As your typical husband, I sometimes find myself asking, “I wonder why my wife does it that way? It would be a lot more efficient if…” As if the value I bring to our marriage is to help her be more efficient. What a mistake. That is not it (and the subject of an entirely different blog), and I often have to remind myself, efficiency is not always the most important or end goal.
Same goes for nonprofits.
As a sector, we have trained our donors to judge an organization’s “worthiness” for support based on criteria like: the percentage of how much support goes to program as compared to fundraising or general administrative expenses; how much it costs to raise a dollar; or how much they pay the CEO. These are all efficiency measures – important and relevant to any nonprofit.
But here’s the bottom line: It’s NOT the most important measure.
In my opinion, it’s not even #2 or #3. Metrics that correlate to the impact an organization’s work has on the lives of those it serves, the number of those reached and the awareness created for the issue you are trying to address are so much more important. These speak to an organization’s effectiveness.
How much is it worth to pay the right nonprofit CEO at a scale worthy of his skills and abilities to double the impact an organization has for those they serve? Is the price of doing “good” less than the one that increases sales or profitability for a for-profit? Do we expect for-profits to be efficient with their marketing dollars as a measure of effectiveness? Of course not.
However, watchdog groups report on efficiency – some almost exclusively so. For instance, CharityWatch (previously known as American Institute of Philanthropy) reports on an organization’s worthiness almost exclusively based on efficiency derived from the organization’s financial statements (e.g., IRS 990 form, audited financials). I believe this is shortsighted and doesn’t tell the whole story. Others like BBB Wise Giving Alliance and Charity Navigator have paid careful attention to the issue and, as a result, do a much better job at trying to find the balance between effectiveness and efficiency (e.g., BBB reports on 20 standards for charity accountability).
So why do people focus on it? Because efficiency is easy to measure and social impact is not.
There are a number of great initiatives that begin to measure social impact in a more meaningful way. I’ve followed with great interest the work of Paul Brest and the Hewlett Foundation, as well as funding consortiums like Living Cities that not only strive to do “good” with their dollars but also strive to measure the social impact of their investments. Many nonprofits are benefitting from this important work, and will become even more effective as a result. This burgeoning trend should be welcomed and pursued by non-profits and then communicated to donors as more relevant criteria for determining where support should be applied.
After all, a spouse’s value is not based on efficiency, and a nonprofit organization’s isn’t either.
Photo credit: Chandra Marsono