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Monday, May 22, 2017

Charity Navigator Metric Mondays #14: Program Expense Growth

Charity Navigator Metric Monday Program Expense Growth
Today's Charity Navigator Metric Monday addresses a key financial health indicator: program expense growth.

Financially healthy organizations tend to grow the amount they spend on programs and services over time, due to a number of factors. At the very least, an organization needs to outpace inflation. Beyond that, though, solid program growth indicates that an organization has increased its influence and ability to contribute to its mission. Conversely, shrinking program expenses can indicate that an organization is not financially healthy enough to sustain its previously achieved levels.

To solve for program growth, we use a slightly trickier formula. We solve for annualized growth over a 4 year period, rather than simply looking at the previous year, because this allows us to smooth out outliers and account for normal variance in year over year spending. The full formula can be found in our methodology.

Once we've determined an organization's annualized growth percentage, we take one more step before converting to score. Based on our analysis of our dataset, we track trends in growth by cause area and can see which causes are performing better or worse than average. We adjust an organization's score based on its cause, in order to account for a possible "cause-wide" effect on an organization's growth.

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