Picking a charity is tough, simply because it is difficult for donors to evaluate a charity before giving it their money.
The problem is that nonprofits don't have a standardized way to measure outcomes. A business can count profits, but how does a nonprofit measure how much good it actually does?
Typical markers of quality donors look for include how many people a charity serves, the number of and size of grants awarded to the charity from reputable foundations, awards received, and whether the charity is treating the symptoms of a social need or addressing its root causes.
However, donors who are looking for hard and fast statistical measurements to guide their charitable decisions are typically left with measuring "efficiency." That usually breaks down to looking at a nonprofit's financial information to make sure that most of its funds go for programs rather than overhead. Most donors would prefer to feed more children than to fund the agency's utilities. Donors also want to see that a charity's fundraising costs are reasonable as well. Obviously, if a charity raises $75,000 but spends $50,000 on fundraising costs, that is not an efficient charity.
Charity watchdogs, such as CharityNavigator, have become widely used by donors to evaluate charities. Efficiency, or the ratio of program expense to overhead expense, figures large in the ratings given to charities by such organizations.
But methods that depend so heavily on "efficiency" are far from perfect. They sometimes result in some very fine nonprofits being graded lower than they probably deserve due to anomalies in their financials for a particular period of time, or simply because a one-size-fits-all method just doesn't work for some organizations.
One charity executive discusses her disagreement with just measuring financials in a Fast Company magazine article . Nancy Lublin, CEO of Do Something.org, says:
"...low overhead doesn't necessarily mean an organization is awesome at fighting poverty, or that its turnover is low and its people productive. And it certainly doesn't guarantee that the group is spending wisely."
Lubin makes good points, and donors need to be aware of the strengths and possible problems with ratings systems that depend so heavily on financial information.
You can also choose charities by letting someone else do it. GiveWell.net, for instance, pools contributions from many people and gives grants to charities that meet its stringent requirements. GiveWell is not just another United Way, however. It looks for innovative organizations that are doing things in a new way. Donors can pick the charities in GiveWell's portfolio that appeal to their interests.
Another way to evaluate a nonprofit is through what its supporters and clients say about it. That is what Great Nonprofits, a relatively new website, tries to do. It has applied the review system from commerce (think of the reviews at Amazon.com for instance) to nonprofits. Great Nonprofits provides a platform where users can provide first hand stories about the nonprofits they support or benefit from.
Great Nonprofits provides a more human and qualitative approach to evaluating nonprofit organizations, one that can be very useful. Donors will want to consider both efficiency and user reviews when thinking about which nonprofits they want to support.
The bottom line is that it is not a simple matter to pick a charity that deserves our donations. We need to do our research and include a variety of sources before making our decisions.
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