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One of the primary ways in which charity performance is measured today is on the percentage of money, from operating budget, spent on benefit programs, and not

One of the primary ways in which charity performance is measured today is on the percentage of money, from operating budget, spent on benefit programs, and not on administrative expenses. This allows donors to know that their money is reaching the intended beneficiaries and not administrators who are lining their own pockets in the name of the needy. Charities which adopt this model will be itemizing quick access to capital as an administrative expense being passed onto their donors, in lieu of increased benefit shown to donors who donate their money to charities not using this scheme. It seems to me like this is a solution to a problem which does not exist: if I, as a donor, want to donate my money to make a difference in the world, why do I have to choose between a proven charity with lower administrative costs and an unproven charity which is pushing its operative risk onto me, by forcing me to compensate professional investors for the risk? Why is that a difficult choice - why wouldn't I just go with the proven charity? I suppose this makes sense for you, as a donor, if you have a single issue which drives your donation decision - say, somebody close to you died of some disease or condition and you want to donate to an organization doing specific work to cure that specific disease/condition, because you are motivated by results in that specific area. So having institutional investors guarantee results will help you make the decision to donate, because you see it as a necessary cost for the specific results you're looking for. But I think most people just want to know that their money is being spent well, and for those people, percentage spent on benefit combined with reputation is a much better metric.

chiefalchemist 8y ago
> "One of the primary ways in which charity performance is measured today is on the percentage of money, from operating budget, spent on benefit programs, and not on administrative expenses." The problem is, this is flawed. It's the wrong KPI. It's the wrong carrot. For example, in order to maximize this ratio, the NPO "hires" an volunteer to design and build their website. Unfortunately, this person, while kind hearted and generous, is not very talented / experienced. Long to short, the website "loses" over $500 per week in donations. Had the NPO paid for a better site their ROI and general goodwill would be much better. Btw, the NPO does the same for their social media marketing. More "opportunity" is left on the table. Chasing the false god of mission to admin ratio __is__ one of the key mindsets that undermine plenty of NPOs.
- antpls 8y ago
  But some donators may agree to hire an inefficient volunteer, you can't tell that everyone agree with that cult of performance. > Long to short, the website "loses" over $500 per week in donations. Had the NPO paid for a better site their ROI and general goodwill would be much better. That's hard to prove. Anyway, what we could do is forcing NGO at even more transparency, and then provide tools to donator to compare them from all points of view. We should give more tools to donators, not investors.
- Vinnl 8y ago
  Or NGOs stop hiring secretaries because they're "overhead", leading to those being best at providing aid being overburdened with administrative tasks.
- solatic 8y ago
  > For example, in order to maximize this ratio, the NPO "hires" an volunteer to design and build their website. Unfortunately, this person, while kind hearted and generous, is not very talented / experienced... Long to short, the website "loses" over $500 per week in donations. Had the NPO paid for a better site their ROI and general goodwill would be much better. If a professional will prove to be a net-benefit to the non-profit (bringing in more donations than their salary) then in terms of benefit spend ratios, good charities have a hard floor of no less than 50%. In truth, if a creative professional is really worth their paycheck, then they're bringing in donations worth at least some multiple of their paycheck, which amortized across the charity, creates a soft floor somewhere around the 70-80% mark. Saying that benefit-to-admin ratios are bad measures is like saying that code coverage is a bad measure - it's only a bad measure if you're trying to max it out at 100%. Running a charity completely off volunteer work is clearly infeasible, even if the overhead that volunteers introduce seems to be zero from a surface-level, pure bean-counting, balance-sheet perspective. It's also, in effect, advocating for closing the books of NGOs. Mission-to-admin ratios, even if we take for argument's sake that they are poor ratios for management to focus on, are important to donors for obvious reasons. So arguing that NGOs can do better by not focusing on a metric that they are required by law to report and is squarely within donor interest is arguing to not need for the metric to be reported, so that the NGO can spend without judgement and hit some theoretical global max. Of course, allowing NGOs to close their books would be a disastrous incentive for fraud, embezzlement, and worse. So if the metric will exist, and will be focused on, good financing schemes will work with that metric in mind instead of wishing it didn't exist.
dalbasal 8y ago
I think this is on the decline today. The caricatured history of the idea is basically: (1) Smart people looked at NGOs, say international aid NGOs. They note that some spend a lot of money raising money. There are ugly examples like for profit chuggers with a >50% commission. Other examples where "donor country" administration budgets are far larger than "recipient country" budgets. (2) They create a KPI, that basically defines two categories of expense "admin" and "work." Looking over existing NGOs, a low "admin %" structure correlates strongly with effectiveness (3) Foundations adopt this, optimizing to the KPI (4) The KPI does not survive transition from measure to goal. This is a recurring problem. If that is what attracts donations, NGOs can improve their admin/total cost ratio. Improving this ratio directly does not cause an improvement to overall effectiveness, even though a correlation existed pre-intervention. This happens a lot in business, what was a good measure does not make a good optimisation goal. Selling financial products may be a good measure of a bank teller. It means he engages with customers, and knowing which products products they might want. Once you make it a goal and pay tellers a bounty, they achieve this goal by pressuring or tricking customers. Wells Fargo recently did this, and ended up incentivising tellers (and managers) to commit outright fraud. Meanwhile, such broad measures bucket things in ways that do not make sense. Chuggers are incentive-pay fundraisers who sign up donors to make monthly contributions. They get big bounties, often more than the charity gets. When a donor realises that half his donation went to the door-to-door salesman, they feel totally ripped off. In terms of the administrative/total budget KPI, a fun run is just like a chugger. Fun runs are costly to run, and less than half of what you pay actually goes to charitable causes. But, the "donor" is probably fine with this. They paid to participate in a run, raising money and awareness in the process. Basically, this article describes another idea for solving a hard problem... one that isn't solved.

chiefalchemist 8y ago

> "One of the primary ways in which charity performance is measured today is on the percentage of money, from operating budget, spent on benefit programs, and not on administrative expenses." The problem is, this is flawed. It's the wrong KPI. It's the wrong carrot. For example, in order to maximize this ratio, the NPO "hires" an volunteer to design and build their website. Unfortunately, this person, while kind hearted and generous, is not very talented / experienced. Long to short, the website "loses" over $500 per week in donations. Had the NPO paid for a better site their ROI and general goodwill would be much better. Btw, the NPO does the same for their social media marketing. More "opportunity" is left on the table. Chasing the false god of mission to admin ratio __is__ one of the key mindsets that undermine plenty of NPOs.

antpls 8y ago
But some donators may agree to hire an inefficient volunteer, you can't tell that everyone agree with that cult of performance. > Long to short, the website "loses" over $500 per week in donations. Had the NPO paid for a better site their ROI and general goodwill would be much better. That's hard to prove. Anyway, what we could do is forcing NGO at even more transparency, and then provide tools to donator to compare them from all points of view. We should give more tools to donators, not investors.
Vinnl 8y ago
Or NGOs stop hiring secretaries because they're "overhead", leading to those being best at providing aid being overburdened with administrative tasks.
solatic 8y ago
> For example, in order to maximize this ratio, the NPO "hires" an volunteer to design and build their website. Unfortunately, this person, while kind hearted and generous, is not very talented / experienced... Long to short, the website "loses" over $500 per week in donations. Had the NPO paid for a better site their ROI and general goodwill would be much better. If a professional will prove to be a net-benefit to the non-profit (bringing in more donations than their salary) then in terms of benefit spend ratios, good charities have a hard floor of no less than 50%. In truth, if a creative professional is really worth their paycheck, then they're bringing in donations worth at least some multiple of their paycheck, which amortized across the charity, creates a soft floor somewhere around the 70-80% mark. Saying that benefit-to-admin ratios are bad measures is like saying that code coverage is a bad measure - it's only a bad measure if you're trying to max it out at 100%. Running a charity completely off volunteer work is clearly infeasible, even if the overhead that volunteers introduce seems to be zero from a surface-level, pure bean-counting, balance-sheet perspective. It's also, in effect, advocating for closing the books of NGOs. Mission-to-admin ratios, even if we take for argument's sake that they are poor ratios for management to focus on, are important to donors for obvious reasons. So arguing that NGOs can do better by not focusing on a metric that they are required by law to report and is squarely within donor interest is arguing to not need for the metric to be reported, so that the NGO can spend without judgement and hit some theoretical global max. Of course, allowing NGOs to close their books would be a disastrous incentive for fraud, embezzlement, and worse. So if the metric will exist, and will be focused on, good financing schemes will work with that metric in mind instead of wishing it didn't exist.

dalbasal 8y ago

I think this is on the decline today. The caricatured history of the idea is basically: (1) Smart people looked at NGOs, say international aid NGOs. They note that some spend a lot of money raising money. There are ugly examples like for profit chuggers with a >50% commission. Other examples where "donor country" administration budgets are far larger than "recipient country" budgets. (2) They create a KPI, that basically defines two categories of expense "admin" and "work." Looking over existing NGOs, a low "admin %" structure correlates strongly with effectiveness (3) Foundations adopt this, optimizing to the KPI (4) The KPI does not survive transition from measure to goal. This is a recurring problem. If that is what attracts donations, NGOs can improve their admin/total cost ratio. Improving this ratio directly does not cause an improvement to overall effectiveness, even though a correlation existed pre-intervention. This happens a lot in business, what was a good measure does not make a good optimisation goal. Selling financial products may be a good measure of a bank teller. It means he engages with customers, and knowing which products products they might want. Once you make it a goal and pay tellers a bounty, they achieve this goal by pressuring or tricking customers. Wells Fargo recently did this, and ended up incentivising tellers (and managers) to commit outright fraud. Meanwhile, such broad measures bucket things in ways that do not make sense. Chuggers are incentive-pay fundraisers who sign up donors to make monthly contributions. They get big bounties, often more than the charity gets. When a donor realises that half his donation went to the door-to-door salesman, they feel totally ripped off. In terms of the administrative/total budget KPI, a fun run is just like a chugger. Fun runs are costly to run, and less than half of what you pay actually goes to charitable causes. But, the "donor" is probably fine with this. They paid to participate in a run, raising money and awareness in the process. Basically, this article describes another idea for solving a hard problem... one that isn't solved.