Looking at the ‘overhead ratio’ is a lousy way to evaluate the effectiveness of a charity.
Once you understand that concept, you are left wondering what else to look at when considering whether to donate.
Dóchas Network offers six great questions to ask instead of looking at overhead. In their post, How to recognize an effective NGO, they introduce a two-page fact sheet, which you can find here.
The questions offer NPOs ideas on how to communicate to donors & potential donors other than with overhead ratios.
The fact sheet starts with a great description of the variety of roles filled by NGOs. I really appreciate the fishing analogy. Quoting from their fact sheet:
Protection –“give a man a fish”
Prevention – “teach a man to fish”
Promotion – “organize a fishermans’ co-op”
Transformation – “protect fishing & fishing rights”
All four roles are important.
Here are three of the six questions with a few thoughts:
Can the organisation tell you the progress it has made (or is making) toward its goal?
This means you dig deeper than the glossy mailer or the front page of the website. Notice the conceptual overlap with the questions offered by Dan Pallotta, which I mentioned here. My paraphrase of his questions:
- What is the goal?
- How much progress has been made towards the goal?
- How do you know that you made progress?
Here is another question I really like:
How does the organisation coordinate its work with others, and how does it ensure that the beneficiaries have a say in its decision-making?
This avoids the damage of donors deciding what beneficiaries need without regard to what the beneficiaries believe they need. This is a recurring theme through what I’ve read on the issue of international aid.
Can you see on the website or in marketing materials whether this is a factor for the organization?
Here’s one more question to ask:
Does the organisation court media attention through sensationalism?
Obviously the answer to this question should be no.
I would expand the question to avoiding the use of manipulation.
You can figure this out fairly easily. Just ponder the website or promotional material.
After doing some reading on this issue, I saw with new eyes the promotional material from an international NGO that made a presentation at my church. The pictures of every aid recipient were either of sad, dirty, black/brown faces or of happy, freshly washed brown/black people standing next to a new home. The face of every caregiver was white. Space limits in this post don’t allow time to explain the wide range of problematic messages in the promo piece.
Check out the fact sheet for all six questions. It provides a superb replacement for the “what’s the overhead” conversation.
(h/t Saundra – @saundra_s)
5 thoughts on “6 better questions to ask an NPO than “what’s your overhead?””
I would certainly agree that financial efficiency percentages like charitable commitment (derived from the “what’s the overhead” question) are far from the only metric that a donor should consider. I would even agree that high overheads don’t automatically mean a NGO is unworthy. But one has to start the analytical process somewhere. In my view, it’s hard for many donors to evaluate a charity’s claims about progress toward a goal. The problem with the list of questions referenced on “how to recognize an effective NGO” is that many NGO’s are very good at answering such questions, but not necessarily so good at achieving promised results. The recent and still ongoing scandal about valuation of GIK medicines is as much about P.R. as accounting standards.
Thanks for your comment.
I know there is a touch of wishful thinking in suggesting donors ask, and NPOs answer, the above questions. Perhaps I’m bordering on dreaminess. Maybe fantasy.
A big irony is I make my living auditing NPOs which means I spend my time comparing their financial statements to the rules in GAAP. That mean I make sure the functional allocation is reasonable. That also means that during the audit I don’t look at outcome measures because outcome measures don’t belong in the financials.
Invisible to the financial statement reader are conversations about what key performance indicators the charity uses to monitor itself. I also ask if there are any outcome measures. That sometimes allows a discussion of how the organization can move beyond the functional allocation in communicating to donors.
The sad fact is the only thing available to donors from all NPOs is the functional allocation. You are quite correct that any analysis has to start there.
The fundraising efficiency ratio you describe in your recent post would be a good step. That would be funds raised from a fundraising effort, less cost of that fund raising, divided by the funds raised. In other words, how much is left over after raising the funds. The calculation could be made for either a specific fundraising consultant or the organization as a whole.
We need to somehow move beyond the overhead ratio. I don’t have any idea how to do so. Talking about it is the first feeble step.
If anyone wonders about my “recent post” that Mr. Ulvog kindly referenced above, here’s a link: http://bit.ly/Pmz6A8
Oops. Sorry about that. I should have given a link.
Check out the post. In addition to a good read, it provides an example of how to analyze the financials of an NPO. Or NGO, as people outside the US say.