Ex‐Post Funding: How Should a Resource‐Constrained Non‐Profit Organization Allocate Its Funds?

Abstract

We study the funds allocation problem for a resource‐constrained non‐profit organization (NPO) that implements social development projects for public good. In addition to raising funds from donors who contribute prior to project implementation (“traditional donors”), the NPO uses a novel approach, which we term as the “ex‐post funding” approach, to also raise funds from donors who contribute based on the results delivered by the NPO (“ex‐post donors”). In this approach, the NPO uses its initial funds to implement early phases of the project, creates “results‐certificates” from the completed phases, and invites ex‐post donors to purchase these certificates. The donations raised from selling the results‐certificates are used to recover the NPO's own funds used in the project implementation. Operationalizing this approach is complicated when the project must incur a large fixed cost before any benefits are delivered by the project and the total benefit delivered is time sensitive. We show that for a given amount of initial funds available, there exists a threshold amount of funds that the NPO should raise from traditional donors before implementing the project phases so as to maximize the total expected benefit delivered. Through numerical studies, we analyze how the threshold of funds raised from traditional donors and the total benefit delivered vary with donor characteristics such as donor willingness to give and the proportion of donors who contribute prior to project implementation. Our numerical studies suggest that even with relatively small amount of initial funds, the NPO can deliver substantially higher benefit by using the ex‐post funding approach when compared to using a traditional approach that requires the NPO to raise all the funds required upfront.

Budgeting in International Humanitarian Organizations

“…Aflaki and Pedraza-Martinez (2016) show that increasing nonearmarked donations can mitigate the impact of donation uncertainty and improve the NPO's operational e ciency. Devalkar et al (2017) argues that when a proportion of donors only contribute after the delivery of results, the NPO can use an ex-post funding scheme to reduce the impact of budget uncertainty. Keshvari Fard et al (2019) show that under a higher budget uncertainty, the deprivation cost increases, while the fleet utilization rate decreases.…”

“…Finally, several research contributions propose measures to increase the amount of donations, e.g., announcing the past contributions of other donors (Varian 1994), using a publicized and tiered fundraising scheme (McCardle et al 2009), dynamically allocating assets between revenue generating activities and nonprofit operations (De Vericourt and Lobo 2009), allowing donors to audit and penalize NPOs (Privett and Erhun 2011), and using ex-post funding scheme which allows donors to contribute only after the delivery of NPO's projects (Devalkar et al 2017).…”

The Nexus of Government Incentives and Sustainable Development Goals: Is the Management of Resources the Solution to Non-Profit Organisations?

“…The government needs to intervene in the management of resources to get the maximum benefits of community and welfare support (Chai & Schoon, 2016). For instance, Zhu and Yoshikawa (2016) claimed that government directors and managers monitor resources in an efficient way that benefits firms in emerging markets and better management of resources enable NPOs to serve more people (Devalkar et al, 2017). Public policies and incentives are fruitful for sustainable development and ecological activities (Doering, 1992).…”

Food Aid Modality Selection Problem

“…In the literature, it is stated widely that cash transfers give beneficiaries more choices. Numerous aid programs prefer to avoid the risk of cash misuse because donors are reluctant to support programs where the outcomes are uncertain (Devalkar et al 2017). The FAIMS model can evaluate the outcomes of a cash distribution program while considering the potential for misuse.…”