Why Measuring Nonprofit Effectiveness is Complex

Giving Compass’ Take:

• Vu Le, writing for Nonprofit AF, explains why donors need to stop measuring nonprofit effectiveness with impact-per-dollar models. 

• The article notes that the impact-per-dollar model doesn’t measure things like long-term outcomes or equity. 

• Learn about the harmfulness of lean overhead. 

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We need to talk about Impact Per Dollar (IPD), the practice of measuring nonprofit effectiveness by calculating units of service that donors can buy with their donations. For instance, let’s say homeless shelter A provides people with 5,000 nights of shelter each year and its total program cost is $50,000. Divide 50K by 5,000, and you get $10 per night of shelter per person. Compare this with Shelter B that provides 2,000 nights of shelter at a program cost of $40,000 per year, which figures to be $20 per night of shelter per person. The argument then, according to IPD, Shelter A is twice as effective as Shelter B, and donors would be fools to donate to Shelter B.

I’m making all these numbers up. But I am not basing it on nothing. This is how many people think nonprofit effectiveness should be measured, and their advocacy of this method to an unwitting public causes all sorts of harm to our work. Here are several reasons why, with special thanks to colleagues Julia Coffman, Jara Dean-Coffey, Beth G. Raps, and others for their insights:

1. It only measures the easily measurable
2. It does not factor in geographic differences
3. It does not measure long-term outcomes
4. It ignores the complexity of nonprofit work
5. It fails to take equity into account
6. It drives resources away from smaller grassroots organizations
7. It exacerbates the public’s ignorance about nonprofit work
8. It furthers misconceptions and complacency about societal problems
9. It perpetuates the nonprofit hunger games
10. It devalues the intrinsic worth of individuals

Read the full article about measuring nonprofit effectiveness by Vu Le at Nonprofit AF.