Abstract
This thesis investigates a persistent and contested assumption within the non-profit sector: that low overhead expenditure represents organisational efficiency. Despite growing international critique, the overhead ratio remains widely used by funders, donors, and watchdog organisations as a proxy for efficiency. This research addresses two related questions: first, whether the overhead ratio is a valid measure of non-profit technical efficiency; and second, if institutional funders in Aotearoa New Zealand consider overhead costs to be an influencing factor in grant decision-making processes.
A pragmatic research philosophy was adopted, enabling the use of an explanatory sequential mixed-methods design. Following an extended literature review, Study One replicates the work of Coupet and Berrett (2019) using a New Zealand dataset comprising 32 Life Education Trust affiliates. Efficiency scores were generated using Data Envelopment Analysis (DEA) and Stochastic Frontier Analysis (SFA) and then compared to overhead ratios. The findings were clear: there was no statistically significant correlation between overhead ratios and technical efficiency, while DEA and SFA scores demonstrated strong internal alignment. These results offer robust cross-national validation of critiques against the normative use of overhead ratio and challenge its continued use as an evaluative tool.
Study Two explores the role of the overhead ratio in the decision-making of institutional funders. Drawing on survey responses and semi-structured interviews, the study reveals that although few funders apply formal overhead thresholds, discomfort with core operational funding remains. Decision-making processes were shaped less by financial metrics than by trust, credibility, and the strength of relationships. Funders often expressed ambivalence: while many acknowledged the necessity of overhead costs, few were familiar with the overhead myth or the starvation cycle literature, and fewer still had translated this understanding into consistent funding behaviour. The findings suggest that overhead aversion persists in subtle forms, shaped by structural constraints, board expectations, and reputational considerations.
Taken together, the two studies offer a nuanced understanding of the disjuncture between theory and practice in non-profit evaluation and funding. The research makes three key contributions. Theoretically, it reinforces and extends critiques of the overhead ratio and examines the motivations of philanthropic decision-makers. Practically, it offers evidence for funders and non-profit organisations seeking to advocate for more sustainable funding practices and evaluation frameworks. Methodologically, it demonstrates the value of replication, mixed-methods research, and secondary data analysis in advancing the non-profit knowledge base.
Ultimately, this thesis argues for a reorientation of how efficiency is assessed in the non-profit sector. By moving beyond the reductive use of the overhead ratio towards a more holistic understanding of organisational sustainability, the research contributes to a growing body of literature seeking to support more effective, equitable, and mission-focused non-profit practice.