A new measure of success for charities


Steve Chiotakis: When we pick a charity to support, many of us look at the so-called "overhead ratio" to help us choose: that's the difference between what a charity spends on it what it does and what it spends on administrative costs. But that may not be the best way to judge a charity's effectiveness. Ashley Milne-Tyte has more.

Ashley Milne-Tyte: Conventional wisdom says the more money a charity spends on programs and the less on overhead, the better. But Timothy Ogden of donor Web site Philanthropy Action says that way of thinking hurts charities.

Timothy Ogden: Overhead ratios are killing the industry. Because every year that donors focus on overhead ratios, the charities get less effective.

Because he says when donors pressure charities to spend less on overhead, they can't do their work properly. He says just think about all the important stuff that officially counts as overhead.

Ogden: It's hiring qualified and experienced staff. It's quality accounting and tracking so that they know that their funds are being spent well and going to the right places.

Without all that, he says, charities can't have much impact. He says they should be judged on their effectiveness. For example, Web site MyPhilanthropedia.org uses nonprofit expert reviews to judge how well a charity is doing its job.

Ogden also says donors should contact charities directly and ask them how they measure success, then decide whether to give.

I'm Ashley Milne-Tyte for Marketplace.

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Agree that effectiveness is what donors really want to see and compare. Overhead “efficiency” serves to reduce to a simplified number that crosses any mission or activity. Nonprofits and their related sectors (i.e. poverty alleviation, arts, education, environment, etc.) will do better meeting donor needs by developing metrics for evaluating effectiveness at accomplishing their own or a shared mission. That’s just one strength of nonprofit causes applying a business approach. Also, for big social visions people really want to see impact long-term and not just within a single year. For example, microfinance’s power to tackle poverty has the sustainable benefit of recycling the same donations/microloans year after year to help more and more people. Chris Wolff, Director of Individual Philanthropy at Unitus http://www.unitus.com

Thank you! As a United Way we are tasked with making a wise investment of donor dollars into our local non-profits. It is an in depth look that measures program effectiveness based on the dollars invested. The ratio without a full picture is meaningless. Thank you for giving us a reference point for a discussion that never seems to end. Karen Profita - President & CEO Capital Area United Way

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