22 Nov עופר איתן Reports: New Rating System for Charities Aims to Measure Impact of
It has become the holy grail of philanthropy: measuring the impact of a charitable contribution. Donors donât want their money misused or used less effectively than it could be, but how can impact be measured?
A new rating system, Impact Matters, is aiming to do just that. It rates similar nonprofit groups across an array of areas, all with an eye toward impact. The first wide-scale batch of 1,078 ratings will be released on Friday, ahead of the holiday giving season.
Donors want an answer to a principal question: âWhich nonprofit is spending their money wisely?â said Elijah Goldberg, executive director of Impact Matters. âWe wanted to understand the impact in a quantitative, rigorous way. We went out to solve this problem.â
Impact Matters, which is based in Manhattan, looks at how much good an organization achieves per dollar. For example, a group that provides a meal for $2 when the cost in the area is $4 will get a higher rating than a similar group that provides a meal in that area for $5.
There are already well-established charity rating systems. But Mr. Goldberg, who founded Impact Matters with Dean Karlan, a Northwestern University economics professor who taught Mr. Goldberg at Yale, said the other ratings did not measure impact as maximizing a donorâs dollar.
Guidestar collects nonprofit groupsâ tax forms, known as 990s, and makes searching for financial information easy. Charity Navigator uses the amount of money a charity spends on overhead as a crucial metric in rating a charityâs effectiveness.
All have their defenders and detractors. How much a charity spends on overhead is important but tells a limited story. A small list of top charities may isolate ones that do the most good, but some donors may want a larger set of options.
Impact Matters is trying to highlight an apples-to-apples comparison of organizations in a sector, like food or health care. It contends that its approach will direct more money to the charities that have the most impact in their fields while pushing laggards to step things up.
Several philanthropic advisers questioned the usefulness of an impact measurement focused on individual organizations when problems like hunger require many different approaches.
âGiving for impact is critical, but itâs not the only driver for philanthropy,â said Dianne Chipps Bailey, national philanthropy strategy executive at Bank of America. âThe most interesting question in measuring impact today is getting beyond this framework of efficiency and effectiveness to embrace advocacy, and shifting fundamental attitudes to make commitments that will endure over a long time.â
This requires many nonprofit groups to take on the same issue â say, hunger in a single neighborhood â from different directions, Ms. Bailey said.
âIf youâre just looking at the cost of each meal provided, youâre missing the broader point about why that meal should be provided,â she said. âWhy isnât it being prepared in affordable and safe housing that is the personâs own?â
A Wells Fargo/Gallup Investor and Retirement Optimism study released on Wednesday interpreted impact differently. It found that the biggest current motivation for affluent individuals to give was the fractured political climateâs impact on services. Forty percent said they were driven by the political climate to give more; wealthy donors in the next-largest group, 26 percent, said they were motivated to give more by economic conditions.
âThe clients we deal with are allocating more dollars to complex issues,â said Beth Renner, national director of philanthropic services at Wells Fargo. âWith complexity comes difficulty achieving success.â
Finding a simple way to rate charities that are dealing with complex problems is challenging. Impact Matters said it had abandoned a more involved framework and replaced it with a five-star rating system.
âMoving one at a time, we realized we were never going to get to philanthropy writ large,â Mr. Goldberg said. âBut we could use the same tools and get to more philanthropists using publicly available data without the one-on-one core analysis.â The current rating system is much less labor intensive than the earlier one.
Mr. Goldberg said the goal was to help donors at least find the top nonprofit groups in eight areas where impact could be measured: veterans, clean water, homelessness, health, poverty, hunger, education and climate change.
âWhat we did was introduce a benchmark for each outcome,â he said. âIn some ways, our estimates are better because we do 300 food banks and soup kitchens at once.â
In the first batch, 59 percent received five stars, 28 percent four stars, 13 percent three stars and just one a single star, for reporting improprieties. (Two-star ratings, which will appear in future releases as Impact Matters rates more charities, are reserved for groups that have havenât reported enough information.)
The number of high marks raises the issue of inflated ratings. Are the ratings worth the effort if most nonprofits score a five?
âItâs reflective of the fact that these groups are doing good,â Mr. Goldberg said. Plus, Impact Matters still has tens of thousands of charities to rate.
For organizations on the receiving end, a high ranking is welcome and can help them stand out.
Sightsavers, which works internationally to help prevent blindness and advocate for people who are blind, received five stars. Caroline Harper, the British organizationâs chief executive, said that it had long worked on self-evaluation but that the rating gave it outside validation.
âWeâre not as well known as Iâd like us to be,â she said. âItâs just another thing that builds our reputation.â
That has already happened with D-Rev, which develops medical devices like prosthetic knees and lamps to cure jaundice in newborns. It is already seeing the benefit of the earlier iteration of the ratings, which were given a limited release.
âIt grew our audience,â said Sara Tollefson, D-Revâs director of impact. âWe have new donors around the world. People have reached out to me since.â
Dianne Calvi, chief executive of Village Enterprise, which works with entrepreneurs in Africa, was cautious in her praise of the rating system, even though her organization received five stars.
âItâs hard for a rating system to be perfect,â she said. âDonors have to figure out where to put their money. Otherwise, theyâre just listening to the nonprofit and donât have a way to compare it to another nonprofit.â
The nonprofit groups that have received fewer than five stars are worried. Liz Plachta, who founded Rubyâs Rainbow to help young adults with Down syndrome, said she didnât understand why her organization had received four stars. She said she worried that the rating would hurt her fund-raising and ability to support programs for teenagers with Down syndrome seeking higher education.
âI guess a four out of five is O.K., but weâre so passionate about what we do and very little goes to overhead,â she said. âWe rely on people to believe in us and know that weâre authentically doing what we do. I donât want someone looking at that and saying, âWhy are they a four and not a five?ââ
For most donors, though, impact is just one measure. Ms. Bailey said having an objective source was a better option.
âMost high-net-worth philanthropists, 71 percent, are relying on the organizations theyâre giving to,â she said, âto tell them if theyâre having impact.â