Originally published on LinkedIn on February 18, 2014.
Last summer I co-signed a letter to the donors of America called the “Overhead Myth Letter.” The letter has gotten a fair amount of attention within the US nonprofit sector (at least amongthe 1% of US charities that get 86% of the funding each year). In addition, representatives of some of those larger charities have told me that, at least among some of their big donors and family foundations; it has been a helpful piece of information. The letter urges donors to look at “other factors of nonprofit performance” beyond overhead, because we believe that “focusing on overhead without considering other critical dimensions of a charity’s financial and organizational performance can do more damage than good”. However, for the average donor to charity, the letter may not be all that helpful, because the availability of information on “other factors” is few and far between.
This is especially true when it comes to the most important information of all – data on the results (including outcomes and impact) of a nonprofit’s work. After years of research we have conducted at Charity Navigator, we have come to the conclusion that the vast majority of nonprofits do not publically report meaningful information on their results. In addition, we suspect that the vast majority of nonprofits have NO SUCH DATA to share with the public! That is because they have never built the required performance management systems to measure what they do. Therefore, when I signed the Overhead Myth letter with my colleagues, I said to them, if we are not careful and take at least one additional step, we will have possibly done more “damage than good” ourselves. I said that because following the advice in the letter could lead the donors of America to a dead end. On the one hand we tell donors - don’t consider overhead as most important, but on the other hand - we do not have a place for them to go to get what is most important to consider. This could lead to nonprofits being even less accountable to donors than they are currently. Not good!
I do not mean to imply that it is entirely the fault of nonprofits for this state of affairs. In fact, there is a perfectly logical yet tragic reason to explain (but not excuse) why nonprofits are in this situation. The vast majority of funders do not provide the necessary resources for nonprofits to build the required performance management systems so they can provide meaningful information on their results. Although nonprofits are usually required to generate an endless stream of reports to their funders, they usually are more focused on activities and outputs rather than real evidence of social value (meaningful change in communities and people’s lives). At the same time the funders usually do not supply the resources (money and technical expertise) to help nonprofits develop the capacity to manage, measure and report on their results. So even when the funders ask for such information, the nonprofits typically end up going through a kabuki dance to appear to supply it, when in fact it is simply repackaged outputs.
However there is good news on the horizon on a variety of fronts. A lot of people are working hard to make more information on nonprofit organizations' results available to the public. In addition, there is a growing demand that funders (especially foundations) not just ask for nonprofits to report on their results, but show a willingness to provide the resources for nonprofits to build their capacity to better manage and measure what they do. So do not despair! Here are just a sampling of the efforts that are underway to provide nonprofits with the tools and donors with the information they need:
For Nonprofits: Check out these resources that can help you to get on the road to managing and measuring your performance: (1) Perform Well (2) Keystone Accountability (3) Charting Impact (4) Social Solutions (5) Root Cause (6) Leap of Reason (7) The Center for What Works and (8) The Nonprofit Outcomes Toolbox. Whatever size and cause area your nonprofit works in, there is something available on this list to get you started.
For Donors: I admit I am biased but the only resource I know of that has the depth of analysis and scale (i.e. number of charities rated) that is working on compiling information on results for the average donor is Charity Navigator. Specifically, we call our new rating system CN 3.0. You can check it out here.
Finally, at the beginning of this article I mentioned that there needed to be at least one more thing that we signers of the Overhead Myth letter needed to do. That is, to write a second letter to the Foundations and Nonprofits of America, urging them to make sure that they do whatever it takes to build the capacity to manage and measure results and to then supply that information to the donors of America. THAT is the road beyond nonprofit overhead!
Photo: Saad Faruque/Flickr