There’s more to consider when it comes to nonprofit expense management than simply cutting vendor costs. It’s about eliminating the right expenses in the right ways and doing so continuously. While categorizing vendors into groups—those that can’t be reduced or eliminated, those that could be reduced, and those that could be eliminated—can be helpful, vendor payments are not the only sources of waste. Nonvendor waste is often overlooked, such as failure to fully utilize employees to their best and best abilities, poor time management, or ineffective marketing. To effectively manage expenses, organizations must first fully understand what waste is and where it can be found.
Identifying Your Organization’s Seven Wastes
Toyota’s concept of the “Seven Wastes “ is a useful framework for nonprofits. While it may seem unusual to apply a principle from a car manufacturer, this tool is designed to identify common causes of waste in an organization and develop actions to address the most pressing issues.
1) Overproduction:
Producing more than needed or doing more than necessary can lead to waste. For nonprofits, this may be excessive marketing, duplicate communications, unnecessary program tasks, or excessive meetings.
2) Waiting -When time is not used efficiently, it is wasted. In nonprofits, this might mean delays in management decisions, waiting for funding, or slow access to necessary information.
3) Transporting -Every transport event is an opportunity for waste. In the nonprofit sector, this could be excessive travel between locations, inefficient communication methods, or a poorly organized office layout.
4) Inappropriate Processing – Using more expensive or complex tools than necessary is another source of waste. Nonprofits might experience this by assigning tasks to the wrong people, using unnecessarily high-end equipment, or lacking well-defined processes.
5) Unnecessary Inventory -Outdated materials or unorganized files are common examples of unnecessary inventory waste. Nonprofits should focus on reducing overproduction and waiting times to prevent accumulation.
6) Unnecessary Motions -Every unnecessary physical movement, such as reaching for items or navigating disorganized office spaces, can be a source of waste. Nonprofits can reduce this by optimizing office layouts and minimizing unnecessary travel.
7) Defects – Errors in operations, such as mismanaged workloads, missed deadlines, or unclear instructions, result in wasted time and resources. The earlier these issues are addressed, the lower the cost to the organization.
Steps to Eliminating the Seven Wastes
Nonprofit processes either add value or waste to an organization. Waste can account for up to 30% of a nonprofit’s operating costs. Here’s a five-step approach to applying the Seven Wastes process in your organization:
- Audit: Start by conducting a waste audit to identify the range of issues affecting your organization.
- Prioritize: Once you’ve identified issues, prioritize them to ensure the most critical problems are addressed first.
- Teams: Form teams with the right mix of skills to tackle these issues effectively. Managing team size, skill sets, and progress measurement is crucial.
- KPI’s: Establish Key Performance Indicators (KPIs) to track the success of your waste reduction efforts.
- Repeat: Regularly audit your organization for waste—at least every six months—to address new issues as they arise.
Conclusion
Nonprofit expense management goes beyond merely trimming vendor costs. By identifying and eliminating the Seven Wastes, nonprofits can significantly improve their operations, reduce waste, and ensure they are using their resources in the most impactful way possible. Waste isn’t something to accept as normal; it’s something to eliminate. For nonprofits looking to streamline their operations and eliminate unnecessary expenses, Tanner’s NPO Advisory Practice offers the tools and expertise to guide you through this transformative process.
Contact us today to access our full list of wastes, templates, and checklists. Let’s work together to reduce waste and optimize your nonprofit’s financial health.