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Tuesday, July 7, 2020

What Factors of Organizational Effectiveness are Important to You?

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 three installments here

As Charity Navigator constructs our new rating system, we leverage the extensive research and popular literature exploring nonprofit performance.  From Peter Drucker’s renowned early writing in nonprofit management to the more recently popular Managing to Change the World by Alison Greens and Jerry Hauser, there is no dearth of management advice for nonprofit leaders and governing boards. Even with the advice, meaningfully quantifying nonprofit success often can be elusive for nonprofit leaders and evaluators, especially for those of us who seek to describe organizational effectiveness at scale across different types of organizations and cause areas. 

Similarly, we leverage research from economists and the field of social policy analysis to evaluate the interventions of nonprofit organizations. We consider approaches such as cost-benefit analysis, evidenced-based program delivery, and other measurement modalities that are useful in describing the effectiveness of the organization and its programs.   Here again, we are left with gaps in our understanding, especially as we attempt to scale systems that measure the success of a particular program at a particular point in time. Scaling our measurement across different types of organizations and programs is wrought with a wonderful complexity in seeking to deliver a simple to understand rating system.

Different Lenses into Organizational Effectiveness
As Charity Navigator builds a robust system of diverse indicators, donors can focus on the aspects of nonprofit effectiveness that mean the most to them. Donors want to make a difference with their charitable gift, but making a difference takes on a different meaning from person to person. For example, Charity Navigator’s 2.1 Star rating system focuses on Financial and Accountability & Transparency measures, and many donors have come to rely on those metrics in their decision making.  Many donors tell us that other indicators of effectiveness are important as well. In our donor and site user survey, we asked you to rank on a scale of 1 to 10 what factors of effectiveness are most important in your decision making, and here’s what you told us:

9.0 - Impact (performance data that shows impact of your donation)

8.3 - Strategy (evidence of organization’s planning/strategy)

8.3 - Cost per outcome (what your donation equates to)

8.2 - Financial Stability

7.8 - Reputation (what others are saying)

7.3 - Internal policies regarding DEI (diversity, equity, and inclusion)

While all factors ranked as important, performance data connected to the impact of a donation was ranked highest of the factors we examined. 

A Four Indicator System
In addition to our survey work with donors, users, and nonprofits, we also are conducting in-depth interviews with various stakeholders including academics, institutional funders, nonprofit leaders, and our loyal users and donors that have furthered our thinking about indicators of organizational effectiveness.  With this collective feedback, along with the advice of our UX agency Second Melody, we have decided to launch a four-indicator system. We are calling these set of indicators beacons, in that they will provide guidance to users and donors across multiple aspects of organizational effectiveness. The four beacons will be weighted in adding up into an overall rating score.

While we have not finalized naming, weighting or domains of measurement, our preliminary thinking on the four indicators include:

  • Finance & Accountability – evaluate a nonprofit organization’s financial health including measures of stability, efficiency, and sustainability. We also include accountability and transparency practices in place to ensure integrity.
  •  Impact & Results - evaluate available data on the results that a nonprofit organization achieves towards delivering on its stated mission. There are many ways to assess such impact and we intend to experiment and develop, leveraging various methodologies.
  • Leadership & Adaptability - provide an assessment of the organization’s leadership capacity, strategic planning, and the ability to readily innovate or respond to changes in constituent demand/need or other relevant social and economic conditions to achieve the organization’s mission.
  • Culture & Community - provide an assessment of the organization’s people operations;  connectedness and engagement with the constituents and communities served; and diversity, equity and inclusion (DEI) measures. 

Our beta launch of a version 1 rating will be a basic measure of Finance & Accountability metrics, but we intend to build out these other beacons over the coming year. Now that you have seen survey results and our latest thinking on potential beacons, what factors of organizational effectiveness are most important to you?  Are we missing any indicators?  Feel free to add a comment below to let us know. We will continue to incorporate your feedback as we evolve our ratings.

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