Determining a Program’s Value Contribution, and What to Do Once You Know It

Aug 31, 2017
Pennsylvania CPA Journal
CPAs in not-for-profit organizations have the responsibility for translating financial data into actionable information. To that end, clearly interpreted data concerning program value contribution is vital. This column will familiarize you with program value contribution, how to interpret the data, and how to transform it into recommendations.

Program Value Contribution

Program value contribution is equal to program revenue less all associated costs, including an allocation of overhead. It is important that program performance is judged in relation to its directly attributed costs, as well as allocated overhead (or general and administrative) costs. Say your major programs only cover their direct costs. In that case your overhead would be eating away at your unrestricted net assets, and would eventually impair your organization’s capacity to perform its mission. 

Clear and concise information on the value performance of programs allows leaders to make informed decisions. Without a value measure, programs may be judged exclusively by service delivery metrics, such as client satisfaction. When value contribution is ignored, costs can get out of control and a program deemed “successful” could be draining the organization’s resources. Value contribution also gives leadership better data to manage a portfolio of programs, directing resources toward growing value-added programs and potentially away from lower-value programs.

Program value is not the only concern, but it is an important consideration. Program impact also must be considered. A program with high impact but low or negative value contribution may be retained if it is part of a portfolio of programs that provide positive value. 

Determining Value Contribution

The process for determining value contribution is typically referred to as “total project cost accounting” or “total project accounting.” In this methodology, all costs are charged to a project; either a direct project for costs clearly associated with a program, or an indirect project for costs shared across numerous programs. There may be multiple types of indirect costs, and how those costs are allocated to programs can vary. 

For example, let’s assume specific equipment supports two programs. The cost of the equipment is charged directly to the two programs based on usage. A second piece of equipment supports the organization’s intranet and is not attributable to a specific program. This cost is charged to an indirect project and allocated across all programs.

When all revenues and costs are coded to their respective programs and all indirect costs are allocated, a clear indication can be drawn as to which programs are adding value to the organization and which are using more resources than they are generating. 

Negative Program Value

Once program contribution value has been derived for all programs, you can start to frame recommendations. Advice on a negative value program will fall into three categories: consider exiting the program, retain the program with a plan to improve value contribution, or retain the program with no plan to improve. These three options should be assessed on individual programs as well as across all programs in a portfolio. Since programs may share resources, removing one program may negatively impact another.
There are often good reasons to retain a negative value program. For instance, it may provide access to other programs that have stronger value profiles. The program may have relationships with other programs, such as resource sharing, that produce a shared benefit. Also, the program impact may be significant to the organization’s mission or reputation. In such a case, exiting the program may negatively affect fund-raising or other programs. Finally, the program may be necessary to retain an area of competence or an individual or team that is well known to the client/funder community. 

Any program that provides negative value contribution should be reviewed on a regular basis to consider continuation and to look for improvements. Large programs with negative value contribution should be discussed with the board of directors, and added to the organization’s risk management process. As a CPA working with the not-for-profit, you should alert senior leadership to the risk of long-term fiscal sustainability if too many negative value programs are permitted to continue without improvement. 

There are multiple ways to improve value contribution. These include requesting more funding (be prepared to provide support for the reasonableness of the costs), finding similar programs that can share resources, and driving process or other types of cost efficiencies. You can also assess the impact of staffing changes, also known as “greening,” to bring in lower-cost staff resources. Focus on large costs that, if decreased, could significantly impact the value contribution of the program.


Program value contribution is a critical not-for-profit metric, and many program-driven organizations do not have the capacity to derive the metric or the processes in-house and react to the results of the analysis. It’s normally easy to determine the revenue associated with a program, but the costs are more difficult to match up. Providing total program costs, analysis, and recommendations to properly manage a program portfolio are ways you, as a not-for-profit’s CPA, can support the long-term fiscal sustainability of the organization.

Michael F. Cade, CPA, CGMA, is a strategy consultant and executive coach for MFCCoach LLC in Morrisville. He is a member of the Pennsylvania CPA Journal Editorial Board and PICPA Not for Profit Technical Issues Committee. He can be reached at

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