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Anyone who’s thought about it for more than 15 seconds has realized that the administration-to-program ratio (“What percentage of my donation goes to the cause versus to overhead?”) is a useless measure for making good donation decisions. So there’s a social business movement under way to begin rating charities not on overhead but on effectiveness.
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Process evaluation is a study of the process of the delivery of the intervention. They can be used to help disentangle the factors that are responsible for successful outcomes, implementation of the intervention, and intervention integrity.
Unfortunately, this “effectiveness” movement may prove as inadequate to the task of helping the public make good donation decisions as the “overhead” religion it seeks to replace.
The reason is simple: a failure of imagination. Not necessarily about how to measure effectiveness, but about money — the serious money it would take to build the assessment apparatus required to provide objective, rich, and multidimensional information on the work of the estimated 700,000 active charities in America, and to update that information every year.
Well-meaning social entrepreneurs (around 65 of them by one count) and one established watchdog (Charity Navigator) are building, planning, or have created platforms to measure charities’ effectiveness. Most take varying numbers of indicators that they believe measure effectiveness and boil them down to a letter grade or a star system, which they then serve up to a donating public hungry for a simple and quick way to make giving decisions.
Most of these efforts are unfunded or underfunded. And while the literature is full of bright ideas about how we ought to be measuring effectiveness, it is devoid of any discussion about how these new efforts will marshal any more money for it than is currently available to measure overhead. Which is a pittance — the combined annual budgets for the three watchdogs (Charity Navigator, Better Business Bureau Wise Giving Alliance, and American Institute for Philanthropy) is about $3 million annually, or 0.000013% of the $225 billion that American individuals donate to charity annually. It’s less than a pittance; it’s statistically zero.
And despite their best intentions, with budgets resembling zero, the job of evaluating all of America’s charities and coming up with a meaningful guide for donors has remained beyond the reach of these organizations.
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The enemy was never just overhead. It was and is oversimplification. The problem isn’t just a lack of a new measure. It’s a lack of resources. And a lack of resources necessarily leads to over-simplification.
We are about to replace one simplistic approach with another. Why? We think it’s the best we can afford. Worse, we think it’s the best we deserve because, ironically, evaluation expense is a kind of overhead, and we’re not supposed to spend any money on that, so we need to do it on the cheap. So the very measure we’re trying to replace is the measure that is unconsciously driving the new “solution.”
Here is where the potential danger lies with the effectiveness movement:
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- A focus on the wrong thing. Effectiveness is not what we should be measuring, but rather commitment to effectiveness. As Sean Stannard Stockton argues, if we start measuring effectiveness, we’ll create a market around the problems that are easiest to solve (lack of soup, for example, with effectiveness measured by how many bowls of soup are served at a soup kitchen). Much easier to serve soup and measure your effectiveness than to try and end homelessness and measure that.
- A fragmented network. We are building multiple, redundant, poorly resourced businesses, each with their own standards. This has the potential to confuse the general public as much as the different overhead standards of the three watchdogs have over the years.
- Lack of meaningful scale. The watchdogs never achieved scale. The largest among them, Charity Navigator, evaluates about 8,000 of the active charities in the country, or 1.1%. And none of the new effectiveness organizations are on a trajectory to get much larger, even using relatively inexpensive and simple evaluation methods. For example, GiveWell, one of the best of the bunch, measures only 413 organizations, or .059% of the active charities in the country. Why is this so? None has yet discovered a revenue model that can achieve dramatic growth. Charities are reluctant to pay much for the service, and most of the new efforts are trying to offer information to the public for free, so there’s no revenue to be had there. And big investment dollars aren’t going to flow until the opportunity for big profits are demonstrated.
- Flawed tools. Because of a lack of resources, these efforts will revert to free or inexpensive evaluating tools that are flawed. For example, some are planning to measure effectiveness, in part, by looking at how much a charity talks about effectiveness on its website — a system that is easily gamed. Others post ratings from donors and supporters. That’s inexpensive, but retail donors and supporters may not be objective or informed enough to evaluate an organization’s commitment to effectiveness. The donor isn’t the user of the charity’s programs the homeless, the poor, and so on are. They’re not the ones writing the majority of reviews, so there’s no valid corollary to a Yelp-like evaluation system where, for example, the person who gets his hair cut is the one rating the barber.
- Oversimplified metrics. Also because of a lack of resources, we will forgo rich information. Everything will be reduced to numbers, stars, letter grades, and so on, instead of dynamic story-telling content, violating the no-numbers-without-story, no-story-without-numbers rule. This will lead to injustices, same as the current watchdog systems, penalizing good organizations and rewarding mediocre ones.
We’re trying to do an end run around the maxim that you get what you pay for and we think we’re being efficient in doing it. We’re not. The opportunity costs of not having the right system are huge.
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I continue to believe we need one consolidated, massive national apparatus for assessment. It should consist of teams of objective observers — a kind of Peace Corps for evaluation — that will collect substantive and objective data, annually, on every operating charity in America and put it online in a beautiful iTunes-like user interface. The system must include storytelling content that goes beyond metrics: 1) video documentary of staff and clients, professionally shot and edited, 2) meaningful surveys of clients, 3) statements of dreams and visions, 4) digestible, lay-friendly prose summarizing agency findings, polished by copywriters, 5) innovations that come from the best thinking of the likes of Charity Navigator, GiveWell, Great Nonprofits, and others, based not on what they can afford, but what they dream, and 5) measures of commitment to impact — not impact itself, but underlying intentions. This has to be a web destination so seductive with rich media on social change that people get addicted to it.
We will need to spend hundreds of millions of dollars to get this right. Too expensive? Consider that $500 million is 0.22% of annual individual giving to charity — hardly too much of an investment to ask to direct and evaluate all of that giving.
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Who will pay for it? I don’t know. It may have to be the government. The market incentives don’t seem right for either the public, the charities, philanthropists, or investors right now. The large charities, content with the high grades they get for low overhead, don’t have any incentive to fund it. And it’s hard to quantify the long-term upstream value that will get produced, which means it will be hard to make a case for investor funding. The public wants everything online for free, and seems currently unwilling to fund charity evaluation on any big scale with private donations, but motivating them to do so could kill two birds with one stone — we could get the funding and an educated public. If we could show that we can produce sales revenues, that could get investors interested. Interestingly, Charity Navigator has demonstrated public willingness to donate at small levels for information.
What’s the return on investment here? First, we’d get a market that functions on proper information (as opposed to bad information: a market that makes decisions based on overhead, for instance, is a market sending money to the wrong places). The value of a properly functioning market for philanthropy is almost inestimable. Second, we’d get greater public trust in charities and better understanding of the realities of their work and challenges. The value of this, too, could be huge, in terms of new donations to charity.
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Right now we spend about $4 a year per charity on evaluation. That’s insanity. It’s malfeasance. We’ll get what we pay for. More than anything else, this is what has to change.