Budgeting in International Humanitarian Organizations

Abstract

Problem definition: International humanitarian organizations (IHOs) prepare a detailed annual allocation plan for operations that are conducted in the countries they serve. The annual plan is strongly affected by the available financial budget. The budget of IHOs is derived from donations, which are typically limited, uncertain, and to a large extent earmarked for specific countries or programs. These factors, together with the specific utility function of IHOs, render budgeting for IHOs a challenging managerial problem. In this paper, we develop an approach to optimize budget allocation plans for each country of operations. Academic/practical relevance: The current research provides a better understanding of the budgeting problem in IHOs given the increasing interest of the operations management community for nonprofit operations. Methodology: We model the problem as a two-stage stochastic optimization model with a concave utility function and identify a number of analytical properties for the problem. We develop an efficient generalized Benders decomposition algorithm as well as a fast heuristic. Results: Using data from the International Committee of the Red Cross, our results indicate 21.3% improvement in the IHO’s utility by adopting stochastic programming instead of the expected value solution. Moreover, our solution approach is computationally more efficient than other approaches. Managerial implications: Our analysis highlights the importance of nonearmarked donations for the overall performance of IHOs. We also find that putting pressure on IHOs to fulfill the targeted missions (e.g., by donors or media) results in lower beneficiaries’ welfare. Moreover, the IHOs benefit from negative correlation among donations. Finally, our findings indicate that, if donors allow the IHO to allocate unused earmarked donations to other delegations, the performance of the IHO improves significantly.

Data‐driven allocation of development aid toward sustainable development goals: Evidence from HIV/AIDS

“…Our work contributes to the literature in two ways. On the one hand, we add to a growing stream of literature in OM that aims to support humanitarian operations (e.g., Berenguer et al., 2016; Besiou & Van Wassenhove, 2020; de Vries & Van Wassenhove, 2020; Gallien et al., 2017; Keshvari Fard et al., 2021; Van Wassenhove, 2019; Zobel et al., 2016). While previous works have extensively studied funding acquisitions or budgeting, we focused on cost‐effective disbursement.…”

“…Keshvari Fard et al. (2021) studied optimal budgeting in international humanitarian organizations. Furthermore, Chakravarty (2021) studied the decisions of parties involved in funding humanitarian disaster responses using a game‐theoretical approach.…”

“…The literature has contributed, for instance, to the design of supply chains (e.g., Behl & Dutta, 2019; Berenguer et al., 2016; Jahre et al., 2016; Natarajan & Swaminathan, 2014), drug stockouts risks (Gallien et al., 2017), and the coordination of humanitarian operations (e.g., Ergun et al., 2014). Other works have examined fundraising effectiveness (Turrini et al., 2020), the effect of transparency on donation behavior (Mejia et al., 2019), and budgeting in humanitarian organizations (Keshvari Fard et al., 2021). In contrast, this paper studies the allocation of financial aid toward ending the HIV epidemic.…”

“…Allocation of development aid among recipients is based on different dimensions, namely qualitative considerations and, to some extent, quantitative ones (Keshvari Fard et al., 2021; Neumayer, 2003). Qualitative considerations involve, for instance, the overall relationships between donors and recipients, respect for political freedom, and the extent to which country is already assisted by donor agencies (i.e., filling geographic blind spots) (Koch, 2009; Neumayer, 2003).…”

Operations of cost-effective charities: a qualitative study

“…For example, Devalkar et al (2017) suggest that when charities possess a small amount of initial funds, they can deliver substantially higher benefits by using these initial funds to implement early phases of the intervention, create "results-certificates" from the completed phases and invite donors to purchase those certificates to fund the remaining phases. Keshvari Fard et al (2022) argue that charities are better off when they receive unconditional funding and when donors allow them to allocate unused donations to other interventions or beneficiaries. For some charities, optimal resource utilization leads to a decision on whether to operate as a direct service provider or as a grant provider to organizations that offer services to beneficiaries.…”