How government and non-profits work: money, services and the value chain
Who the "customers" are, where public money comes from and goes, the budget cycle, the logic model from inputs to outcomes, and how non-profits are funded.
Industry brief, with a one-minute summary: Government, public sector and non-profitsFirm processes and online tests change from year to year and differ by office. Use this to prepare, and confirm the exact current steps on the firm's own careers page.
Key takeaways
- Governments and non-profits do not aim for profit. They turn public or donated money into outcomes for people, so the key question is how much outcome each unit of money buys.
- Plan: the finance ministry sets a fiscal framework: how much can be spent and borrowed.
- Prepare: ministries bid for money, and the finance ministry negotiates with them.
- Approve: parliament (or, in some countries, the cabinet or the head of state) passes the budget.
Key idea
Governments and non-profits do not aim for profit. They turn public or donated money into outcomes for people, so the key question is how much outcome each unit of money buys.
Who are the "customers" and what are the "products"?
- Users of services: citizens, residents, businesses and visitors.
- Funders: taxpayers and, for non-profits, donors and grant makers. Parliament, a cabinet or a board approves how money is spent.
- Services: health, education, policing, defence, roads, water and many more.
- Transfers: money paid directly to people, such as pensions and benefits.
- Regulation: licences, standards and inspections that shape how markets work.
Government is large. In most OECD countries, general government spending (all levels of government together) equals roughly a third to over half of GDP; the OECD's Government at a Glance 2025 gives each country's figure. The largest areas are usually social protection (pensions and benefits), health and education. Countries rich in oil or gas, such as those in the Gulf, rely more on resource revenue and less on taxes than most OECD countries.
- A government budget
- Revenue
- TaxesIncome tax, corporate tax, VAT or GST, customs duties
- Fees and chargesLicences, tolls, visa fees
- Natural resource revenueOil, gas and mineral royalties or state company profits
- Returns from state assetsDividends from state companies and sovereign wealth funds
- BorrowingGovernment bonds and loans
- Spending
- Social protectionPensions, unemployment and family benefits
- Health
- Education
- Defence and public order
- Economic affairs and infrastructure
- Debt interest
- Administration
Pie chart: How a fictional country spends its budget (illustrative). Social protection: 35 percent; Health: 17 percent; General public services, including debt interest: 13 percent; Education: 12 percent; Economic affairs, including infrastructure: 10 percent; Defence and public order: 8 percent; Other: 5 percent.
Illustrative shares, loosely shaped like a high-income country. Real shares vary a lot by country and year; check the OECD or the national budget.
So-what
Pensions, benefits and health often take half the budget, so savings elsewhere are small unless these areas change.
The budget cycle
- 1Plan: the finance ministry sets a fiscal framework: how much can be spent and borrowed.
- 2Prepare: ministries bid for money, and the finance ministry negotiates with them.
- 3Approve: parliament (or, in some countries, the cabinet or the head of state) passes the budget.
- 4Execute: ministries and agencies spend the money and buy goods and services through procurement.
- 5Audit and evaluate: a supreme audit institution, such as the UK National Audit Office or India's Comptroller and Auditor General, checks the accounts and whether the money gave value.
The public value chain: from money to outcomes
- From budget to impact
- InputsMoney, staff, buildings, equipment
- ActivitiesTeaching, vaccinating, inspecting, building
- OutputsLessons delivered, children vaccinated, roads built
- Key: OutcomesChildren who can read, fewer illnesses, shorter journeys
- ImpactLong-term wellbeing, jobs and growth
Outputs are easy to count. Outcomes are what matter.
Non-profits
Non-profits (charities and NGOs) earn money from donations, grants from governments and foundations, fees for services, and income from endowments (invested savings). They spend it on programmes (the work itself), administration and fundraising. Common measures are the programme expense ratio (programme spending divided by total spending), cost per beneficiary, and the cost to raise one unit of money. Be careful: very low overhead is not always good, because some spending on data, training and systems makes programmes work better. Examples of large non-profits with different models are the Gates Foundation (mainly a grant maker), BRAC in Bangladesh (runs programmes and social enterprises) and Médecins Sans Frontières (medical humanitarian aid).
Worked case
Two youth jobs programmes: which buys more outcome?
The prompt
A government has USD 10 million to help young people find jobs. Programme A (classroom training) costs USD 2,000 per trainee, and 25 percent of trainees find a job they would not otherwise have found. Programme B (paid apprenticeships with employers) costs USD 5,000 per trainee, and 70 percent find a job they would not otherwise have found. Which programme gets more extra jobs for the money?
The structure
- Compare cost per extra job, not cost per trainee
- Trainees = budget / cost per trainee
- Extra jobs = trainees x additional success rate
- Key: Cost per extra job
Working it through
1. Programme A trainees
USD 10 million at USD 2,000 each.
Programme A trainees:10,000,000 ÷ 2,000 = 5,0002. Programme A extra jobs
25 percent of 5,000.
Programme A extra jobs:5,000 × 0.25 = 1,2503. Programme B trainees
USD 10 million at USD 5,000 each.
Programme B trainees:10,000,000 ÷ 5,000 = 2,0004. Programme B extra jobs
70 percent of 2,000.
Programme B extra jobs:2,000 × 0.7 = 1,4005. Cost per extra job, A
USD 2,000 divided by 0.25.
Programme A cost per extra job (USD):2,000 ÷ 0.25 = 8,0006. Cost per extra job, B
USD 5,000 divided by 0.7.
Programme B cost per extra job (USD):5,000 ÷ 0.7 = 7,143
The recommendation
The government should fund Programme B, because it buys about 1,400 extra jobs against 1,250 for Programme A with the same USD 10 million. First, B costs about USD 7,143 per extra job against USD 8,000 for A, even though it costs 2.5 times more per trainee. Second, this means cost per outcome, not cost per person served, is the right measure. The risk is that the 70 percent success rate was not measured against a comparison group. As a next step, confirm how success was measured and whether employers can take 2,000 apprentices.
"Extra jobs they would not otherwise have found" is called additionality. If 20 percent of trainees would have found jobs anyway, only the jobs found above that 20 percent are the programme's real effect. Always ask what would have happened without the programme.
A non-profit spent USD 8 million: USD 6.4 million on programmes, USD 1 million on administration and USD 0.6 million on fundraising. What is its programme expense ratio, in percent?
A vaccination campaign in Nigeria costs NGN 900 million and fully vaccinates 300,000 children. What is the cost per child vaccinated, in NGN?
Which of these is an outcome, not an output, for a literacy programme?
What is the main goal of a public-sector client?
Who usually checks that public money was spent properly and gave value?
Why can "cost per person served" mislead?
Sources for this lesson (2)
- OECD, Government at a Glance 2025: general government expenditures
- Recognized public explanations of case-interview concepts and frameworks
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