A public airing of your performance measurement (or lack thereof) may be right around the corner

Are you ready to be rated on your results?

There is a snowball gathering momentum and mass rolling down the hill in the USA. Your board needs to pay attention to it now.

That snowball is the growing movement by independent intermediaries to develop simple rating systems for the very complex world of nonprofit performance and social impact.

As charitable giving has grown to over $300 billion  annually in the US, it seems that the business world is now taking great interest. Those individuals who brought you the financial crisis have now decided that most charitable giving is misdirected (see this Fox Business News clip and you’ll get the picture). What the public really needs, they believe, are unbiased “intermediaries” to redirect charitable giving to  the “best performing” nonprofits.

Funders are focused on measuring and publicizing nonprofit outcomes

A 2008 study released by the William and Flora Hewlett Foundation, called “The Nonprofit Marketplace: Bridging the Information Gap in Philanthropy,” outlines the desired objective:

“…a more efficient and effective nonprofit market would direct more funds to solving the world’s social problems faster and at a lower cost, thereby helping more people sooner. Reallocating just 10 percent of the current $300 billion annual fund flow to the best performers would have a similar effect as raising billions in new funds — with nowhere near the same cost in fundraising time and energy.”

Now, as much as I want to debate those assumptions, the train has already left the station.

For example, The William and Flora Hewlett Foundation has already provided seed funding to an organization called GiveWell which they are promoting on their website. They describe GiveWell as

“the sometimes controversial … independent, nonprofit evaluator of nonprofit organizations. A self appointed watchdog, it performs in-depth research to help people accomplish as much good as possible with their donations.”

Who are GiveWell?  As listed on their web profiles, their staff are former hedge fund employees and recent college graduates (who appear to have little-to-no nonprofit experience). They boast on their website that they have already evaluated 500 nonprofits and only found four worthy of their top ranking!

While you may not have heard of GiveWell, you’ve probably heard of Charity Navigator. Ken Berger, its thoughtful President and CEO, has heard the criticisms of its 4 star ratings which assess only financial indicators and not nonprofit program performance.

Mr. Berger is aware of the criticisms of Charity Navigator’s limited perspective and determined

“to transform our evaluation system of charities to include two additional dimensions (beyond financial health) – accountability (including transparency) and outcomes.”(Emphasis added).  Read more here

Charity Navigator has appointed an advisory group to help it design its system.

Is your organization attempting to measure outcomes at all?

We all know that measuring outcomes is one of the hardest tasks that most nonprofits and social benefit organizations face. And one of the most controversial.

Just look at the maelstrom stirred up by the US government’s No Child Left Behind Act which tests students to assess public school performance. Critics of the testing process point out many shortcomings including school cheating, lack of similar standards across states, the failure to test the same students over time, the wide disparity of the student starting line, a too narrow focus on test scores that excludes other factors that contribute to student success (like social-emotional intelligence), or the narrowing of the curriculum to focus on only what is measured.

Yet, I hope we all agree that we have a responsibility to our investors and our donors to use their money responsibly.

And we have an even bigger responsibility to the people whose lives we touch, or the world we live in, to produce something very good with those dollars.

Unless we attempt to measure our performance, how will we ever know that we are moving toward our desired vision of societal change?

Unfortunately, way too many nonprofits use the excuse of “it’s too hard” to avoid any outcome measurement at all. Under these public rating systems, you won’t be able to use that excuse much longer.

Your organization will be especially penalized if it lacks any attempts at all to assess its performance and social impact.

A public airing of your performance measurement (or lack thereof) may be right around the corner

In a conversation I had this summer with Ken Berger, he indicated that Charity Navigator’s goal is to include all nonprofits with budgets over $1 million, though they intend to start with the largest nonprofits that consume most of the charitable dollars and have the most capacity for measurement. (Yet may be some of the most complex and multilayered as well.)

One of the instruments that Charity Navigator is reviewing as a prototype for its ratings was developed by Hunter Consulting LLC for social and human service organizations. Its name is very revealing of its intent: “Protocol for assessing Investment Risk – with regard to the likelihood that an organization is producing Social Value.”

My intent is not to be a how-to on performance measurement. Instead, my goal is to give you a heads up before you find your nonprofit listed without a star for all the world to see.

I’d especially suggest that you add your voice to the discussion about how to rate nonprofit performance, sharing your own experiences and what you’ve learned about what works, what doesn’t and unintended consequences.

And though I am absolutely a cheerleader for every nonprofit developing a vision of the societal change they are trying to create along with measures and assessment of their progress toward that vision, I have deep, deep reservations about intermediary developed rating systems and their attempt to influence donor dollars.

For example,

• I worry about the smallest nonprofits, like neighborhood associations, small watershed organizations, food pantries or community advocacy groups which won’t even be on the radar of these rating systems, yet perform invaluable services at the micro-level.

• I worry about a focus solely on individual organizations and how that overlooks the critical networks of organizations that only create effective change as a system themselves.

• I worry about funding for advocacy organizations that take up the most difficult of causes, like ending the death penalty in the US or protecting human rights around the world, and how a national push to rate effectiveness may result in the abandonment of life-saving activities that don’t meet funder expectations for large numbers of “successes.”

• I wonder what timeframe will be used for measurement, as many of us know that social change takes decades, or that the consequences of actions are not often revealed for years.

• I worry about the loss of funding for experimental organizations, especially in the arts, culture and humanities which may be forced even more than they have already to justify their work only by non-artistic measures like economic impact because those are the easiest to assess.

• I also wonder how these intermediaries and their supporters will develop and confidently proselytize their measurement formulas in mere months while some of the best minds in academia and government and the nonprofit sector have been struggling for decades to isolate agency actions and measure social outcomes.

But regardless of my reservations or yours, change is on the way. So dust off those logic models, start your indicators and bring on the evaluators.

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This article first appeared in the September 23, 2009 edition of Nonprofit Boards and Governance Review at CharityChannel.com