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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.


Greg said...

I feel leadership and accountability are the two most important aspects personally. It doesn'r matter if it's a nonprofit or a for profit organization, without proper leadership and accountability the vision will fall apart. Just my two cents

Greg| Omaha Deck Builders

Suzanne said...

The categories are certainly helpful but I want to see what percentage of my donation actually goes to the cause (impact) and not to administration costs, namely high dollars to the CEO. I'm not donating to pay someone's salary.

Old Bill said...

We contribute to many causes we believe are worthwhile, and Charity Navigator information is most useful in that regard. Our Number One criterion is the percentage of contributions that go to the cause. If it is not 70% or more, we shy away from donating. Our second criterion is the rating Charity Navigator has given that charity. Third is the CEO's salary - is it reasonable and in proportion to the size of the charity? Fourth: Are they in the habit of sending or offering gifts in return? If so, we tend to downgrade them a bit for Criterion Number 1-related reasons. And Number Five: Is it Better Business Bureau approved (not always available information).

In fact, Charity Navigator is one of the "worthwhile causes" we contribute to.

Unknown said...

Perhaps within the Impact assessment, I'd appreciate knowing how the organization involves the community served in decisions about what to do and how to do it. That is, are the needs assessed by the community, or by the organization in a sort of big-brother manner?

Unknown said...

It has reached the point, in this country, under the present political/economic setup, that we have had to drastically reorganize our giving. Certain things are too important, if we, and our fellow citizens and friend are to survive. We have had to winnow, prioritize, triage. The local charities/non-profits need shoring up - such as food banks and Shelters. Certain charities working towards goals that have become increasing urgent (politically, philosophically) have gotten not just a bigger share of our giving, but more giving overall. For the first time, canidates have gotten donations, monthly (not necessarily big, but monthly.)
It has crossed our minds that being on the rolls of organizations certain groups disagree with may be dangerous, but if voices aren't raised, for the first time in our lifetime, tyranny is possible.
So we want the most effective in each category.
leif Jenkinson

Unknown said...

less money raised going to CEOs and organization, more to the goals.
leif jenkinson

Unknown said...

When will the recording of the webinar describing the new point system be sent out to those of us who were registered and watched the explanation of the move to a 100 point system versus the 4-star system of rating charities?


Virginia Rester said...

I am most interested in knowing how much of my contribution is going toward the programs stated in their mission statement.

Nascar82 said...

I want to make sure that the executives aren't making millions of dollars.
I worry that 10 percent of the donations goes to the charity and 90 percent goes to pay the executives salaries.

Unknown said...

I always look for what percentage of my donation is actually used on the program.

Brooke's Blog said...

What a great article!

Dot Janson said...

So far you have hit all the areas that I am concerning about, especially knowing the impact of my donation.
I thank you for the opportunity to participate in your growth. Although I already thought you guys were SUPER, you have increased my faith in the products/information you provide that enables me to make the best choices in where to donate.
Keep up the great work.
I will continue to talk you up to all my friends.

Unknown said...

I enjoy reading your evaluations of any given charity and take them seriously, but in the end, my gut feelings and my personal
experience of the world probably matter as much as your ratings. There is that section of your evaluation with about twenty
boxes where you either put a "check" that the organization meets that standard or an "x" that it doesn't. I find that half of
those items are so trivial that you ought to be embarrassed to make them a part of your rating.
In the end, the important thing is that a person has a spiritually charitable soul, without which one is such a diminished human
being. A spiritually charitable soul can go in a thousand directions, and with only a few exceptions, each of those directions
is worthy of respect.

Art Wortman
Kansas City, MO.

cvmichael said...

The DEI measures are too difficult to quantify accurately - you could have an internal organization that meets perfectly all of the DEI criteria (7.3 on your survey scale), but still focuses its impact in ways that would be abhorrent to many,; conversely, you could have an. organization that is a foundation managed completely by a family, internally meeting none of the current DEI standards, but admirably using its funds in perfect compliance with the current DEI standards.

Also, since the DEI acceptable standards seem to be fluid, and ever-expanding, using those criteria as a measure of quality would over time, require continuous modification, tweaking, etc. . perhaps "standards" is not even a correct description.

Maria M. said...

How about environmental responsibility and taking global warming into account....

nmgeezer said...

I agree that all four variables are important in any organization having success in achieving its publically stated goals. But I would not donate to an organization that ranks highly in the first and last two variables listed but ranks poorly in the second listed. I ask, "What is the purpose of my donation(s)?"

I suggest that If an organization ranks highly in its "Impact and Results," then it is fulfilling its primary goal supported by donors. And, I suggest that if an organization is well known for achieving its goal(s), then it is fair to assume that the other three variables are being managed acceptably well.

Further, an organization could rank highly in any or all the other variables, but at the same time not be using its funds principally for its public purpose. Again I ask, "What is the purpose of my donation(s)?"

Unknown said...

Historically, one of the primary factors that I've considered in choosing a non-profit for donation is the salary paid to CEOs. Most, in my opinion, are paid way too much - especially when included with the costs of fund-raising and operation; that percentage always raised my eyebrows and lowered my intention of donating. Just sayin' . . .

Pat Molloy said...

I value when the organization is continuing to grow the number of people assisted at a regular (and perhaps impressive) RATE of people helped). I see an organization as SUCCESSFUL when their influence is growing. That demonstrates that they are growing in the ability to help their clients and expand their resources and influence. Makes my donations have a continuing and lasting effect. Pat Molloy

Unknown said...

Historically, when considering a donation to a rated non-profit, I looked to what the CEOs are being paid. When that percentage inflates operating and fund-raising costs, and thus inhibits effectiveness of what I might donate, my eyebrows are raised and my willingness to donate is lowered. Just saying . . . .

Laurel Woodson

Unknown said...

I look at the salaries of the CEOs and Presidents of the "non-profits." I've seen salaries as high as 600,000+ a year. Obscene.

Unknown said...

I look at the salaries of the CEOs and Presidents of the "non-profits." I've seen salaries as high as 600,000+ a year. Obscene.

Julie Harris
El Sobrante, CA

Unknown said...

I'd appreciate some metric that relates the total compensation of each of the principal officers to the size, effectiveness, impacts and overall benefits of the organization when compared to other 501(3) entities, either across the spectrum or within a competitive group.

Some perhaps significant fraction of donors cannot relate to what appears to be excessive packages. The salary creep in public corporations, athletics etc has distorted the value added on the specious argument that one always has to outbid/exceed what the competition is offering. Some "talent" just isn't worth it, as later often proven upon reflection and quantitative examination. But then, backing the compensation down is just not done for several reasons.

Unknown said...

On behalf of Capper Foundation, we often hear the question from a donor concerning revenue ratios - subsidized or reimbursements for services (government and insurance) vs. community donations. Approximately 35% of our services are not reimbursed through government or insurance funding, leaving us with a gap of around $2.8million to source from donors,community sponsors, grants, trusts and legacy giving. This may not be applicable to a number of charitable organizations, but is a consideration for organizations who provide subsidized services, like service providers of individuals with disabilities. Service providers who receive reimbursements of service costs through government or insurance companies have no control over the amounts designated, yet are left with the challenge to make up the fluid year to year difference through charitable gifts.

Unknown said...

Given the extent of inequity and social injustice at home and abroad, I take into account the salaries paid to the top executives of an organization as an indication of their concern for these issues.

Pat said...

Thank you for confirming your thoughtfulness and thoroughness in methodology.Your reports are very much appreciated by me who relies nearly entirely upon the confirmation of reasonable reliability that my contribution will be used as I am led to believe it will.

Unknown said...

Minimum 88

Minimum of 87% of income spent on achieving goals; 90+% better, with fundraising costs minimal (I hate to receive monthly requests since I normally make only one annual contribution to the charities I support -- what a waste!!)