Program Ratios: How valuable?

While I was perusing a nonprofit’s 990 the other day (specifically one I have an interview for an internship with), I was immediately drawn to the organization’s program versus administrative costs. Indeed, before even reading for this week, I calculated the program versus administrative ratio for the organization. And what I found was that the organization was spending more than its 20% allotment for its administrative costs. But upon closer inspection, I came to the conclusion that the organization’s mission and programs were more or less, totally administrative. Thus, I think that the Bridgespan Group’s issues with current measures of nonprofit organizational effectiveness are well-founded.

As shown above, I have always been drawn to program ratios as a means of determining a nonprofit’s effectiveness. However, I wonder if this measure is as valuable as I have been led to believe. Last semester, while we were conducting financial analyses based on financial audits, I asked a financial advisor what was the best indicator of a nonprofit’s effectiveness. He, of course, answered that programs ratios were the way to go (anecdotal but still informative I think). So, like Bridgespan, I have personally found that program ratios are not only viewed by nonprofits as supremely important (thus the skewing of numbers), but also that a large number of unaffiliated people subscribe to this measure if effectiveness (as Kristen was saying in her preceding post).

So my question is: are program ratios utilized because they are convenient or because they are inherently good measure of effectiveness? As I have argued before, I am inclined toward the former. My issue lies with the idea that nonprofit organizations are intrinsically different due to size, objective, amount of funding, and a multitude of other differences. So, should we, as future nonprofit managers, attempt to de-strengthen the prevalence of program ratios as a means of effectiveness? I think so, but as always, it is truly difficult to change cultural perceptions.