How to Judge Nonprofit Effectiveness

Giving Compass Jun 14, 2017
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Nonprofit effectiveness giving compass

We contribute to organizations close to our hearts, but we also want to make sure that our time and money have the maximum impact. Understanding nonprofit effectiveness goes beyond the financial indicators. The best approach is to think holistically, taking into account all of the dimensions that influence an organization’s impact; it requires taking a deeper look beyond financials and moving beyond the myth of the overhead ratio.

Some of the questions for donors to consider before giving include:

  • Can the organization tell you why the work it is doing will lead to impact? Is the work itself based on evidence?
  • If the organization is focused on helping people, does the leadership of the organization (including the board) include people from the communities it aspires to help?  Does the organization have a track record of reaching and engaging those it aspires to serve?
  • Does the organization have a “learning mindset?” Not every organization can or should invest in data collection and measurement strategies that can be very expensive. But at the very least, every organization should collect basic “customer satisfaction” feedback from its constituents (using low-cost option such as the Listen4Good tool developed by the Fund for Shared Insight).
  • Is the organization well-managed? Does it set annual goals for itself and its employees? Does it share regular updates with key stakeholders, including its donors?

If you aren’t able to get answers to the above, or are not sure where to give, you also can choose to invest in an issue fund or intermediary which can do the due diligence on your behalf and get your dollars to a set of strong organizations aligned with your interests.

The Overhead Myth and Nonprofit Effectiveness

To assess the success of business, we rely on profit and other performance metrics that are widely accepted and readily available. In the social sector, data on performance is challenging to find, and often does not exist in specific organizations.

Many donors look at the proportion of overall budget an organization spends on management and administration as an indicator of effectiveness. This ratio is easy to calculate but, unfortunately, does not help to assess what we most need to know.

Numbers for overhead are unreliable and inconsistently reported. They can vary dramatically depending on the work an organization does. For example, an organization that engages people in remote parts of Africa in developing businesses, able to support their families, might spend significantly more to find and serve those people compared to organizations providing mosquito nets to prevent malaria.

Most importantly, the impact for each of these organizations will also be different. Some work is life-changing and profound and other is light-touch, yet effective. Because spending on measurement, research, and performance management is counted as overhead, there may be, in some cases, an inverse relationship between the overhead ratio and effectiveness. Be an impact-driven giver and pay for performance.

Additional resources to evaluate nonprofit effectiveness:

These resources from Guidestar, Charity Navigator, The Better Business Bureau, Bridgespan and Stanford Social Innovation Review can help you learn more and give you guidance and tools.

Learning and benchmarking are key steps towards becoming an impact giver. If you are interested in giving with impact on Impact Philanthropy take a look at these selections from Giving Compass.

  • This article is deemed a must-read by one or more of our expert collaborators.
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    Why and How Donors Should Support Long-term Recovery Groups

    Between Jan. 1 and Aug. 18, 2021, 40,848 fires in the U.S. have burned nearly 4.3 million acres. These numbers will only increase as the current fires rage on and more ignite through the fire season. Year after year, the number and intensity of fires in the American West has increased as communities struggle to recover from previous disasters. This is just one example of how communities that are often hardest hit are also the most vulnerable to future disasters, making it difficult -- and sometimes impossible -- to fully recover. Long-term Recovery Groups (LTRGs) are uniquely designed to address these challenges, and will be increasingly important as climate change intensifies and increases the frequency of weather-related disasters. LTRGs play an important role before and after disasters strike, but often need philanthropic support to sustain their work.  In this recap of Hidden Gems: Funding Long-term Recovery Groups, a webinar recently hosted by the Center for  Disaster Philanthropy, learn about the benefits of supporting LTRGs and how you can be an effective donor. CDP Director of Learning and Partnerships Tanya Gulliver-Garcia moderated the discussion and panelists included: Sally Ray, Director of Domestic Funds, CDP; Cari Cullen, Director, Midwest Early Recovery Fund, CDP; and Carlene Anders, Executive Director, Disaster Leadership Team. What Are Long-term Recovery Groups? LTRGs are local coalitions dedicated to helping communities -- particularly underserved community members -- in the wake of a disaster. LTRGs can include representatives from faith-based organizations, nonprofits, government, business, and other organizations working in communities. Gulliver-Garcia explained that LTRGs “... are varied in their structure as the communities are, and the personality and operation of each group is unique and it reflects local needs… But the goal is pretty much always the same: To provide coordinated services to enable everyone in the community to recover.” Why Support Long-term Recovery Groups? Communities deal with the aftermath of disasters for years, but data show that private giving stops after six months. While recovery is ongoing, other disasters are likely to hit, especially as climate change intensifies and increases the frequency of weather-related disasters. LTRGs are uniquely designed to address long-term needs and build the resilience and immediate response needed to address new disasters that will inevitably come.  How to Support Long-term Recovery Groups Considerations for Funders Inclusion: LTRGs should reflect the community they aim to serve. If the leadership of an LTRG seems out of touch with the local population, they are not the best fit for the deeply personal work that is needed for real recovery.  Support: Community trust is key for the success of the LTRG. If the community, the local government, or prominent local leaders don’t support an LTRG, they will not achieve their goal.  Capacity: The work that is carried out by LTRGs requires extensive resources including human capital. These groups cannot reach their full potential without financing for staff and other necessities. Funders should step up to meet the capacity needs of under-resourced LTRGs that meet the above criteria.  Roles for Funders Convening and Connecting: Donors can use their networks to help bring together resources and funding. Utilizing existing relationships to bring together groups that normally work in silos is an essential service that funders can provide.  Participation: As Cullen said  “Be a part of a long-term recovery group. Play the role of fiscal agent. Support infrastructure and administration of the long-term recovery group.” Platform: Draw additional attention to community needs and advocate for resources. Don't wait for a disaster to happen: Jump in right now, before disasters happen, and plan for those disasters. That might mean finding an existing LTRG in your community or helping to form one.  Make X=Y: Seek out available information and data instead of insisting on entirely new or reformatted information for your decision making. Reduce the burden on the group and preserve resources by using what is already available.   Don’ts for Funders Avoid these “red flag” behaviors: Asking for specific information about or access to those served by the LTRG Restricting how funds are used by the LTRG, particularly related to excessive reporting and communication Expecting the LTRG to serve other needs outside of recovery Watch the full webinar at the Center for Disaster Philanthropy.

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