Monday, February 24, 2014

The Road Beyond Nonprofit Overhead

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

Friday, February 7, 2014

Technology is an Important tool for Charities that Want to be more Mission Driven

This was originally posted as Transforming Charities into Being More Mission Driven with the Help of Technology on TechSoup.

US charities of almost every size  (although especially the 50% of them whose budgets are $50,000 or less) complain of tremendous resource scarcity as they try to help solve some of our world’s most pressing problems. The movement to encourage charities to become more outcome focused (and thereby mission driven) has been seriously hampered by these resource constraints. More specifically, how can you build a performance management system in your organization to measure outcome indicators and focus staffs' efforts on your mission, if there is no funding to do so? More and more funders are asking for this kind of information, but most of them still provide nothing (money or expertise) to make it possible to manage and measure performance. The typical response of most charities is to try and repackage existing data to meet the rising requirements. In other words, we continue to promulgate a “garbage in, garbage out” system and meaningful reporting on results remains a distant goal.

There are some hopeful signs to help charities overcome this dilemma and become early adopters of building internal systems to become truly high performing nonprofits that provide the greatest social value (i.e. meaningful change in communities and people’s lives). One effort to help can be found in a letter that I signed, along with my colleagues at Guidestar and the BBB Wise Giving Alliance. It is called the overhead myth letter and can be found here. This letter can be used with foundation and individual funders to say, we need more overhead to build the infrastructure to measure our outcomes. Then we can provide you with the most meaningful measure of our performance rather than just secondary data on financial inputs.

Another great effort can be found in the work of a web site called PerformWell. The agencies working on this site are attempting to assist charities in identifying good outcome indicators based upon evidence based models that have been proven to work in specific cause areas. You can check them out here. In addition, I believe a relatively low cost tool that is nearly universal in applicability for measuring outcomes is via surveys of beneficiaries (sometimes called constituent voice). Keystone Accountability is working to create a web site of tools to help charities implement meaningful surveys. They offer a free tool you can check out (here) as a starting point. Furthermore, one of the funders of PerformWell is a group called Social Solutions. They provide software and consulting assistance to help you implement an outcome focused performance management tool.

We at Charity Navigator are hoping to develop a resource directory of the aforementioned and other tools for charities to help them get on the road to better results. To learn about how we have begun to evaluate charities' results reporting, read our one page summary (here) and have a look at the 600+ charities we have already evaluated on these new results reporting metrics (here).

Finally, we believe that all of these resources reflect the power that technology is playing in helping charities to become more performance driven and results focused by driving down costs and increasing the ability to compile and manage data much more quickly and easily. We urge you to take the perspective of doing “whatever it takes” to find the tools, expertise and funding to get on the road to measuring and managing your programs in the most meaningful way possible so that you can help more people and communities. I assume that all of you who are reading this share the mission as members and/or supporters of the nonprofit sector. I commend all of you for the good works you do each day in meeting that mission. I hope that you can find new ways to use technology more than ever to make your outcomes even more profound!