One of the most difficult tasks in nonprofit management is to document the final outcomes that are being accomplished. Organizations can and do measure outputs, that is, the number of times they do something or the number of people who participate. But, measuring the impact caused by those activities can be really difficult for most nonprofits. Does the local soup kitchen really address the problem of poverty in the community or just create dependency? Does a drug rehab program really help people break their habits or were other factors involved that would have worked even without the program? Does a public campaign to combat racism really influence the community’s behavior and if so how was it changed? These questions and thousands more just like them can be answered with sophisticated and expensive research but that hasn’t been affordable for most nonprofits. In the absence of research driven data most organizations have described their results by telling stories about individuals who have benefited by the program. The assumption is that if this one person was impacted in a positive way then other participants must be benefiting as well.
There are now over 1.5 million nonprofits in the US and 50,000 more are being added each year. The only national oversight authority in this sector is the IRS and they are neither staffed nor funded to do an adequate job. The challenge of oversight began in the late 1800’s before the function of a charity was even defined.
When the first of the big three “charity watchdogs” began operations in 1996 it was generally considered to be a positive step for the maturation of the nonprofit sector. Unfortunately, the watchdogs had little information on the results of the organizations they wanted to rank so they developed a rating system based on what was available. The only readily available information at the time was the financial data from the IRS 990 forms. In the absence of result data each “watchdog” developed financial ratios and then the ratios were used as a way to evaluate and rank the organizations. One of those ratios was a measure of overhead.
Donating and investing are similar in intent.
The intent in donating and investing is the same. In both cases you are putting your resources into someone else’s hands with the expectation of producing a result. With your investments that result is a financial return. With your donations the result is a social impact. Our work is rooted in the belief that the results we want to achieve through our donations are just as important as the returns we try to achieve through our financial investments. Consequently, donating and investing require the same level of effort and care. If you agree with that statement you face a significant challenge because the two sectors provide very different levels of resources for their participants. The investment world is sophisticated and has well developed tools to assist the investor. The nonprofit world is the opposite. Upon realizing how different the two sectors were one donor said, “It is more difficult to give money away well than it is to earn the money in the first place!” I quick review of the two sectors will reveal why he reached that conclusion.