How technology is solving the most fundamental issue in the nonprofit sector: transparency.
You want to be an effective and impactful donor, but how do you know the value created by a donated dollar? In traditional, for-profit markets, returns are easily calculated and understood: riskier investments offer the reward of larger financial profit, while less risky ones offer more modest returns.
With donating, on the other hand, the ‘returns’ are difficult to quantify. Too often, the ‘social returns’ donors receive are dominated by marketing and storytelling rather than data. The challenge lies in determining which nonprofits donors should entrust with your donations so that they produce the greatest impact in the causes you care about.
Photos, rather than data, drive most nonprofit campaigns.
Currently, three barriers prevent individuals from being able to give effectively.
Barrier #1: The nonprofit sector lacks transparency.
Impact reporting is difficult, costly, and uncommon. When was the last time a nonprofit received more funding for admitting failure, sharing a mistake, or publishing a lack of impact? The reality is most nonprofits are rewarded more for positive stories and photos, rather than data. And the risk of sharing data is often too high to warrant the cast.
Although the emergence of data-driven philanthropy has allowed for some improvements in measuring impact, our efforts have primarily focused on one of the few things we know how to measure well: the impact of direct interventions on individuals, particularly within health. According to AidGrade, an organization which reviews the results of major evaluations done in the developing world, 70% of the evaluation categories fall under global health.
Barrier 2: Measurement is challenging.
The interventions that are the easiest to measure quantitatively are not necessarily the ones that create the highest impact. Take malaria prevention, for example. Research has shown that nonprofits can produce and distribute a malaria-preventing bed net for about $5. Taking into account the death rates per malaria, this roughly translates into saving one life for every $3,400 spent on funding malaria nets. Malaria happens to be one of the health areas with multiple longitudinal impact studies. This begs the questions, Are these interventions really the ‘best’? Or are they just the few that have data to support their work?
Imagine instead that money was used to do something more holistic – say, an educational program which trains local families to maintain irrigation systems and prevent stagnant water, which actually terminate cases of malaria. What is an appropriate timeline and attribution rate to calculate lives saved per dollar spent on training? Measuring the ‘return-on-investment’ (ROI), in terms of lives saved with training and education requires longitudinal studies that have been limited in number to date.
New studies show, in fact, direct interventions to be less effective than more holistic solutions. According to researchers Dean Karlan, President of IPA, “We found that targeting those in extreme poverty with a multifaceted program that addresses many problems at once can have long lasting effects on income and consumption.” To truly understand the best place to donate, we need more data, more comprehensive studies, across more sectors, in an open source platform that donors can access.
Barrier 3: We lack of a common definition of ‘impact’.
Unlike the for-profit sector, which operates with a consistent risk-reward framework, the nonprofit sector has almost no commonly agreed upon frameworks for what constitute “social returns.” Lacking agreement on what constitutes impact and how to measure it, donors and nonprofits must constantly define it on an individual basis.
In the couple of sectors where common frameworks have begun to emerge, the results have been positive. The World Health Organization published a framework in 1993 known as ‘disability-adjusted-life-years’, which measures the overall burden of a disease by calculating the number of healthy years people lose to it, as a result of ill-health, disability or early death. After years of debating the concept, many researchers now use this framework when comparing the impact of health-focused nonprofits.
Although DALYs provide an extremely useful tool for comparing health interventions, few other sector have crafted such common frameworks. In education, for example, nonprofits define their impact according to a wide range of variables—from to literacy and numeracy rates, to total lifetime income and graduation rates. But without basic agreements on what impact in education means – what key performance indicators or frameworks to use – it’s impossible to compare two slightly different education nonprofits in terms of their ‘value’ per dollar.
Most development sectors do not have common impact metrics.
The result: effective giving is expensive.
The result of a lack of transparent data, and a reward for nonprofits who report on their activities, outputs, and outcomes, is all but missing. As a result, effective philanthropy is expensive: The 30 largest private US foundations, for example, spent 20% of their combined budgets, or $3 billion, on tracking and managing their giving last year, according to Guidestar. Individual donors who seek quality information on nonprofit activities are left in the dark, with effective philanthropy available to only the ultra-wealthy.
How do we topple the barriers to effective giving?
In a nutshell, we need to make it easier for individual donors to find transparent, systematized information on what nonprofits are doing per dollar.
Agora for Good is working toward this end through four initiatives:
- Agora is building a clearinghouse for nonprofit data. We systematically collect data on the work and impact of nonprofits by making it easy for nonprofits to report their activities per dollar (example).
- Agora is pulling data from leading researchers, by collaborating directly with top foundations that focus on impact measurement.
- Agora makes that data available to individual donors, who can then compare nonprofits according to their interests and make more informed decisions by funding the highest performing nonprofits. With time, and with better data, we hope donors will shift their giving to the most effective nonprofits overall.
- We collaborate with experts (major foundations, researchers, and practitioners) in each major sector to identify key impact variables, which we are testing and refining as we build a consistent framework.
The barriers to effective giving won’t come down overnight, but there are encouraging signs that they are under stress. The demand for more data on impact is growing, as is the total amount of donations. Millennials are more than twice as likely as previous generations to want information on the impact of our giving. Each year in the US, individuals give about $250 billion to charity, and it is estimated that baby boomers will give $8 trillion over the next 20 years. What might the world look like if individual donors had access to the information that would let them give effectively?