The Future of Charity Evaluation

The “newsworthy” element of the anti-overhead ratio press release yesterday was the involvement of Charity Navigator. The group has 3 million users, is regularly pointed to by the mainstream media and studies show that their ratings affect donor behavior. The fact that they are transforming their system, a system that they’ve successfully built their organization around, is big news.

But of course the flipside here is that Charity Navigator is playing catch up.

Not to be lost in the “standing ovation” for Charity Navigator is the fact that GreatNonprofits, GiveWell and Philanthropedia are all offering alternative evaluation tools that are available right now. While Charity Navigator is trying to fix a broken system, the three small startups are trying to build something new and positive from the ground up.

Importantly, all three groups recognize that their evaluation tool does not by itself provide all the answers. The problem with the overhead ratio is not that it is somehow a bad measure, it is that it should never be used by itself to evaluate an organization. Even when it is used, a donor needs to understand why the ratio is as high or low as it is.

GiveWell, GreatNonprofits and Philanthropedia all understand that true evaluation is an exercise that that does not lend itself to simple tests, but instead requires building a mosaic of information about an organization until a meaningful picture emerges. Regardless of whether you like or dislike the tools and approaches of these three groups, they are WAY ahead of everyone else in building evaluation tools that hold the promise of helping individual donors make better decisions about their giving. They are way ahead of Charity Navigator, but Charity Navigator has the media platform and user base that gives them a huge advantage.

However, the mosaic nature of evaluation means that we should not be rooting for a “winner” to emerge in this space. We don’t want a single evaluation tool to displace the others. We need multiple tools. So at the end of the day, one of the most encouraging elements of the press release was the fact that it was a joint release issued by the leading evaluation platform, the three most promising startups and GuideStar, the central hub for nonprofit information.

We’ve got a long way to go, but we’ve just witnessed an event that I think marks an important historical moment in philanthropy. Remember, before Charity Navigator, the average donor on the street was very unlikely to punishingly ask nonprofits about their expense ratio. If we truly see these evaluation groups gain momentum around their approaches, we may very well see the day when average donors ask nonprofits about their outcomes, their stakeholder rating, the availability of independent analysis of their programs or the opinions of experts on the organization. Importantly, while nonprofits often have to conform to overhead expense ratios, these other evaluation approaches align with the goals of nonprofits rather than asking them to jump through arbitrary evaluation hoops.


  1. David says:

    Good post here. However, I sense tone over fondness for ‘new’, ‘innovative’ ideas here. While I see the trend of entrepreneurship quickly overshadowing philanthropy – in the best sense of the word – across the sector, I find it disheartening to see so little deference paid to ‘old’ models on whose shoulders ‘new’ and ‘innovative’ ideas stand upon.

  2. Lauren Welsh says:

    As an advisor to philanthropists, it’s our job to educate donors about what makes a strong, effective nonprofit so they see it’s about much more than overhead costs. At The Community Foundation for Greater Atlanta we recently created “Your Checklist for Giving” for our donors to use as a tool when considering investing in a nonprofit. It provides an overview of the essential characteristics of strong management for nonprofit organizations. We created it based on our extensive grantmaking experience as well as 25 years of our Managing for Excellence Award. Donors have been using this as a tool to guide their giving, and nonprofits are using it to consider areas of improvement as well. Check it out below:

  3. I think you raise an important point David. Everything in life builds on what came before. Philanthropy (old and new) often focuses on new ideas instead of what works. New and sexy is often more interesting to fund. But having an sense of history is critical to innovation.