Philanthropy has never been an interesting topic to me, because I thought it was a little bit silly to make the art of giving technical. However, since being involved with a number of fundraising events, I have come to appreciate the importance of these organisations to help social investors make informed decision in supporting charities.

A few years ago, I got hold of a copy of the Good Giving Guide by Give Well. I was actually shocked at a number charities’ overhead ratios – which is basically the ratio or percentage of money used to cover the administrative and all other incurred costs. If you get a chance, I strongly recommend anyone whose interested in the area of non-profit to have a look, although bear in mind that overhead ratio does not tell you the meaningful work that the non-profit does.

Over the past few days, as the holiday season draws near, talk around giving also started to surfaced\ and being the geeky person that I am, I’m subscribed to a few blogs that’s been talking about it quite a bit. The ‘controversy’ lies around giving based on overhead ratio.

Tim Ogden over at Philanthropy Action raised a number of very important points and have been advocating for people to not give purely based on overhead ratio .

• It tells you nothing about the impact the charity has on people it’s trying to help
• The rules for determining overhead costs are vague and every charity interprets them differently
• Accounting experts estimate that 75% of charities calculate their overhead ratio incorrectly
• It discourages charities from investing in tools and expertise that would make them more effective

Allison Fine actually took a really strong stance on the issue, which criticised the organisations that introduced, advocated and promoted the use of overhead ratio to measure the efficiency of non-profit in the first place. Ken Berger in his blog also pointed out that beyond overhead ratio, we need to take into consideration the organisation’s:

1. Financial health – Is the nonprofit sustainable? Does it have robust financial strength to survive in good times and bad? Is the overhead not at the extreme end of the continuum?
2. Accountability – Does the organization have ethical practices, good governance and transparency? Is it accountable to its constituents?
3. Outcomes – Can the nonprofit supply information about meaningful and lasting change in the communities and lives of the people it serves? Can they show evidence that these changes are as a result of their efforts? Do they have systems and processes in place to effectively manage their performance?

I strongly agree with the three points that Ken raised. Having said that, I think this calls for organisations to actually take evaluations of their programs more seriously but more so, calls for more transparency and accountability. I know that this puts extra burden on organisations, but I think that in the long run, its a lot more beneficial for the organisation and the community. It allows the organisation to build trust, thus leading to satisfaction and engagement with its stakeholders – whether it be volunteers, staff or supporters.

The evaluation also allows the organisation take a reality check on its progress – the level of meaningful engagement its doing, the effectiveness and also it allows the organisation to understand its audience. This information is useful for the organisation to ensure its impact, but used wisely, it could also benefit in its fundraising effort. For example, understanding your audience can help you target the groups directly related to the audience that you are impacting on. Although your audience gains the most benefits from your service, often, its the groups that is directly related to you audience that sees the impact and ‘give back’ to your organisation.

Back to my opinion of giving, I’ve never considered overhead ratio as an influence on my giving. Afterall, I disagree with cutting down costs just because you’re non-profit. Thinking like a ‘non-profit’ will not do any organisation good (limited resources, unlimited work to do). The first step to thinking non-profit like a business/enterprise. Compelling equity is one of the keys to engaging your stakeholders and ensure dedication from them.

I often look at the work that the organisation is doing – the direct outcome, the accountability and sustainability of the organisation. It makes me feel good, and I think that is the number one factor that influence giving. But perhaps, this Christmas, as donors, we need to think more about our giving. It seems like we don’t matter but the way we give ultimately sets a culture that promotes accountability from non-profits.

I think Ken’s final paragraph would be a nice conclusion to this long post:

We believe like many others that this is a critical battle for the very soul of the nonprofit sector. We MUST get past the notion of doing the “good work” with no accountability. We MUST get past the idea that nonprofits are too complex or unique to be measured. I have seen it close up for years and it is not a pretty picture. The nonprofit sector must get its act together and make sure it is really helping provide meaningful change in communities and peoples lives. It is life or death for many of those we serve whether we are effective or not. So let’s work together to measure, manage and deliver what is really important to make our world a better place.

Do you care about an organisation / service’s performance before you give? Love to hear your thoughts.