Managing through the aid freeze: strategies for doing more with less

The international development sector is facing a crisis. The US government’s moves to freeze most U.S. foreign aid and shutter USAID were followed by more cuts from the UK and European governments. Almost overnight, roughly $70 billion in international development funding has evaporated.

These losses are forcing difficult decisions. Which programs must end? Which can scale down and survive? What organizational models can carry NGOs through this storm? Many organizations are bracing for a leaner future, while others are questioning their very survival. Belt-tightening is inevitable even for those not facing catastrophic funding gaps. 

In many ways, these are not new challenges. Nearly every mission-driven organization has had to contend with unpredictable and limited funding. But for organizations already operating within severe resource constraints, where can further efficiencies be found? Our sector needs to revisit the principles of economic and management theory that underlie cost-efficiency and cost-effectiveness—and adapt them to this new reality of development work.

Drawing on these long-held, established theories, there are (at least) four things that most data-driven NGOs, implementers, or practitioners can do to stretch their resources and continue to make an impact over the short to medium term. Any of these activities can be done in isolation to decrease costs or deepen impact, but ideally, organizations would combine multiple strategies as they scale up or replicate an intervention in a new setting, or as a part of a comprehensive review of existing programming.

1. Joining Forces: Lessons from Trade, Mergers and Acquisitions

Trade allows countries and businesses to specialize in producing goods and services where they have a comparative advantage, meaning they can produce them at a lower opportunity cost than others. Based on the bedrock theory of comparative advantage, specialization leads to more efficient use of resources and increased overall production. This concept should be applied more in the development sector, where greater cooperation across organizations would enable implementers to do more impactful work at a lower cost. 

We have seen successful instances of using comparative advantage in the development sector. For example, CARE International and iDE Global have partnered to cost-effectively scale a market-based sanitation program to increase uptake of improved latrines. CARE brings deep expertise in strengthening local systems through trusted community relationships, behavior change strategies such as community-led sanitation efforts, and its widespread network of village savings groups. Meanwhile, iDE has been a leader in market-driven sanitation, combining human-centered design of affordable, locally appropriate latrines with strategies to build supply chains, train entrepreneurs, and grow local markets. Together, the two organizations bring complementary strengths, and this scaling partnership, supported by IDinsight, has the potential to generate more impact than either could achieve alone. 

In another example, Mercy Corps and Village Enterprise joined forces to tackle ultra-poverty in Uganda and Ethiopia. Village Enterprise specializes in lifting the ultra-poor through asset transfers, training, and mentorship. Mercy Corps takes a systems approach, working to strengthen markets and institutions. Together, they built a comprehensive livelihoods program spanning both top-down and bottom-up strategies. IDinsight is conducting a multi-armed randomized controlled trial (RCT) to measure the effectiveness of each organization’s intervention individually, and the combined program to test whether the two together are greater than the sum of their individual contributions.

Following these examples, organizations should get out of their silos and look for like-minded and complementary partnerships.

More ambitious still are mergers and acquisitions (M&A). Common in the private sector, M&A allows organizations to consolidate leadership, combine back-end systems, and eliminate inefficiencies. Despite being normal practice in the private sector, M&A remains vastly underutilized in the social sector. Many nonprofits operate in overlapping spaces, with duplicative infrastructure and underleveraged assets – but lack the resources, incentives, or support to explore strategic combinations.

Save the Children’s acquisition of Merlin, and Mercy Corps’ integration of NetAid and the Conflict Management Group, are early examples. While these efforts require upfront investment—especially to harmonize strategy, governance, and culture—the long-term benefits can be substantial. Shared infrastructure, unified branding, and pooled expertise all contribute to more efficient and sustainable models.

Platforms like Accountability Lab’s nonprofit matching tool are now helping to identify potential synergies and reduce the transaction costs of collaboration. As funders grow more receptive to co-funding and sector-wide impact, we may see more bold combinations in the future.

2. Theory of the Firm: Technology Enhances Productivity

In the theory of the firm, technology plays a critical role in improving productivity. Technology can lead to more efficient production processes, allowing the same amount of labor and capital to produce more output. The same concept can be applied to social programs.

New technologies like machine learning and generative AI can help resource-constrained organizations reach more people and prioritize resources. There are numerous examples of NGOs and academics working to use artificial intelligence for targeting and efficient deployment of resources. At IDinsight, we have been using data science and AI to support partners in various ways, including identifying new populations most likely to benefit from an intervention, optimizing intervention packages to benefit specific populations, automating manual tasks, and reducing administrative costs.

In India, we used machine learning to locate high concentrations of out-of-school girls to efficiently target an evidence-based, impactful intervention from Educate Girls. By utilizing these predictions, Educate Girls reached around 600,000 additional girls without increasing costs. We also worked with Indus Action to automate checking and predicting eligibility for government welfare programs, address underutilized funds, and improve targeting for outreach programs.

In Togo, our data science team developed a linear programming model to optimize contraceptive distribution for the Togolese Ministry of Health (MoH). The model is flexible, allowing more resources to be allocated when demand is high and fewer resources when demand is low. We found that the model achieves ~40% reduction in costs compared to the old distribution system while meeting the same coverage targets. 

REACH Digital Health’s “MomConnect” chatbot provides timely and relevant healthcare information to two million registered moms, about 450,000 of whom are active – asking about 80,000 messages monthly. With the support of Google.org, IDinsight helped REACH enhance their existing service through an AI-powered tool, Ask-a-Question, answering 60-90% of questions automatically.

If you work for an organization that isn’t already using these technologies to improve efficiency, we recommend jumping on board. 

3. Economies of Scale: Develop Lean, Context-specific Interventions

Scale and cost-effectiveness are intricately linked. Typically, a significant proportion of program costs are fixed, accompanied by lower marginal costs per unit of output. As programs scale, per-unit costs decrease as fixed costs are spread over more and more units. According to the IRC, “The biggest single factor driving cost efficiency [for unconditional cash transfer programs] is the scale at which programs are run—reaching more households spreads the fixed costs of country support over a wider pool of beneficiaries, driving down per household costs dramatically.”

Many programs are piloted with full organizational support and high-touch oversight. These pilots succeed, but they’re often loaded with features that aren’t essential to impact. When it comes time to scale, these models buckle under their own weight. Further, interventions being replicated or scaled up often don’t fully account for local institutions, infrastructure, and practices, and remain anchored to whatever inputs and activities “worked” in the pilot setting.

A pilot model likely needs paring down to be scalable. Program designers can benefit from simplifying their interventions to reach impact goals at the lowest reasonable cost. This approach – sometimes called a “minimum standards” model – focuses on finding the most efficient mix of activities and resources needed to achieve results. At this stage, careful theory of change workshopping that fully accounts for subject matter expertise and local knowledge, combined with thorough enabling environment review can pay big dividends in finding the right mix of program inputs and activities. Once the basic model is set, rapid A/B testing helps identify places where small tweaks to inputs might lead to more efficient operations.

CARE International, which calls the leanest impactful version of an intervention the optimal fidelity model, has been on the cutting edge of designing for leanness and scale. They applied many of the principles here to sustainably scale VisionSpring’s Reading Glasses for Improved Livelihoods intervention.  Similarly, the IRC’s portfolio boasts several projects that are designed for efficiency, and carefully consider contextual blockers and enabling conditions. In addition to the UCT finding mentioned above, excellent examples include their work with malnutrition treatment, non-food item distribution, and latrine building in refugee camps. 

4. Lessons from Management Theory: Cost-efficiency Precedes Cost-effectiveness

Assuming they have good evidence for the overall impact of a program design, program teams should prioritize optimizing the upstream elements of their theory of change – where inputs become the outputs that lead to impact  – and use cost-efficiency analysis more extensively.

The connection between cost-efficiency and cost-effectiveness is well-established in management theory and practice. The tenets of scientific management, famously demonstrated by Frederick Taylor’s time-and-motion studies, show that overall organizational performance is best served by efficient processes (Taylor, 1911). Others have refined these principles over time. Advocates of lean management (the “Toyota Production System”) believe that efficiency leads to effectiveness when aligned with customer value (Liker, 2004), while contingency theorists add that effectiveness follows from fitting internal processes to external conditions (Donaldson, 2001).  

The same holds for development interventions: efficiency matters greatly, assuming the outputs lead to the intended outcomes. Theories of Change have two key steps: first, how inputs and activities lead to outputs; and second, how those outputs lead to meaningful outcomes. Cost-effectiveness looks at how much it costs to achieve one unit of outcome, while cost-efficiency focuses on the cost per unit of output. For example, cost-efficiency might measure the cost of sending one chatbot message to a smallholder farmer (an output), whereas cost-effectiveness asks how those messages impact crop yields or profits (an outcome). Outputs are typically easier to measure because they’re directly linked to the inputs and don’t require a comparison group or counterfactual. 

That makes cost-efficiency a more practical and actionable metric for program officers. Tracking outputs through regular cost-efficiency monitoring data can help teams manage, adopt, and improve cost-effectiveness in real time. Using the lean and well-defined design described above , teams should establish clear measurement priorities to cover the most impactful cost centers,  and create simple data collection systems and dashboards that track both outputs and their costs. By doing so, organizations can monitor performance, make smarter resource decisions, and ensure their programs are delivering maximum impact per dollar. 

Building the capacity to track and use cost data

Here’s the catch: few organizations collect good cost data. Budgets are often misaligned with program activities. Indirect costs are excluded or inconsistently allocated. Time tracking is minimal. The result is a blurry picture of what programs really cost—and where efficiencies can be found.

Fixing this requires investment. The “ingredients method,” developed by Levin and McEwan, offers a structured way to value all the inputs required for an intervention. Activity-based costing maps those inputs to actual program outputs.

But you can’t analyze what you don’t measure. Organizations must invest in systems that capture staff time, material costs, and resource allocation across activities. That might mean reworking accounting systems or conducting one-time audits with external support.

It also requires a shift in culture. Staff need to see cost data not as punitive, but as empowering—tools to help them do more with less and make smarter decisions.

A good Theory of Change helps here too. It allows organizations to link costs to the specific activities and assumptions that drive impact. If a key assumption proves false or an activity underperforms, cost data can help reallocate resources more effectively.

Final thoughts: efficiency is necessary, but not sufficient

Let’s be clear: improving efficiency can’t fill the $70 billion gap alone. The sector still needs more capital—especially from nontraditional donors, governments, and emerging markets.

As Duflo and Banerjee remind us, development progress is too important to be left to market forces or short-term austerity. We must build a new funding coalition for the 21st century.

But while we fight for more resources, we must also use what we have wisely. That means embracing strategic partnerships, scaling smarter, leveraging technology, and rigorously tracking efficiency.

In this moment of scarcity, efficiency is not a luxury. It’s a lifeline—and a path forward.