Susan J. Colby and Abigail Rubin

For most nonprofit organizations, the art of making tradeoffs is a condition of survival as well as a key element of success. With limited means to address substantial social challenges, nonprofit leaders constantly make choices about the most effective way to allocate available resources among competing priorities. The consequences of these tradeoffs are visible daily: in the activities a nonprofit offers, the programs it supports, and the initiatives it pursues. Together, they constitute the engine that either drives the organization's strategy forward or renders it irrelevant. That is why resource-allocation decisions present one of the most powerful levers nonprofit executives can apply to achieve their organization's goals.

To demonstrate the strategic value of good cost data, this article draws on examples from Bridgespan's experience with a variety of nonprofit organizations. It starts by looking at some of the ways in which economic clarity-understanding fully the true costs of providing programs and services-can inform important, stand-alone resource-allocation decisions. The article then turns to its impact on the organization as a whole and explores how-and why-it provides a building block for sound strategies. Finally, it looks at some of the existing barriers to economic clarity and offers some suggestions for overcoming them.