Last year, GuideStar, Charity Navigator, GiveWell, Philanthropedia, GreatNonprofits and Philanthropy Action put out a joint press release announcing their rejection of overhead expense ratios as the primary approach to evaluating nonprofits. GuideStar was a little bit of an odd group to sign the press release, because while they provide information about nonprofits, they do not rate or rank nonprofits.
However, for some time GuideStar has been looking at ways to offer visitors more evaluative information. Now, they’ve launched TakeAction @ GuideStar.
Click here to visit the new website.
The site seeks to help donors select which nonprofits to fund, objectively making available rating information from GiveWell, GreatNonprofits, Philanthropedia and RootCause.
One interesting aspect of the new platform is that it reorients the way in which users seek information. GuideStar, like many nonprofit databases, has traditionally assumed that users are looking for information about a specific nonprofit. Their search interface prompts people to enter an organization name. This format makes sense if we assume that users are checking to see if an organization is compliant and has no red flags. But if a donor is seeking the best organization, they need to search by cause area since they presumably do not already know the organization they are looking for. The TakeAction platform reorganizes the GuideStar database by cause area.
One more step towards helping donors make smart decisions about their giving, even if it doesn’t quite turn GuideStar into “the one platform to rule them all”.
So we are rejecting overhead expense ratios as a bad proxy of effectiveness only to replace it with “expert opinions” as a proxy for effectiveness? What ever happened to the concept of performance as the basis for evaluating performance?
Well I think that performance and impact are the underlying basis for the expert opinions. But I also think that expert opinions are still only one input into the process. There will never be a silver bullet.
I am glad that Guidestar is working to become more indispensable to the nonprofit sector. If only idealist.org would do this too.
overhead expenses are not a good way to measure how much a nonprofit is benefiting a community. It is primarily through how they treat their people that we should be measuring them. When was the last time you saw a charity nominated as “one of the best places to work 2010” or indeed, any year?
The sad truth is what makes nonprofits inefficient and ineffective is the way they treat their people as disposable. This means that there is no succession plan, no organizational memory, and you are constantly starting from scratch.
If you could measure how nonprofits treat workers, and get nonprofits to treat their workers as the jewels they are, you could finally have a nonprofit metric worth fighting for.
Indeed, silver bullets do not exist. However, TakeAction is an incredibly promising start to inform donors better. We are particularly excited about the new focus on social causes that we have been promoting for some time – it is great to see GuideStar pick it up as we believe strongly that helping donors choose causes with their hearts but organizations with their minds is the way to create a better nonprofit marketplace.
I just posted an announcement on our blog as well!
FYI, GuideStar has *never* advocated program ratios as a good way to evaluate charities–check out this article we published in 2004 (and to which we still refer people): http://bit.ly/7sAziM. And performance is exactly what we’re trying to get at by posting expert opinions on our site. The definition of “performance” varies depending on an organization’s mission or cause. That’s where our expert partners come in. They understand the nuances of the specific causes and are transparent about how they evaluate the organizations working in those areas. But, as Sean so rightly says, “Expert opinions are still only one input into the process.” Just as we have long urged donors not to rely solely on a charity’s Form 990 to guide their giving decisions, we hope donors will look at more that the expert opinions. But combined with the other information on our site–user reviews, Forms 990, information provided by the nonprofits themselves–expert opinions help donors get a more rounded picture of the nonprofits they’re thinking of supporting.
P.S. I’m GuideStar’s director of communcations, in case you were wondering about all the “we” stuff in this response.
I know that overhead and other financial ratios have been discarded by the community as not being useful to measure and compare the impact that nonprofits create. Even though, I believe that GuideStar could leverage the information it already possesses in its database to advance its own mission (advance transparency, encourage charitable giving and enable users to make better decisions).
If GuideStar were able to provide ratios and growth rates for the different variables contained in 990s and provided users with an interface where they could arrange those metrics according to their preferences, then it would be possible for its users to “rank” or differentiate the nonprofits they want to support.
Let’s imagine someone that wants to donate $1,000 to an arts institution. This person finds the data in Forms 990 to be overwhelming and s/he believes it takes too much time and effort to make sense of all that information. Let’s also imagine that this person can go to GuideStar and find out more information that what is usually there. Simple information that was obtained from the 990s like the overhead ratio, the revenues growth rate, the expenses growth rate, the earned revenues growth rate, the % of government grants from total revenues, among many others. Now imagine that this person can weight those variables according to his/her preferences. As s/he considers that overhead is not important, s/he gives it a low percentage weight, say 5%. S/he cares about efficiency and assigns a 25% weight to the earned revenues/total revenues ratio, and so on.
After this person has weighted the variables that considers most important at deciding what institution to donate to, then s/he can compare 4 or 5 of them side-by-side.
I agree that this may not be the best way to “rank” nonprofits because it is subjective and relies on the person perception of what is important. But this is exactly the way people make donations currently. If we think about it for a second, we may find that this adds transparency, enables better decisions and it may encourage more charitable giving by empowering prospective donors to make informed decisions.
Of course financial data is not everything that counts, but if someone is visiting GuideStar right now is because s/he cares not only about the organization’s mission but also about its underlying numbers. I believe that GuideStar is best positioned to take more advantage of its resources to provide funders, nonprofits and society with more transparency that will enable better decisions. This, in turn, will encourage smart giving.
Thanks Santiago. I think that offering opportunities for donors to “remix” financial data in different ways is great. And I think Guidestar is moving from being a data provider to an analytics provider. But good analytics are based on good data and the only good data we have on nonprofits is financial data. Financial data is important, but not enough.
If you’re interested in this topic, you should check out a group called Social Solutions which does outcomes data management for nonprofits.