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Judging Charities by the Numbers

The Cleveland Plain Dealer

The Cleveland Plain Dealer

June 8, 2002


Americans love statistics. We use scores, ratings and polls in choosing how we invest, what we buy, and where we send our kids to school. Many of us struggle to make routine decisions, much less important ones, without first visiting bookmarked web pages and consulting experts, indexes, or average customer ratings.

Are we more interested in ratings than products? Not really. Our obsession with statistics shows just how sophisticated we are in making decisions with our money. American consumers demand data to navigate a crowded marketplace. Although bad numbers occasionally lead us astray—consider Enron, for example—statistics and ratings help us monitor investments, compare products and prices, and maximize our hard-earned dollars. By being demanding consumers, we in turn help businesses improve and innovate. They know that if their products and services aren't better, faster, or cheaper than the competition, they won't get our business.

Why then are we so unsophisticated when it comes to supporting charities? Individual Americans donate billions of dollars to charity each year, $150 billion in the year 2000. We do so without demanding independent evaluations of the charities we support.  

Presumably we give charities a pass because we accept what many non-profit leaders tell us, that using data to evaluate charities is misleading. The argument goes that it's impossible to place a simple, uniform bottom line value on what charities do. The important figures for a food bank may be how many meals it serves, while that same bottom line says very little about a medical research institute.

With no uniform bottom line for evaluating what charities do, the only data we can use to analyze charities is financial information—how much a charity spends on fundraising, salaries and other overhead, the size of its endowment, and so forth.

But some non-profit leaders argue that quick comparisons and evaluations of fundraising costs and endowments fail to capture the unique value and "human element" to their work.  According to this view, every charity is uniquely valuable, and evaluation of a charity is best left to the charity itself.

This should neither surprise nor satisfy us. How many companies, politicians, authors, and eighth graders would like to tell us how good they are at what they do, instead of undergoing independent evaluation? Despite the claims of some non-profit leaders, we need to compare financial data. While such comparisons don't tell the whole story about a charity, they do tell us if an organization's fundraising practices are competitive with other organizations, if its revenues are keeping up with its expenses, or if it's about to go under. The numbers don't lie. And without them, it's impossible to make informed decisions when choosing what charities we support.

In launching an online service for rating charities in April, Charity Navigator compared the financial data of more than 1,100 domestic 501 (c)(3) organizations and found, happily, that most charities are fiscally responsible and financially healthy organizations. But we also found that not all charities are equal. Nearly 23% of the charities evaluated ran an annual deficit in their most recently completed fiscal year. Some 14% devoted less than 70% of their budgets to their programs and services, and 6% devote less than 60%. More than 26% have experienced a decline in their primary revenue over the past three years, more than 13% have contracted their programs, and 10% maintain less than a month of working capital.

With hundreds of billions of dollars flowing through charities each year, donors should be able to compare the relative efficiency of the organizations to which they write checks. The numbers show that more scrutiny is needed, not less.

Financial analysis of charities helps us compare individual charities. It also helps us learn how charities function now and how they can work better. More sophisticated tools for financial analysis will encourage innovation in all aspects of non-profit management. When charities face the same pressure to make their services better, faster, and cheaper than the competition, then we will all benefit from a philanthropic marketplace that drives innovation and generates lasting change.  

Our charitable dollars will be maximized only if we bring the same level of sophistication to supporting charities that we apply to our spending in other areas of our lives. This means that we support charities that show results. Whether it's as investors, shoppers, or voters, Americans know how to use numbers to guide their decision-making.

It is time we do the same as givers.

Kyle Waide is deputy director for Charity Navigator (www.charitynavigator.org), a recently launched web-based non-profit organization that provides independent evaluations of U.S.-based charities.

Article reprinted courtesy of the Cleveland Plain Dealer.  (http://www.plaindealer.com) © 2002 The Plain Dealer. All Rights Reserved.

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