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Non-Profit Organizations

A New Approach to Evaluating Not For Profits

By October 22, 2015No Comments

Ratings, rankings, reviews and statistics are everywhere – from a review of your coffee shop down the street to the ranking and statistics of publicly traded companies on Wall Street. However, have you ever thought of the rating of the not-for-profit organizations and charities that you give to?

The New York Times article, titled Effective Altruism: Where Charity and Rationality Meet, provides contributors with another perspective on charity: one where well directed donations and accountability of the not-for profit-organization takes priority over contributing based on emotions. The idea is to use economic concepts to analyze the effectiveness of a charity’s efforts.

Whether you have charities in mind or are looking for new charities to give to, websites like Guide Star, Charity Navigator, and Give Well are great places to start your economic analysis.

The following are key considerations on deciding where to give:

The charity should be a 501(c)(3) organization. This means that the donations that the group

receives are used for charitable purposes, that your gifts to the organization are tax-deductible,
that the group makes financial information public, and that strict rules govern how much the
charity can spend to lobby the government. (You can enter the charity’s name on GuideStar.org
to determine if a group is a 501(c)(3).

A rule of thumb when you donate is that the charity’s spending ratio should be around
60-75%. This means that at least 75% of a charity’s funds are spent on programs and services
and the remainder is going toward administration and fund-raising costs. It is important to note
that high overhead is not always a negative attribute, but it is one variable to consider, along
with the qualitative aspects of the organization. (You can find a nonprofit’s financial analysis
easily by looking up the charity on CharityNavigator.org.)

Beyond an efficient spending ratio, you want to make sure that your charity is effective

Evaluating a charity’s effectiveness can include looking at the scope of the organization’s vision
to determine if it is realistic and measurable. (GiveWell.org does a great job at summarizing the
purpose, the reach and the results of the charities they rank.)

You can read the full New York Times article here:

http://www.nytimes.com/2015/08/16/upshot/effective-altruism-where-charity-and-rationality-meet.html?abt=0002&abg=1&_r=0

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