On Topic: End of Year Giving and Moving Forward to 2010 and Beyond

Hello readers! It’s been a while since our last post and for good reason: we recently released our latest philanthropic investment guide, High Impact Philanthropy in the Downturn: Focus on Housing, Health, and Hunger (A Guide for Donors), just before the Thanksgiving holiday, and have needed some time to recuperate as well as to get the wheels rolling for our new projects in teacher quality and child survival. However, even as we completed the task of one small (and hopefully effective) contribution to the social sector, the world has not stopped buzzing with information, especially now, when the holidays are upon us and there are many individuals, families, and institutions in need of assistance. Yesterday, the buzzing bee in the blogosphere fluttered in front of my eyes in the form of a press release, titled The Worst (and Best) Way to Pick a Charity This Year. It seems to be a call for an educational and behavioral shift away from old methods of measuring charity and/or nonprofit effectiveness. One specific metric of effectiveness that has been singled out for “extinction” is the use of  overhead ratio. For nonprofits, this relates to the comparison of program-related costs against the administrative and fundraising costs—perhaps, also known as the “barebones” of what keeps an organization running. This effort is a collaboration among 6 different players in the nonprofit and philanthropy world, including:

  • GuideStar and Charity Navigator, the two leading organizations that have a rating system for charities.
  • GreatNonprofits, a resource that allows individuals to rate and review charities based on prior experiences with their work.
  • GiveWell, an independent research organization dedicated to evaluating nonprofit effectiveness.
  • Philanthropedia, (formerly known as the Nonprofit Knowledge Network) a fairly new organization that serves not only as a foundation but also as a clearinghouse, for donors and nonprofits, of expert information and tools to leverage the “inside” knowledge of the philanthropic community
  • Hewlett Foundation, a foundation based in Menlo Park, CA, which focuses on social and environmental problems. Hewlett’s president, Paul Brest, is the co-author of Money Well Spent.

Our work at the Center for High Impact Philanthropy also uncovered the issue of funding overhead costs during our 2008 study, I’m Not Rockefeller, when we interviewed 33 high net-worth individuals. It is worth noting that two of the organizations (see below) leading the charge in this new way of evaluating effectiveness had incorporated the use of overhead ratios in their rating system.

Interestingly, despite the fact that many nonprofits are now rated or scrutinized based on their “administrative cost ratios” (by Guidestar and Charity Navigator, among other online tools), many HNWP participants thought overhead was not a useful decision criterion. (Noonan, et al., 2008, p. 10)

Here are some quotes that we pulled from our conversations with donors regarding their thoughts on funding overhead costs:

[T]he whole issue of overhead expenses as a percentage of your total budget is…not regular. It seems like the wrong way to think about it.

[S]omebody needs to pay for the overhead in order for them to provide their services, so why shouldn’t it be us? And if we believe in the organization, why shouldn’t we pay for their overhead?

I think people tend to put too many restrictions, especially on small gifts, and these organizations end up chasing their tails and doing way too much, when what they should be doing is just focusing on their core missions. And most of our funding is just general operating funds.

I just run a business, and I understand that maybe you need to pay for infrastructure.

Here at the Center, we encourage any efforts to find new ways of evaluating how to leverage a philanthropic gift to help nonprofit organizations serve their target populations in need of basic resources such as education, health, and economic development and sustainability. Our research serves to uncover facts and data in order to synthesize, translate, and inform donors, advisors, and nonprofits so that the sector as a whole can have yet another reliable resource to rely upon for decision making and to effect positive social progress. There is widespread anticipation of systemic shifts in thinking, behavior, and action due to the global financial crisis, which is affecting every facet of society. One big question that is looming on the horizon is centered around the “future of philanthropy.” You can check over at Philanthropy 2173, where Lucy Bernholz has been compiling her list of lists for the future of the sector, or mosey over to the Chronicle of Philanthropy, that is using twitter to gather information on the nonprofit fundraising outlook for 2010. Sean Stannard-Stockton of Tactical Philanthropy Advisors also just posted today on The Future of Charity Evaluation. Our Center’s tagline is “defining the efficient frontier of philanthropy.” We focus on what exists, what works, and how to measure the existing information so that it can be used for practical guidance. We hope that our approach can foster a new way of thinking about, acting for, and achieving social impact for future generations to draw upon. As always, we welcome your thoughts on how we can improve or enhance our work.