Category Archives: Impact Measurement

Embedded Foundations

February 27, 2008 – 12:57 pm

Lucy Bernholz coined “embedded giving” last year to describe products and services that are sold to a consumer with a promise to donate some of the proceeds to charity. Now we have “embedded foundations”. From the Springfield News-Sun:

The Chapin Hall Center for Children, a semi-independent policy research center at the University of Chicago, is studying foundations similar to Springfield’s Turner Foundation to identify effective philanthropic practices that could benefit national foundations.

What researchers found is a set of foundations with an uncommon but highly successful approach to giving, researcher Mikael Karlstrom said, resulting in significant, sustainable change in communities around the country. The ongoing study, titled “Embedded Funders and Community Change,” explores foundations that concentrate their resources in one limited geographic area and become deeply involved in those communities.

National foundations can swoop into an area and give money for a reform initiative over a certain time frame. When the time’s up, they can leave whether or not the initiative achieved the desired results and move on to the next project, said Prudence Brown, a researcher for the study.

The foundations at the center of Chapin Hall’s study — what researchers dubbed “embedded foundations” — aren’t about to pull up their roots…

…”The embedded funder says, ‘We’re going to keep working at this until we get it right.’ That’s a very profound difference,” Brown said. “Many of these foundations didn’t fit the stereotype of a foundation that holds itself above everybody. There was just a very admirable sense of persistence and deep understanding of community that takes many years to develop.”

You can read the whole thing here.

In financial markets it is understood that small investors have certain advantages over large institutions (the ability to make decisions without worrying about client perceptions, the ability to invest without “moving the market” or influencing the price of the stock, the opportunity to see Main Street trends without being caught up in the Wall Street herd mentality). I think embedded foundations is one way that smaller foundations can achieve high impact.

By Sean Stannard-Stockton | Also posted in Effective Giving, Foundations, Philanthropy | Comments (0)

Rewarding Donors

February 25, 2008 – 9:39 am

Last month, a discussion unfolded on Gift Hub that I never got around to commenting on. In response to a question from Phil Cubeta I wrote:

I was trying to say they do not give away the bulk of their lifetime giving “today”. In other words imagine you had someone with $10 million in investable assets. Assume that an analysis of their financial wants/needs and their desire to give showed that they could and would like to give away $6 million over the course of their life. Imagine that all of the tax issues have been handled and the donor is free to give purely in the way that follows their altruistic motives (one of the reasons for organize your giving cited in my article is to separate the tax planning from the altruistic motive).

What I’m saying is that I rarely run across people who would choose to give the $6 million away today and then giving nothing else for the rest of their life. Instead, most people want to give over the course of their life. I think that while there may be a impact maximization case for giving everything asap, that most people want to give over their life and that that choice is OK.

Phil responded:

I agree with your perspective. Most people don’t want to just cut loose of the money, the big bundle, the ultimate gift, until late in life, since they actually enjoy the giving and may want to be actively engaged. Also, if you do give all at once to XYX charity, and you are then tapped out, will XYZ send roses on your birth day a year from now? You lose leverage, also, in giving the bundle at once, rather than doling the money out against progress and results on the things you care about.

Then, Gift Hub reader Michelle wrote:

Phil’s last remark is vital to note, and it’s something we see constantly on the inside. This is where the transaction becomes a relationship. Our donors do want the birthday flowers, the mentions in the newsletter, the gradual, long-term, and consistent shaping influence that keeping their recipient on a sort of allowance creates. Every day we see the many ways the donation relationship creates personal meaning and belonging. Were the gift made outright, with no future expectation on either side, the donor would risk the disappearance of a relationship - in many cases an important, self-defining one.

I think Michelle is right. Donors do want “birthday flowers”. But the question is why? Why is it that people who see an important need and are willing to part with their hard earned money to help alleviate the problem, want some flowers sent to them? Isn’t it enough that their money fed a child, lifted a family out of poverty, provided education, healed the environment or even saved a life? It is not enough because most nonprofits are unable to provide any convincing feedback to their donors that indicate the impact of their gift.

When you buy a new computer, you don’t need Dell or Apple to send you flowers as a thank you because the product in your hand affirms your choice to spend the money. Philanthropy is much more challenging in this regard because the “product” you “buy” goes to someone else or is part of a large, longterm event that can be hard to see your impact on.

But imagine the nonprofit that manages to figure out how to demonstrate to their donors (both emotionally and quantitatively) the huge impact of their gift? Suddenly, the nonprofit doesn’t have to spend resources providing “feedback” like birthday flowers. Suddenly, donors’ gifts result in the feedback that humans crave when trying to evaluate their actions.

Relying on birthday flowers is a bit like building a great customer service center to cover for the fact that your customers have no idea if your product is any good (”I don’t know what I bought, but they sure were nice to me!”). It may be necessary, but a much better choice would be to figure out how to show your customers how great your products are. Unless of course, you product isn’t anything special.

By Sean Stannard-Stockton | Also posted in Philanthropy, nonprofits | Comments (7)

Measuring What You Can’t See

February 19, 2008 – 10:08 am

The Wall Street Journal has a column today called, “A Modern Conundrum: When Work’s Invisible, So Are Its Satisfactions”:

In the information age, so much is worked on in a day at the office but so little gets done. In the past, people could see the fruits of their labor immediately: a chair made or a ball bearing produced. But it can be hard to find gratification from work that is largely invisible, or from delivering goods that are often metaphorical. You can’t even leave your mark on a document in increasingly paperless offices. It can be even harder trying to measure it all. That may explain why to-do listers write down tasks they’ve already completed just to be able to cross them off…

Jon Williams once worked in an auto-claims department where the number of new-claim calls, which could take a half hour, were tallied with the same weight as brief reminder calls to customers. Even so, his greatest sense of achievement was transforming an initially angry and frustrated customer into someone who was satisfied and even laughing. “That wasn’t measured at all,” he says…

The loss of such control over how and when a job is done is one reason the Industrial Revolution was resisted, says Gregory Clark, a professor of economics at University of California, Davis. “It seemed like the complete destruction of the value of work to people,” he explains…

Mechanical engineer Robert Schneider at least gets to see the ball bearings he designed being produced in the manufacturing plant downstairs from his office. But he spends a lot of time researching things that don’t directly translate into a finished product. “Much of the work I do goes unnoticed by anyone but me,” he says. “I need to rely on myself to know I am doing worthwhile work.”…

Somehow I think there’s a lesson in all of this for philanthropy. Some readers might suggest that the article shows how the modern economy sucks the life out of… life. But I would look to the obvious fact that even if we have more trouble measuring our work in an information economy, the work we do is not less meaningful. It seems to me that the key is to find ways to connect the work we do with some sort of progress. Progress towards better products, better services, more sales, happier customers… and the solving of social problems. In a world where invisible “information” is the product we produce, we must re-double our efforts to measure impact. But we must focus on measuring what matters, not that which is easiest to see.

By Sean Stannard-Stockton | Also posted in Philanthropy | Comments (0)

Best of Stanford Social Innovation Review

February 16, 2008 – 10:58 pm

The Stanford Social Innovation Review is a must read if you care about philanthropy. They manage to straddle the line between offering academic journal type articles while at the same time offering up compelling, engaging writing. They even play host to a large group of philanthropy bloggers (including me).

You have to subscribe to the magazine to read most of the articles. But the SSIR is currently offering their five most read articles of 2007 for free:

Creating High-Impact Nonprofits

Conventional wisdom says that scaling social innovation starts with strengthening internal management capabilities. This study of 12 high-impact nonprofits, however, shows that real social change happens when organizations go outside their own walls and find creative ways to enlist the help of others.

Microfinance Misses Its Mark

Despite the hoopla over microfinance, it doesn’t cure poverty. But stable jobs do. If societies are serious about helping the poorest of the poor, they should stop investing in microfinance and start supporting large, labor-intensive industries. At the same time, governments must hold up their end of the deal, for market-based solutions will never be enough.

How Nonprofits Get Really Big

Since 1970, more than 200,000 nonprofits have opened in the U.S., but only 144 of them have reached $50 million in annual revenue. Most of the members of this elite group got big by doing two things. They raised the bulk of their money from a single type of funder such as corporations or government—and not, as conventional wisdom would recommend, by going after diverse sources of funding. Just as importantly, these nonprofits created professional organizations that were tailored to the needs of their primary funding sources.

Social Entrepreneurship: The Case for Definition

Social entrepreneurship is attracting growing amounts of talent, money, and attention. But along with its increasing popularity has come less certainty about what exactly a social entrepreneur is and does. As a result, all sorts of activities are now being called social entrepreneurship. Some say that a more inclusive term is all for the good, but the authors argue that it’s time for a more rigorous definition.

A New Era for Business

More and more business leaders recognize that their company’s future is increasingly intertwined with the needs and demands of society. What many executives don’t understand is how best to manage that changing relationship. In this article, McKinsey & Company consultants provide a model for incorporating sociopolitical issues into the strategic decision-making process.

By Sean Stannard-Stockton | Also posted in Cross-Disciplinary Conversations, Media, Philanthropy, Social Entrepreneurship, microfinance | Comments (0)

More on CalHospitalCompare.org

February 11, 2008 – 9:00 am

Last week I mentioned CalHospitalCompare.org, a website that shows comparative rankings for the effectiveness of California hospitals.

A reader emails today with some thoughts on problems with the measurements used by the site. He points out that the vaunted Cedars Sinai of Beverly Hills has only an “average” ICU mortality rate according to the site. The site assumes that a hospital should strive for a lower mortality rate (less patients dying is good right?):

Why are we pedantically told “lower is better”?  Why is lower better?  Is this not exactly, specifically, the dead-nuts center of the “metrics” conundrum?

If the Cedars ICU mortality rate was 50%, wouldn’t that mean Cedars must be where everyone in the know knows to go when intensively sick??????  Included among them, obviously, are the intensively sick at death’s door — thus inflating the ICU mortality rate with folks whose only hope is for more time in ICU — not escape from it.  “Mortality” measures nothing meaningful about the care and skill and hand-holding services provided AT DEATH’S DOOR in the Cedars ICU!

That 50% ICU croak rate might just mean Cedars is the place to go to be kept ticking long enough for all my family stragglers and long-losts to fly in and come kiss me goodbye?  I’d still add to the croak rate, but…  Wow!  What service!

What the hell kind of “metric” measures that PRICELESS service???!!!

What about the exact opposite “metric” finding:  Suppose Cedars ICU mortality rate was 1%.  This means, of course, if the “average” is 13%, that Cedars is either magical — or lying.  Let’s say they’re just wonderful.  And…  so…  via “metrics” getting into the hands of salesmen…  everyone discovers how wonderful Cedars ICU can be.  So business goes up on the word — logically, in the fullness of time.  Now…  More and more people at death’s door come to them for those precious last few hours or days…  But.  In the end, folks croak.  So?  Little by little, Cedars ICU mortality rate gets back in line with “average” and, like all intended measurements for goodness, is rendered meaningless.

Why, why, why, why so much time on this obsession with measuring The Good?

The emailer then takes me to task for focusing on measuring nonprofit outcomes. I found his argument above excellent. This is a great example of how important it is to measure the right things. We cannot depend too heavily on any one metric. There is no magic, simple way to determine how effective a nonprofit is.

Right now, any decent economist could give you a long list of statistics that show we are in a recession… and a list of statistics that suggest we are not. That doesn’t mean that metrics are worthless. It does not mean we should not strive to seek knowledge. It means that understanding our world is hard. But through understanding our world, we can create a better one.

By Sean Stannard-Stockton | Also posted in Cross-Disciplinary Conversations, Effective Giving, Evaluation, Philanthropy | Comments (0)

The 2007 Slate 60

February 11, 2008 – 8:26 am

The Slate 60 was created as an antidote to the Forbes 400 (the list of the wealthiest Americans) after Ted Turner complained about the influence the Forbes list had on the wealthy and how it discouraged them from giving away money. With the 2007 Slate 60 out today, I think it a useful time to think about how cultural expectations drive human behavior. Personally I would love to see some sort of list of the most innovative, or most effective donors. Giving big is great, but giving well is better.

It is easy to measure how much someone gave, but really tough to measure how well they gave it away. In the financial markets, investors who generate the highest return on their investments are celebrated, not those with the largest portfolios. But then it is quite easy to measure for-profit investment returns.

When we discuss measurement, lets be sure to remember that we must measure the right things, not those that are easiest to measure.

By Sean Stannard-Stockton | Also posted in Media, Philanthropy | Comments (4)

Do Nonprofits Trust People?

February 11, 2008 – 8:00 am

A new blog I’ve been following, LifeYears, asks an interesting question today:

Non-profits seem sceptical towards outcome-based indicators of how effective different initiatives and projects are. Is this because they are afraid of what “ordinary people” would think and do if they had this information? And if so, could such a worry be rational?

The author, Ole Rogeberg, poses the question very seriously without passing judgment:

Personally, I hope (and want to believe) that outcome-based indicators would make the connection between giving and accomplishing stronger, that people would not just give in order to “do a good deed” but also start giving to “have an impact on malnutrition” or “reduce malaria” etc. But other people might believe that the consequences would be different. But other people might believe that the consequences would be different. Two possible worries that immediately come to mind:
  • Myopic funding: The more concrete, short-term and certain a program was according to its outcome indicator, the more funding it might receive. This might make it easy to get funding for vaccines and malaria nets, but hard to get funding for investments and development in health infrastructure, education, human rights work with women, etc.
  • Over-focused funding: Some measures may catch the public’s interest far more than others (”go viral”), and this might lead to large shares of funds going to these areas - not because the need is the largest or the impact the greatest, but simply because the indicator is catchy in some way.

Ole ends:

Even if you personally don’t see the problem - how can we answer this fear and develop indicators that don’t have excessive (largely unintended) negative consequences?

Important questions. Change is difficult and often has unintended consequences. Many, many people are resistant to my calls for more measurement and analysis of nonprofit outcomes. How can we handle their concerns? Or might their concerns be right?

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By Sean Stannard-Stockton | Also posted in Evaluation, Grantmaking, Philanthropy, Transparency | Comments (1)

Satisfaction Guaranteed by a Little Research

February 4, 2008 – 10:18 am

My most recent column for the Financial Times:

Are you a hot-tip donor? If you are reading this newspaper, you are probably sophisticated enough not to chase the stock of a company that your friend’s sister’s husband says has a hot new product.

But if you are like most people, you decide which non-profits to support using the recommendations of friends and family or solicitations from non-profits themselves.

In the case of identifying local charities that support your community, using your personal network probably is a good way of finding great non-profits. When the employees, volunteers and people served are all located in your community, it is often clear to friends and neighbours which organisations really make a difference. But what about national organisations that tackle broad problems such as education reform, environmental protection or poverty?

Donors often give based on a non-profit’s cause rather than the effectiveness of the organisation. Investors rarely make the same mistake. If a person wants to invest in the computer business because he believes that more and more people will need multiple PCs in the coming years, he will realise that selecting Dell, Hewlett-Packard or Apple can lead to very different outcomes.

Likewise, selecting a cause is only the first step in choosing a non-profit to support. Next, a donor must try to distinguish between the various non-profits working on that cause and select the one that most effectively deals with the issue in a way that matches the donor’s beliefs.

Both Environmental Defense and Defenders of Wildlife are non-profits that work on environmental issues. Both have been cited by multiple sources as top-performing non-profits. But that does not make them interchangeable.

Environmental Defense seeks to “protect the environmental rights of all people”, while Defenders of Wildlife is “dedicated to the protection of all native animals and plants”, with a focus on predators. Donors who want to protect the environment must decide whether their desire is rooted in protecting the rights of humans or the rights of animals.

To further its mission, Defenders of Wildlife primarily uses education, advocacy and compensating ranchers for livestock lost to wild predators. Environmental Defense is known for partnering corporations such as McDonald’s and FedEx to reduce their environmental impact. It also seeks to harness market forces for environmental progress.

Next time you are solicited to donate to charity, research why the non-profit has its mission and how it seeks to achieve its aims. You can perform initial research relatively quickly with a couple of searches online and a phone call to the organization. Not only will you know that your money is supporting something you believe in but also that it is being used in a way that makes sense to you. By identifying non-profits that fit your values and beliefs, you will find giving much more satisfying and may well want to become even more involved.

Most people tend to find new non-profits through their personal network or direct solicitations from a charity. However, a number of websites have sprung up that seek to match donors with non-profits and projects that match their unique outlook.

Kiva.org helps donors connect with, and lend money to, entrepreneurs and small businesses in developing countries. By engaging in this sort of microfinance, donors hope to enable the working poor to move towards economic independence.

DonorsChoose.org connects donors to public school teachers with specific needs in their classroom. By searching through the DonorsChoose database, individuals can find specific teachers with needs that resonate with them.

GlobalGiving.org calls itself a marketplace for goodness. Donors can use the site to find grassroots charity projects round the world. After funding a project, donors receive regular updates from project leaders informing them of the progress they have made. GlobalGiving even guarantees that donors will have a positive giving experience. Unhappy donors receive a refund in the form of a certificate that they can use to make a gift to another project.

We are in the early stages of philanthropic capital markets. Donors do not yet have access to the sophisticated screening tools, professional research and robust marketplaces that help individual investors approach money management strategically. But resources are available to donors who seek them. By finding non-profits that further the causes you care about through strategies to your liking, you can take a large step towards becoming a high-impact donor.

The writer is a principal and director of tactical philanthropy at Ensemble Capital Management and author of the blog TacticalPhilanthropy.com.

By Sean Stannard-Stockton | Also posted in Effective Giving, Financial Times Column, Philanthropy | Comments (0)

United Way Responds to Google Finance Question

January 31, 2008 – 7:29 pm

Last month I posted a question on the Google Finance profile page of the United Way of America. I got an email today from Meg Plantz, director, Impact Design and Learning for United Way. You can catch up on the Google Finance for nonprofits discussion here.

United Way of America’s approach to program outcome measurement, reflected in its manual, Measuring Program Outcomes: A Practical Approach (United Way of America, 1996), encourages health and human service agencies to develop ways to measure outcomes quantitatively.  This often is a challenge because many human-service outcomes seem at first glance to be un-quantifiable, and many agencies are used to describing their successes with narrative vignettes rather than with numbers.  When they have used numbers, the numbers often have reflected outputs (e.g., number of classes offered, number of clients served) rather than outcomes (e.g., improvement in parenting skills).  However, for purposes of creating and tracking program improvement over time and demonstrating results to increasingly data-oriented funders, donors, and publics, numerical indications of program performance are important.

Our approach consciously responds to the challenges that quantitative measurement presents.  For example, in our approach, intended outcomes do not have to meet the “measurable” test.  In fact, when agencies are identifying what their outcomes are, we encourage them not to worry about how they will measure them, but instead to focus on what results are meaningful to the program and its clients.

Once the agency is comfortable that it has described the appropriate outcomes for its activities, then we advise them to identify measurable indicators of those outcomes.  Questions such as “What will tell you if clients achieve the intended outcome (e.g., improvement in parenting skills)?  What will you be able to see, count, or measure?” help agencies identify critical aspects of their outcomes (e.g., using age-appropriate discipline methods) and think about ways to quantify them (e.g., record observations of parents in role plays and tally entries that parents make in a journal).  Agencies are encouraged to pick indicators that will provide useful data – data that will help them with program improvement, in communications, and in other management tasks.

Qualitative information complements and can help with quantitative measurement.  For example, agencies can use their narrative success stories to identify intended outcomes and then use quantitative measurement as a way to learn whether the stories are unique or are representative of other clients.  Agencies can use their narrative stories to illustrate their outcome data rather than offering the stories as evidence of outcomes.  Qualitative information such as focus groups discussions of quantitative data can help agencies understand the meaning of the data and make appropriate program improvements.

Meg Plantz
Director, Impact Design and Learning for United Way

By Sean Stannard-Stockton | Also posted in Effective Giving, Evaluation, Philanthropic Technology, Philanthropy, Transparency, nptech | Comments (0)

Nonprofits Publishing Impact Analysis

January 29, 2008 – 10:14 pm

A nationally known nonprofit has asked me for examples of organizations that are “doing it right” in terms of publishing their impact analysis. In other words, which nonprofits are self publishing information that is useful to donors who are trying to examine if the organization is effective?

Any ideas? Leave a comment or send me an email.

By Sean Stannard-Stockton | Also posted in Evaluation, Philanthropy, nonprofits | Comments (7)

Efficient Markets in Philanthropy

January 24, 2008 – 9:25 am

In response to my post yesterday in which I discussed the value of information to philanthropy and why donors should desire efficient philanthropic markets, Phil Cubeta writes:

The logic here can become relentless and destructive. What this tends towards a lists, like league tables in a sport, with the best at the top. It leads then to managing a nonprofit by the numbers, to get the rating, and it leads to shutting down those that don’t rank high. We then have the tyranny of the metrics, however much arbitrariness is built into them…

The world you want - are you sitting in corner office reading a spreadsheet?

So are the philanthropic capital markets I envision boring and lifeless with endless spreadsheets and numbers to crunch? Not in the least.

Economics is often called the “dismal science”. I know that many people think that finance is boring. But the vision of financial markets as nothing but numbers and spreadsheets does not capture the reality. Do investors buy stock in Apple because they spent hours and hours processing spreadsheet calculations? No. While at the end of the day, buyers of Apple stock believe that the return on capital being generated by the company will make for a profitable investment, the information they use to determine that are not just numbers. The way in which Apple has captured the imagination of the consumer, (an intangible piece of data that cannot be added to a spreadsheet) is by far the most valuable asset that Apple has and it is a major reason why investors have flocked to the stock.

Have you ever watched CNBC, the news channel of the financial markets? It is far from some kind of spreadsheet crunching lecture. Every day, investors or all types come on the show and make passionate arguments for why certain companies are good investments. While numbers and calculations underlie much of their thinking, it is the story, the human story of the companies they discuss that take center stage.

Warren Buffet is widely considered the best for-profit investor of his generation. Does he sit in a corner office reading a spreadsheet the way that Phil suggests? The quote below is from noted investor Whitney Tilson (Tilson is a huge fan of Buffet and a fellow columnist of mine at the Financial Times):

If the future were predictable with any degree of precision, then valuation would be easy. But the future is inherently unpredictable, so valuation is hard — and it’s ambiguous. Good thinking about valuation is less about plugging numbers into a spreadsheet than weighing many competing factors and determining probabilities. It’s neither art nor science — it’s roughly equal amounts of both.

The lack of precision around valuation makes a lot of people uncomfortable. To deal with this discomfort, some people wrap themselves in the security blanket of complex discounted cash flow analyses. My view of these things is best summarized by this brief exchange at the 1996 Berkshire Hathaway annual meeting:

Charlie Munger (Berkshire Hathaway’s vice chairman) said, “Warren talks about these discounted cash flows. I’ve never seen him do one.”

“It’s true,” replied Buffett. “If (the value of a company) doesn’t just scream out at you, it’s too close.”

Taking liberties with Tilson’s quote, I would argue that donors should not “wrap themselves in the security blanket of metrics” because “the lack of precision around measuring the impact that nonprofits achieve makes them uncomfortable.”

World-class investors do not sit in their office crunching spreadsheets all day. Neither should world-class donors. But the underlying logic of both should be that of achieving the highest return on investment.

Recently Phil commented to Perla Ni regarding her site Great Nonprofits (which offers reviews of nonprofits written by volunteers, donors and the people served by the nonprofit):

Thank you so much, Perla, for setting the record straight. In fact, your site is the exact opposite of a metrics driven exercise. You are bringing together the voices of those who have been touched by a nonprofit. I finally “got” what you are doing.

An efficient philanthropic capital market does not only view numbers as valuable inputs to the decision making process. Sites like Great Nonprofits offer extremely valuable information to donors. This sort of qualitative information is critical to both donors and for-profit investors. Great Nonprofits is not the opposite of a metrics driven exercise. They are both part of the same process of determining where donors and investors should direct their capital.

Disclaimer: Nothing in this blog should be construed as investment, tax or legal advice. This blog is for informational use only.

By Sean Stannard-Stockton | Also posted in Effective Giving, Evaluation, Grantmaking, New Philanthropy, Philanthropic Capital Markets, Philanthropy, Transparency | Comments (7)

Information Sharing in Philanthropy

January 23, 2008 – 11:45 am

I wrote a post a while ago called Paul Brest Needs a Blog (Paul is the head of the Hewlett Foundation). I’ve been an advocate for more people in philanthropy to start blogging in general. In the above mentioned post I wrote:

So why should foundations blog? It seems to me that the imperative is not for them to embrace technology so much as it is for foundations to join and begin to drive the online philanthropy conversation. [But] it is the two-way flow of information that blogs encourage that is important, not blogs themselves.

Even so I’ve noted recently that some people feel that I’ve pushed blogging rather than information sharing. As the conversation we’re all having unfolds I think it is important to take a step back and make sure we haven’t missed the forest for the trees. I wish I had expressed my thoughts with more clarity.
When Phil Cubeta recently asked why nonprofits should blog, astute reader Michele Moon asked:

I’m not entirely sure why it’s blogging, in particular, that’s the focus of discussion, especially because it’s now considered a little bit old-hat, Web 1.5. What is it about the format that makes it so essential to transparency and its tyrant? Is it actually blogging you want to see - personal, real-time updates and editorials, followed (if you’re lucky) by people who read, comment, and sometimes stick around to converse?… Why should it be blogging that we aim to do, or is that shorthand for more complicated online interactivity?

I’m guilty of using “blogging” as short hand for information sharing. I’ll stop making that mistake.

When economists speak about efficient markets they are talking about a situation where money flows to the organizations that can put it to the best use. Widely available, robust information is a critical factor for a functioning efficient market. Recently, in a conversation with Phil Buchanan and other readers on this issue I wrote the following (you can find the full thread here. The Chronicle of Philanthropy recently highlighted the conversation):

In an efficient market, investing is a zero sum game. Maximum returns are generated globally so the only question is matching an investor’s risk/return preferences. In inefficient markets, higher returns accrue to more “effective/smarter” investors. In a public benefit market, since all returns accrue to everyone, investors should desire an efficient market within which they could align their social investments with their personal values/goals.

The philanthropic capital markets are highly inefficient. Far more inefficient than any for-profit marketplace.

Therefore, it seems to me that making the philanthropic capital markets more efficient should be the number one priority of large funders who desire to be effective…

I’m not arguing that the public will make better decisions than the “experts”. I’m saying that efficient markets will produce better outcomes than inefficient markets. In the for-profit world, inefficient markets are great for “expert” investors because they can exploit superior information to generate outperformance of investment returns. But these inefficient markets reduce the total returns in the market by preventing capital from flowing to the best performing investments.

What I’m saying is that unlike in the for-profit market, “expert” philanthropist enjoy no advantage from superior information. The returns they generate accrue to the public, and so no “outperformance” is possible. Instead, they should be interested in the total market functioning at a higher level, since that is the only way to increase the social return on investment that accrues to everyone.

This is the challenge we face as a field. How can we ensure that the $300 billion that is given to charity each year is flowing to the organizations that can put the money to its best use? The key will be our ability to supply market participants with widely available, robust information. Blogs are one tool in this work. There are many others.

By Sean Stannard-Stockton | Also posted in Cross-Disciplinary Conversations, Effective Giving, Evaluation, Foundations, Giving Blogs, Grantmaking, New Philanthropy, Open Source Philanthropy, Philanthropic Capital Markets, Philanthropic Technology, Philanthropy, Transparency | Comments (18)

Should Foundations Fund Philanthropic Information?

January 16, 2008 – 1:49 pm

An interesting conversation is beginning to unfold in the comments to Phil Buchanan’s podcast. The point I’m making is not that foundations have some sort of obligation to fund nonprofit information for public use, but that doing so is in their best interest. This conversation ties in directly to the conversation we’ve been having about Google Finance and Google.org.

If a foundation can give $1 that creates $2 of social benefit, or give $1 that spurs the public to give $10, which creates $20 of social benefit, which one should they choose? This ability to give $1 and get $10 of social benefit instead of $2 is the “leverage” that so many philanthropist and foundations say they want to employ.

Here’s the big leverage opportunity of this decade: Provide the individual donors (who every year give seven times more than all the foundations in the country combined) the information they need to make better donation decisions.

Join the conversation with Phil Buchanan and let’s work this problem out!

PS: As background it might be useful for readers to note the essay by Paul Brest, the president of the Hewlett Foundation, in which he discusses “the advantages of good information” in philanthropy. In the essay he mentions Great Nonprofits, whose founder Perla Ni is participating in the conversation with Phil Buchanan. Hewlett is, to my knowledge, the most forward thinking foundation on these issues. Hewlett is also considering funding GiveWell.

By Sean Stannard-Stockton | Also posted in Effective Giving, Evaluation, Foundations, Grantmaking, New Philanthropy, Philanthropic Capital Markets, Philanthropic Technology, Philanthropy, Transparency, nptech | Comments (0)

PhilanTech

January 14, 2008 – 9:11 am

Dahna Goldstein, the founder of PhilanTech, sent me the following email. She didn’t post it as a comment because she didn’t want to appear to be plugging her company, but I asked her for permission to share it.

I’ve just caught up on the discussion on your blog about Google Finance and nonprofits, and wanted to share my $.02.  Google is potentially in a unique position — as are you, by virtue of your thought leadership and initiative on this front — to positively affect how information is shared with the sector at large, with donors, and with other interested parties.

The absence of standardized information about nonprofits makes it difficult to suggest a set of metrics or a pre-defined combination of quantitative and qualitative analyses, as a number of your readers have pointed out.  And asking for new types of reporting from nonprofits risks placing an additional burden on already-burdened nonprofits.

PhilanTech has taken a step towards addressing this issue.  We created the PhilanTrack online grants management system to centralize and streamline the grants management process — creating centralized reporting about nonprofit organizations, activities, outcomes, and finances.  Our vision is for a centralized reporting for all donors (institutional and individual) and other interested parties (researchers, the nonprofits themselves, etc.) to obtain information to inform funding decisions — without creating additional hoops through which the nonprofits must jump.  I’d be happy to tell you more about how it is structured, but in a nutshell, PhilanTrack helps foundations request the information they want to receive from nonprofits (to help them evaluate their effectiveness as grantmakers and to help evaluate potential grants) while helping nonprofits avoid reinventing the wheel each time they report to a different funder.  The types of information that the system manages (activities, outcomes, finances, lessons learned, etc.), I believe, are the types of information that Google should consider posting about nonprofits.

While expense ratios, as you have pointed out, have significant shortcomings, there is still a lot that can be learned about the financial health and stability of an organization (if not its effectiveness) by looking at its finances.  It requires looking beyond CharityNavigator and beyond 990 data in ways that are not familiar to many (both individuals and institutions) who are considering gifts to nonprofits.  At PhilanTech, we have addressed this issue by developing a financial analysis tool that uses basic financial statements to provide six analyses (financial mix, efficiency, debt servicing ability, liquidity, long-term viability, profitability) with a number of different metrics and explanations of why each metric is important and useful in evaluating the financial health of a nonprofit.

Google Finance pages (or Google Knol) should, in my view, combine these financial analyses with the following:  quantitative information about outcomes (where available and qualitative where quantitative info isn’t available); qualitative information about activities, programs/projects, mission, people, sustainability, replication (where relevant), lessons learned, challenges faced and overcome; related organizations (including any partnerships/collaborations); news; funders; discussion (like the type of discussion you prompted about the Red Cross), and perhaps something like the 360 degree views GreatNonprofits is working to create.  And there are ways it could be done without placing too great a burden on nonprofits by leveraging some of the reporting nonprofits are already doing.

By Sean Stannard-Stockton | Also posted in Effective Giving, Evaluation, Philanthropic Technology, Philanthropy, nptech | Comments (0)

United Way on Google Finance

January 10, 2008 – 9:57 am

After reading a United Way blogger’s reaction to my prediction that UW would develop an industry standard, narrative outcome measurement form and my discussion of Google Finance, I’ve started a discussion thread on the Google Finance page for United Way.

The United Way’s focus on Outcome Measurement is wonderful. I wish  there were more resources like the ones you list at http://www.unitedway.org/Outcomes/  elsewhere on the web. I was wondering if someone at United Way could  explain to me a little bit about how your organization thinks about  qualitative vs. quantitative evaluation of nonprofits. It seems to me  that quantitative metrics are probably easier to measure, but less  valuable than more difficult to measure qualitative outcomes.

Any help you can provide in thinking through this issue would be  wonderful. Thanks!

FYI: While the Red Cross has stopped posting to the thread I started on their page, I understand from sources that they are taking the questions about their effectiveness quite seriously.

I wonder how the United Way will respond?

By Sean Stannard-Stockton | Also posted in Cross-Disciplinary Conversations, Effective Giving, Philanthropic Technology, Philanthropy, Transparency, nptech | Comments (3)