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Wednesday, July 29, 2020

The Encompass Rating System: At Launch, a Reflection on Why We Rate

Encompass Rating System - Giving

Written by Stephen Rockwell, Chief Ratings Technology Officer at Charity Navigator. Stephen is leading the team of charity analysts, program specialists, and development engineers that will launch the new rating methodology and criteria. Read the preceding five installments here. 

Less than a week away from launching our new rating system, our team was as busy as you might think, making a number of last-minute decisions about the score visuals, naming the overall rating system and the underlying indicators, and a myriad of adjustments to the nonprofit profile pages.  Well, today is launch day, and we are immensely proud of our entire team’s achievement.  Welcome to the Encompass Rating System!

Throughout the process of designing the system, there were hundreds of decisions, some philosophical, some methodological, and others more aesthetic in nature.  While the blog series to date focused more on the methodology and aesthetic of the rating system, this post focuses more on the philosophical underpinnings of our work and mission. On the day of our biggest ratings launch since our very first ratings as an organization, I offer a brief reflection of why we rate. 

Empowering Intelligent Giving

The core of our mission is to provide donors with the information they need to inform their charitable giving. The very first answer to why we do the work is that there is a significant demand in the donor community for our services.  In the almost two decades since its founding, Charity Navigator has become the premiere brand for donors seeking information about nonprofit organizations. Over the last year, the Charity Navigator website saw 8.5 million unique visitors.  Many individuals give through our Giving Basket, but most come to validate the charitable inclination before making their gift directly to the nonprofit organization. 

Part of the reason we see so much donor demand is that people want to do the right thing.  They want to make sure their gift is making a difference to the cause to which they are most passionate. Donors prefer to give to more effective organizations, knowing that their gifts will be used well, and they avoid organizations where their gift won’t make much of an impact. A rating provides an easy-to-understand interpretation across many organizations to empower such decision making. 

Making Sense of Too Many Choices

Our world is filled with a seemingly infinite amount of choices. Over the last 40 years, the number of choices that donors have in their giving has quadrupled. The proliferation of nonprofits has allowed for many geographic and subject-matter niches to be filled, while also creating a competitive fundraising landscape. Often, a number of worthy organizations find themselves working in the same cause areas and often within the same regions.  

Ratings serve as a sifting mechanism for donors, many of whom don't wish to spend an inordinate amount of time making their philanthropic investments. By adding indicators beyond Financial and Accountability & Transparency measures, Charity Navigator is providing a whole new set of sifting tools based on preference of the donors.  For example, over the last few months, equity, diversity and inclusion issues have come to the fore, and those measures may be a lens which a number of donors want to view their giving. Other donors may want to prioritize giving only to financially strong organizations, while others may look at their giving through the lens of program results. Our Encompass Rating System will allow donors to apply these various lenses to their philanthropic choice-making to make a gift based on what is most important to them.    

Efficiency in Philanthropic Market

Through empowering donors with more information to make better choices and providing nonprofits the opportunity to share different aspects of their organization, we improve the overall philanthropic marketplace. The underlying economic assumption of a well-functioning market is perfect information, meaning that every market participant operates with the same complete information as other participants. Of course, we may never have a perfect understanding of each nonprofit organization, but by providing donors with a more complete picture of the nonprofit and the difference it is making towards its mission, the more likely the prospective supporter visiting Charity Navigator will be converted to a donor. Leveraging these dynamics, we hope we can make a more efficient philanthropic market in the following ways:

  • Exposing donors to the most effective organizations in their interest area.  If a donor is looking to support a particular cause, we want to point them to the most effective organizations within that cause area. Ratings are the mechanism to share which organizations are delivering on mission in a sustainable way. We do this through our search results, the data available on nonprofit profile pages and through our curated lists of organizations doing work in particular areas.

  • Support donors who already have an inclination for their giving.  Sometimes donors will use only the top-level rating to validate a nonprofit organization with whom they may already have a relationship and want to give.  For example, we see about 1 in 5 visitors exit our website from the search results pages. We interpret this behavior as donors who already have an idea of the organizations that they would like to support, but are seeking validation through ratings and void of advisories.  The information we provide ensures that at-scale giving is directed to well-performing organizations through the influence of individual decisions.

  • Improving nonprofit practices. Some nonprofits rely on the ratings as a measuring stick for themselves and a guide to improve on their own practices. Many have come to appreciate the validation of a third-party evaluator, often fully leveraging their ratings by sharing it in fundraising and communications materials and on social media channels to attract new supporters.

  • Highlighting nonprofits that are working in the highest areas of need.  We rarely talk about the demand side of the community need for nonprofit services. Rather, we rate nonprofits organizations independent of the degree of need that they are addressing. If we could let donors know which organizations are working in high-need geographic or subject areas, we could direct dollars to where the need is the greatest. We do this informally through our Hot Topic lists.  For example, over the last few months, Charity Navigator has driven millions of dollars to organizations identified working in high-need areas in pandemic response and civil rights. There is more to come as we develop further capabilities in this regard.

  • Encouraging nonprofits to share more complete data and stories about their work.  Charity Navigator encourages nonprofits to share impact and constituent-listening data with our partners, which we in turn display on their profile pages on our site. Likewise, we are building a nonprofit profit to allow the nonprofit to share their data and stories directly with us. 

These are some of the reasons Charity Navigator embraces its mission to provide ratings of nonprofit organizations. We have embarked on both a radical expansion of our ratings and a continuous improvement process to significantly scale the number of organizations with a rating, while also deepening the quality of the evaluation through the incorporation of a much wider array of measures. 

Perhaps you have other reasons as to why you find the ratings valuable. If so, we would love to hear from you in the comments below. This feedback will help us continue to improve the ratings that make intelligent and informed giving possible. 

Written by Stephen Rockwell, Chief Ratings Technology Officer at Charity Navigator

As a 501(c)(3) organization itself, Charity Navigator depends on public support to help donors make informed choices. Please consider investing in the future of Charity Navigator by making a donation today. Donate now >>

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