Efficiency of Fund-Raising Activities: An Application of Data Envelopment Analysis

Abstract

Nonprofit institutions rely heavily on unearned income to fund their activities. This unearned income arrives in the form of donations from the public and business, as well as grants from foundations and governmental agencies. Within any organization, decisions on the efficient allocation of resources are crucial. This is especially true in not-for-profit enterprises for whom the opportunities to earn income are limited and reliance on donations and grants is therefore paramount. In this article, we test the relative efficiency of the developmental spending of 78 symphony orchestras in the United States. The data are from the 1987-1988 American Symphony Orchestra League's Comparative Statistical Reports. We use Data Envelopment Analysis to gauge the relative efficiency of the fund-raising efforts. Orchestras deemed inefficient are given proportional, realizable input reductions that allow production of their current level of donations and grants. Regression analysis is then used to investigate the determinants of efficiency, holding constant orchestra and demographic characteristics.

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