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Penalizing overhead is actually a huge source of dysfunction at non-profits: The problem is, those overhead tasks don’t disappear just because you don’t spend

Penalizing overhead is actually a huge source of dysfunction at non-profits: The problem is, those overhead tasks don’t disappear just because you don’t spend money on them. Someone has to monitor the accounts, find new donors, calculate taxes, organize the holiday party. Centralizing these tasks in dedicated departments, hiring specialists, getting good at them, that would have looked like bureaucracy. So instead, we spun them out to the entire staff ... No one had any expertise in writing grant proposals, conducting impact assessments, or managing high-maintenance funders like the European Commission—training courses would have counted as overhead spending. https://newrepublic.com/article/120178/problem-international-development-and-plan-fix-it https://newrepublic.com/article/120178/problem-international... Overhead is only inefficient if the charity isn't getting results. And charities that have low overhead but still don't get results are by definition still inefficient. Don't worry about overhead, focus on results.

ip26 7y ago
I understand your argument but struggle to accept a charity where $0.80 on the dollar of my donation goes to fundraising.
- laughinghan 7y ago
  I think we're talking past each other. I'm saying that trying to measure overhead as a way to evaluate charities creates perverse incentives to try to reduce reported overhead, without truly reducing overhead. In order to be effective, charities of course still have to have low true overhead and actually spend money on their work. Although in principle, if a charity were to spend 80% of its budget on fundraising, but per-dollar donated that charity gets the best results for saving children from dying of malaria or whatever, you really would refuse to donate to it?
  - ip26 7y ago
    Of course not, but the reason we look at these metrics in the first place is because we can't usually say with certainty that Charity A is head-and-shoulders the best charity for saving children from malaria. We're trying to sift through the pile to find the charity that will do the most with our dollar.
    - laughinghan 7y ago
      Sure, but I'm saying something more specific than just "head-and-shoulders the best". I'm saying we should entirely ignore overhead and in fact pretty much ignore what the charity itself does at all (how much of your donation goes to fundraising? How much goes to lavish hotels?), and just look at the actual malaria rate in the children they treat. I highly recommend reading the New Republic article I linked to, it talks about all this in a lot more detail.
prepend 7y ago
For me, it’s difficult to determine what overhead is good (reasonable accountant) vs bad (paying their spouse’s consulting firm to do accounting). So it’s easier for me to just filter by low absolute and relative overhead than try to figure out if they are paying too much for their paper or overpaying for motor pool and stuff like that.
- laughinghan 7y ago
  > it’s easier for me to just filter by low absolute and relative overhead Don't. Don't even do that. Don't try to determine their overhead at all. Just look at results, like the rate of malaria in children in the region. Better to donate to a charity that stays in lavish hotels, parties all the time, and reduces the malaria rate by 20%, than a charity with no overhead, works super hard, pays their staff little, spends 95% of their budget on treatment, and still only reduces the malaria rate by 5%.
  - prepend 7y ago
    These aren’t exclusive options. I’d rather donate to a charity that both has low overhead and reduces the malaria rate by 20%. It’s not a good assumption to think that because a charity pays lavish salaries and stays in fancy hotels that it is somehow more effective. I know our examples are made up but it’s pretty much impossible to tell if a single charity reduces the malaria rate. It’s pretty difficult in general to determine the impact of charities because unless you’re the Carter Foundation working on Guinea Worm there are lots of other factors and organizations contributing to a shared goal.
    - laughinghan 7y ago
      It’s not a good assumption to think that because a charity pays lavish salaries and stays in fancy hotels that it is somehow more effective. You're 100% right! We should assume no such thing. We should measure whether it's more effective and reward that. Measuring and rewarding anything else creates perverse incentives, such as: I’d rather donate to a charity that both has low overhead and reduces the malaria rate by 20%. Really? If two charities deliver the same results, where one pays its staff minimally and spends the vast majority of its money on its treatment program, and the other pays and treats its staff well (lavishly, even) and spends less money on a more cost-effective treatment program, yielding the same ultimate results, then I'd say the former enriches more lives and deserves my money more. When people say "no good deed goes unpunished", that's a joke because that's obviously not how we want the world to work. The world we want is one where bad deeds are punished and good deeds are rewarded. We should prefer to donate to a charity that is as effective as alternatives but pays and treats its workers better, because the people who make those missions succeed deserve to be rewarded, not punished. it’s pretty much impossible to tell if a single charity reduces the malaria rate ... there are lots of other factors and organizations contributing to a shared goal That's why the article I linked to advocates randomized controlled trials, among other ideas.

ip26 7y ago

I understand your argument but struggle to accept a charity where $0.80 on the dollar of my donation goes to fundraising.

laughinghan 7y ago
I think we're talking past each other. I'm saying that trying to measure overhead as a way to evaluate charities creates perverse incentives to try to reduce reported overhead, without truly reducing overhead. In order to be effective, charities of course still have to have low true overhead and actually spend money on their work. Although in principle, if a charity were to spend 80% of its budget on fundraising, but per-dollar donated that charity gets the best results for saving children from dying of malaria or whatever, you really would refuse to donate to it?
- ip26 7y ago
  Of course not, but the reason we look at these metrics in the first place is because we can't usually say with certainty that Charity A is head-and-shoulders the best charity for saving children from malaria. We're trying to sift through the pile to find the charity that will do the most with our dollar.
  - laughinghan 7y ago
    Sure, but I'm saying something more specific than just "head-and-shoulders the best". I'm saying we should entirely ignore overhead and in fact pretty much ignore what the charity itself does at all (how much of your donation goes to fundraising? How much goes to lavish hotels?), and just look at the actual malaria rate in the children they treat. I highly recommend reading the New Republic article I linked to, it talks about all this in a lot more detail.

prepend 7y ago

For me, it’s difficult to determine what overhead is good (reasonable accountant) vs bad (paying their spouse’s consulting firm to do accounting). So it’s easier for me to just filter by low absolute and relative overhead than try to figure out if they are paying too much for their paper or overpaying for motor pool and stuff like that.

laughinghan 7y ago
> it’s easier for me to just filter by low absolute and relative overhead Don't. Don't even do that. Don't try to determine their overhead at all. Just look at results, like the rate of malaria in children in the region. Better to donate to a charity that stays in lavish hotels, parties all the time, and reduces the malaria rate by 20%, than a charity with no overhead, works super hard, pays their staff little, spends 95% of their budget on treatment, and still only reduces the malaria rate by 5%.
- prepend 7y ago
  These aren’t exclusive options. I’d rather donate to a charity that both has low overhead and reduces the malaria rate by 20%. It’s not a good assumption to think that because a charity pays lavish salaries and stays in fancy hotels that it is somehow more effective. I know our examples are made up but it’s pretty much impossible to tell if a single charity reduces the malaria rate. It’s pretty difficult in general to determine the impact of charities because unless you’re the Carter Foundation working on Guinea Worm there are lots of other factors and organizations contributing to a shared goal.
  - laughinghan 7y ago
    It’s not a good assumption to think that because a charity pays lavish salaries and stays in fancy hotels that it is somehow more effective. You're 100% right! We should assume no such thing. We should measure whether it's more effective and reward that. Measuring and rewarding anything else creates perverse incentives, such as: I’d rather donate to a charity that both has low overhead and reduces the malaria rate by 20%. Really? If two charities deliver the same results, where one pays its staff minimally and spends the vast majority of its money on its treatment program, and the other pays and treats its staff well (lavishly, even) and spends less money on a more cost-effective treatment program, yielding the same ultimate results, then I'd say the former enriches more lives and deserves my money more. When people say "no good deed goes unpunished", that's a joke because that's obviously not how we want the world to work. The world we want is one where bad deeds are punished and good deeds are rewarded. We should prefer to donate to a charity that is as effective as alternatives but pays and treats its workers better, because the people who make those missions succeed deserve to be rewarded, not punished. it’s pretty much impossible to tell if a single charity reduces the malaria rate ... there are lots of other factors and organizations contributing to a shared goal That's why the article I linked to advocates randomized controlled trials, among other ideas.