be paid compensations for services
rendered by them.
 Definition of NPO

• The definition that has found widest acceptance

in literature for its Comprehensiveness seems to
be the structural-operational definition
suggested by Salamon and Anheier. According
to this definition, an entity will be considered a
nonprofit organization if it satisfies the following
five criteria of being: organized, nonprofit
distributing, private, self-governing, and
noncompulsory
Objectives of Accounting for
Not-For-Profit Organizations:
• 1. To evaluate the performance of
organizations in terms of achieving their
goals for which they were created.

• 2. To judge whether those organizations

are appropriating the funds with three E’s
viz. economically, effectively and
efficiently.
• 3. To examine the compliance of rules,
regulations, bye-laws in the organizations.

• 4. For obtaining grants from government

departments.

• 5. To submit annual accounts to the

Registrar with whom they are registered.
 Features of NPO
• 1. Main Aim is Service:
The basic aim of non-profit organizations is to
serve the society. They are working for the
benefit of the society as a whole.
• 2. Profit is not the Criterion:
Non-profit organizations are formed for some
idealistic purposes such as religious,
charitable or providing education etc. Earning
of profits can never be their aim.
• 3. Surplus not Distributed among its
Members:
• Though earning profit is not the criterion for
non-profit organizations, yet there may be
excess of income over expenditure or
excess of expenditure over income. The
former is known as ‘surplus’ and latter is
known as ‘deficit’. Unlike other business,
surplus or deficit of non-profit organizations
is not distributed among its members. They
are adjusted in the capital fund of such
organizations.
• 4. Separate Entity:

The separate entity concept is equally applicable to non-

profit organizations. Such organizations are treated as a
separate entity distinct from its members.

• 5. Unique Names Connoting their Working:

The names of non-profit organizations denote the nature

and style of their functioning. For example, JMD
Educational Society, Shri Sai Keertan Mandli, Shri
Sunder Dev Sports Club and Shri Sanatan Dharam
Ramlila Committee etc.
• 6. Management by Elected Persons:
These organizations are run and managed by
elected members.
• 7. Major Funds from Contributions and
Donations etc..:
Usually, non-profit organizations are not self
sufficient to run their activities with the
revenue generated from their own sources, so
they depend upon the subscriptions,
donations and grants received from various
government departments.
 Characteristics of NPO

• Organized Entities: These are chartered as

formal organizations. Most are incorporated
under state law and enjoy the same benefits as
business corporations.
• Private : Although nonprofit organizations have a
commitment to public service, they operate in
the private sector rather than as agencies of
government.
• Non- Profit Distributing : Any profit that a non
profit organization generates must be reinvested
in the organization itself rather than used to pay
dividends to owners or investors.
 Characteristics of NPO

• Self Governing: Non Profits are self –governing,

which is another way of saying that they are not
controlled either by the government or by
individual owners.
• Volunary : Although many nonprofits employ
significant numbers of paid staff, they are rooted
in the tradition of voluntarism. Most – though not
all- members of nonprofit governing boards are
volunteers, who serve without compensation.
• Of Public Benefit : Nonprofits are privately
controlled entities, but they exist to serve a
social purpose that has been deemed to be of
public benefit.
 Characteristics of NPO

• Members : These organizations are formed as

charitable trusts or societies. The subscribers to
these organizations are their members.

• Source of Income : The major source of income

of not-for-profit organizations are subscriptions,
donations, Government grants, income from
investments, etc.

• Reputation :These organizations earn their

reputation or goodwill on the basis of the good
work done for the welfare of the public.
 Voluntary spirit
in thought and
action

Charity,
Innovation and
Selfless and
Self Reliance
Non profit

NGO’s
Characteristics

Close to
community it Flexibility
serves

Hardwork
and
Dedication
 Basic Economic
Key concepts Problem
in Non-Profit management

1.Governance is the process or power of governing. The

process of decision making and by the process by which the
decisions can be implemented. Good governance practices
work for everyone’s benefit including members, donors, the
community, board members, and paid or volunteer staff.
Good governance is about ensuring that your organization
runs effectively and properly.
# 1. Committee understands it’s roles and responsibilities

#2. Committee works well both individually as well as a

team

#3. Committee ensures the delivery of organizational

purpose

#4. The committee exercises appropriate control

#5. Committee behaves with integrity by being open and

accountable
 Basic Economic Problem
• NPOs have various groups that are called “boards”.
But do not have all the responsibilities. E.g Advisory
groups that may contribute their expertise to the
organization and help raise funds but that do not
hold any legal authority for its governance. Such
boards often play an important role but they are not
governing boards .
 Types of Economic
Basic Governing Boards
Problem

• Non Profit governing boards are not all the

same. They differ in the way their
members are selected.

• Elected Boards

• Self-Perpetuating Boards

• Appointed and hybrid boards

Type of Advantages
Board
Elected Helps ensure that the
organization and the CEO will
be responsive to members’
• needs and priorities.
Self- Can maintain Continuity of
Perpetuating culture, priorities, goals
Can craft the board
membership to gain needed
skills
Can select members who are
helpful in fund raising
Disadvantages
Division among the membership
may create disagreement.
Turnover on the board may make it
difficult to sustain focus on long-
term goals and plans.
Skills of board members may be
uneven, since personal popularity
or positions on issues may
influence election.
May become unrepresentative of
the community or constituency
May become too stable to respond
to changes in the environment.
May become too passvie and yield
too much authority to the CEO
Type of Board Advantages Disadvantages

Hybrid (including May combine the Different interests and

appointed, self- responsiveness of elected loyalties of board member
perpetuating, ex boards, the stability may lead to a stalemate.
officio) perpetuating boards, and
accountability to an appointing
authority
 The Board’s Responsibilities

As Bruce Hopkins(2003) describes it, nonprofit governing board

members are “fiduciaries of the organization’s resources and
guardians of its mission”

The board is accountable for everything the organization does and how
those things are accomplished.

1. The Board’s Legal Responsibilities

2. The Board’s Functional Responsibilities

 The Board’s Legal Responsibilities

• Care : The duty of “care” in this context means paying attention and
exercising due diligence in monitoring the organization’s finances
and supervising the actions of its management.

• Loyalty : The duty of loyalty means that members of the board put
the interests of the organization above their personal financial
interests or that of another organization with which they may also
have a formal relationship.

• Obedience : the duty of obedience requires that the board make

sure that the organization is complying with the law and in addition,
that any decisions or actions taken are consistent with the
organization’s mission and governing documents.
 The Board’s Legal Responsibilities

• Intermediate sanction : IRS (Internal Revenue Service)

can impose intermediate sanctions to the board members for
violating its fiduciary responsibilities.
 The Board’s Functional Responsibilities

• Intermediate sanction : A number of authors have

offered lists of a board’s functional responsibilities. Most
lists are similar on the principal activities in which the
board should be engaged, although there are often
differences among the experts with regard to the division
of specific tasks between the board and the
organization’s CEO. Following are some common job
description for the board members.
 The Board’s Functional Responsibilities

• Appoint, Support and Evaluate CEO

• Establish a Clear Institutional Mission and Purpose

• Approve the Organization’s Program

• Ensure Sound Financial Management and

Organization’s Financial Stability

• Establish Standards for Organizational Performance and

Hold the Organization Accountable.
 Basic Economic
Key concepts Problem
in Non-Profit management

2. Volunteer: “One who enters into, or offer for any

service of his own free will.” They are the backbone of
the organization.

Volunteering : “Volunteering is the practice of people

working on behalf of others or a particular cause without
payment for their time and services.” Volunteerism is a
key component of NPO. Volunteers serve a variety of
roles within organizations. Most notably, NPO are each
governed by a volunteer board of directors.
 Basic Economic
Key concepts Problem
in Non-Profit management

• Volunteering : Volunteers are also utilized as

fundraisers, service delivery staff, staff management
and in numerous other capacities.

• Volunteers bring personal experiences and professional

expertise to enhance the NPO.
 Basic Economic
Key concepts Problem
in Non-Profit management

• According to Weisbrod, there are two classes of reasons

people volunteer:

1. Motivated by investment gains: The expectation that

volunteer efforts will increase their own experience and
skill and thus enhance their later careers.

2. Attracted by consumption: They are interested in the

mission of the organization and gain utility from helping
the non-profit accomplish its goals.
 Benefits of Volunteering
• Volunteering connects you to others
Volunteering helps you make new friends
and contacts
Volunteering increases your social and
relationship skills
 Benefits of Volunteering
• Volunteering is good for your mind and
body
Volunteering increases your self
confidence
Volunteering combats depression
Volunteering helps you stay physically
healthy
 Benefits of Volunteering
• Volunteering can advance your career
volunteering gives you the opportunity to
practice important skills used in the workplace,
such as teamwork, communication, problem
solving, project planning, task management,
and organization.

• Volunteering brings fun and fulfillment to your

life
 Key concepts in Non-Profit management

3. Staffing : Staffing in NPO is similarly to the staffing

process in the profit sector. The NPO need to attend the

same tasks as profit seeking companies do when they
turn to the challenges of establishing and maintaining as
solid work force.
 Key concepts in Non-Profit management

In NPO Staffing can be accomplish in following manner

1.Assessing organization and personnel needs

2.Recruiting process

3.Screening and selection

4.Orienting staff and volunteers to the organization

5.Compensating organization’s employee and volunteers

1. Assessing Organization and Personnel
Needs:
• Leaders and Managers of NPO should study workload
history, trends in philanthropic community, pertinent
changes in the environment in which they operate.
• Principles include in assessment of personnel need:
• Fill positions with people who are willing and able to take
on the job.
• Providing accurate and realistic job and skill
specifications for each position in the work place.
• Written job descriptions are essential to communicating
job expectations. Employees have chosen on the basis
of positive impact not on the basis of friendship or
expediency.
2. Recruiting process
Larry W. Kennedy says, “When human resource properly
engaged, can be worth tens of thousands of dollars in
conserved personnel costs to even the smallest organizations”
• a. Local media, Newspapers, newsletters, radio and TV ad
• b. Other community organizations, municipal government,
churches, civic groups, other NPOs
3. Screening and selection
Recognize that all personnel, whether they are heading up
your organization’s annual fundraising drive or lending a
hand for a few hours every other Saturday, have an impact
on group’s performance. Recognizing that would be
volunteers and employees bring both assets and negative
attributes to your organization, Non-profit groups should be
flexible in accommodating those strengths and
weaknesses. “If you want people to perform in an
organization, you have to use their strength, not emphasize
their weaknesses” said by Drucker.
4. Orienting staff and Volunteers to the
organization
Training is a vital component of successful
NPO management. But many non-profit
managers fail to recognize that training
initiative should be built for all members of
the organization, but not just those who are
salaried employee the organization including
board members and volunteers”
5. Compensating organization’s employees
and volunteers
The NPO can establish an employee
pension and retirement income plan. It can
provide for sick pay and vacation pay. It may
arrange for group life, accident and health
insurance coverage for its officers and
employees.
 Basic Economic Problem
Developing Leadership in Non-Profit management
Leadership is critical in non profit organizations. It is
very much essential in NPO because they are value
based and mission driven. Leadership in the nonprofit
sector means facing a different set of challenges unique
to other industries. Not only are these leaders charged
with directing day-to-day operations, they must also
create a sustainable philanthropic motivation around the
organization’s mission.
 Basic Economic Problem
Developing Leadership in Non-Profit management
Leadership is essential to develop a consensus about
mission and performance and to articulate a vision that
gains and holds the commitment of volunteer, board
members, service volunteers, donors and others.

A lack of leadership by the CEO of a nonprofit organization

will eventually, and inevitably, lead to drift, decline and
failure.
 Leadership
Basic Economic theories
Problem

• Servant

• Transformational

• Charismatic

• Transactional
 Leadership
Basic Economic theories
Problem
• Servant leadership
• This type of leader in the nonprofit world takes a different approach
than the “top of the pyramid” style that is often associated with
executives in other industries. Rather than consolidate at the top
and take on sole decision-making power, servant leaders look to
share power, desiring to put the needs of others first. They are
motivated by the well being of people, by creating value for
communities, and by empowering others—especially
subordinates—to grow and succeed.
 Leadership
Basic Economic theories
Problem
• Transformational

• Charismatic

• Transformational leadership: Transactional leadership is an

exchange process , in which the leader exchanges rewards or
punishments for the behaviors of others. If you come to work
you will get paid; if you don’t , you won’t. Where as
Transformational leadership , is leadership that changes
people.

• Charismatic leadership: there are certain characteristic of

charismatic leader that differentiate it from transformational
leadership.
 Basic Charismatic
Economic Problem
Leadership
• The leader advocates a vision that is different from the
status quo but still acceptable to followers.

• The leader acts in unconventional ways in pursuit of the

vision.

• The leader engages in self-sacrifice and risk taking in

pursuit of the vision
 Basic Charismatic
Economic Problem
Leadership
• The leader displays the confidence in his or her own
ideas and proposals.

• The leader uses visioning and persuasive appeals to

influence followers

• The leader uses the capacity to assess context and

locate opportunities for novel strategies.
• Transactional leadership
• Transactional leadership is a rarity in the
nonprofit world (only 5.1% claimed to fall
into this category). These types of leaders
find motivation through goal setting and
achievement—not all that dissimilar to a
commission-based sales executive.
• Defined, transactional leadership is “an
exchange process based on the fulfilment
of contractual obligations and is typically
represented as setting objectives and
monitoring and controlling outcomes”.
This style—while perhaps not viewed as
forward thinking or selfless like the prior
two categories—does have its unique
benefits.
 Competencies of Leaders in
NPO
• 1. Know Mission and Purpose
• 2. Invest in self and others
• 3. Think Strategically
• 4. Inspire Others
• 5.Share Leadership
• 6. Build strong community relationship
• 7.Achieve Results