The GiveWell Blog

Tough calls

Audio for last Monday’s board meeting is on the way; in the meantime, here’s a summary. The meeting ran about five hours and had heated arguments, tension, drama, a couple car chases, and down-to-the-wire votes. The highlight was the Elie and I ended up reversing our position on 2 of the 3 causes we voted on. Here’s the story.

Employment assistance: HOPE Def. Year Up in Double OT

Elie and I walked into the meeting having settled on a basic judgment call: we preferred high-skill to low-skill job training, for a variety of reasons. The Board (particularly Greg and Bob) questioned all of these reasons heavily.

  • We argued that without good comparison-group data, we couldn’t really use empirical evidence to establish whether a charity was making clients much better off than they would be without its help. Therefore, we preferred charities that were clearly teaching a highly specific skill – something that clients would clearly need training in – rather than working on improving motivation, which seems much harder to change in a 12-month or shorter program. By contrast, Greg and Bob felt that the easiest thing to help a person with is neither motivation nor specific skills, but extremely basic things like how to present oneself for an interview – and that this is the sort of coaching they’re unlikely to be able to obtain without a nonprofit’s help.
  • Our cost-of-living analysis suggested that lower-skill jobs, paying $10/hr, don’t represent a true living wage – and that they are unlikely to lead naturally to raises, whereas high-skill jobs allow a reasonable and improving standard of living. Greg and Bob were of the mind that getting a first job is the “hardest hump to get over,” and that someone with a job can find a way to get further training and move up, without needing an intensive nonprofit-run program.

The frustrating thing is that everyone in the room was completely guessing on all of this, and I feel that the right kind of evaluation could settle these questions. We voted on this central question – high- vs. low-skill wages – and initially, high-skill won 3 votes to 2, and we prepared to vote between the high-skill organizations Year Up and St. Nick’s.

But even though my instincts still lean toward high-skill training, my confidence was substantially weakened by Greg’s and Bob’s arguments, and it occurred to me more just what a huge tossup/judgment call this all is. With that in mind, I switched my vote, preferring to “break the tie” between approaches by going with The HOPE Program, which is (a) the charity I have the highest confidence in as an organization, due to its impressive and thorough self-evaluation; (b) the charity whose effect is best supported by the (admittedly sketchy) empirical evidence we have.

The rest of the Board agreed with my way of framing the new decision, and after walking in expecting to award Year Up, we unanimously elected HOPE as the winner of our grant.

Saving lives in Africa: PSI 3, PIH 2

All of us agreed that Population Services International and Partners in Health appear to be truly excellent organizations, with dramatically different strengths and weaknesses. On one hand, PSI is a standout in terms of being able to track and document itself, and appears to conduct extremely large-scale, cost-effective activities that save huge numbers of lives. PIH is far inferior by the “dollars per life saved” metric, but of course there’s so much more to the story than that. Their model of providing comprehensive health care is extremely appealing because it is straightforward and community-based, and therefore (in my mind) a much more reliable way of ensuring that we’re truly addressing disadvantaged people’s needs.

This argument got heated and it got impolite. I took PSI’s side and accused Lucy and Tim (PIH defenders) of avoiding my arguments by using “jargon,” and focusing on PIH’s “revolutionariness” instead of just trying to figure out who’s going to help as many people as much as possible. They, in turn, accused me of being too naive to understand PIH’s awesomeness, and they may be right (though for the record, I do think PIH is awesome and would defend it over any other organization I know of but PSI, including many organizations that annihilate it on the “cost per life saved” metric).

Greg, Bob and I carried PSI over Tim and Lucy. Yes, the three outsiders outvoted the two more experienced people. Yes, this is a concern, and yes, I still feel far from 100% on the decision and still think PIH is great. But as of today, I’d still rather grant PSI for a variety of reasons, and like any donor, I’m going with what makes sense to me. All five of us agreed that it was a tough call. The conversation will continue.

Global poverty: Opportunity International rallies from 1st-quarter deficit

Another one on which I completely flipped my position on a key judgment call. Elie and I came in having read all the literature we could possibly find evaluating microfinance programs, and we’d concluded that there is reason to believe that microfinance helps people – but the evidence isn’t nearly as compelling or rigorous as generally believed. We argued that there are just too many questions about when and how microfinance helps people – and that none of the microfinance organizations we’d evaluated were able to give us good information on when and how their programs worked. We therefore preferred to go with something simpler, more concrete, and more tangible: KickStart, which markets a water pump that directly improves farm production.

Greg and Tim agreed with us about the problems (and how little is known) with microfinance, but challenged the idea that a pump is more reliable just because it is more tangible. Both are convinced that there is not enough available credit in the developing world (something I don’t have as strong an opinion on); and they pointed out that the mere fact someone repays a loan generally tells you they used it for something reasonable and presumably life-improving, even if not to create a thriving new business.

I found their arguments compelling. We all hesitated to grant a microfinance program because we don’t have nearly enough information about any of them, and they – of all organizations – should be able to provide hard data, since they essentially are banks. But ultimately, we went with Opportunity International, which had given us the best picture of what was going on in their programs. This is a cause we need to do a lot more work on, but we all agree that it’s best to give today (based on a best guess) and keep learning – not hold our charity until we’re 100% confident.

Other causes: coming soon

Despite the wish to give today, we simply need to do more work in Causes 3 and 4, so we put those off.

People get tired and cranky

Lucy and Tim were sick of jabbering, and asked that we cover only the things we had to cover for the rest of the meeting. So we skipped the Progress Report on Year 1 (good thing, because the attention we got later in the week has altered the report substantially), approved the 2007 budget retroactively, and pulled up our salaries for approval through the next Board meeting. Lucy said she would approve these salaries only on condition that we commit to discussing (at the next meeting) what metrics GiveWell will use to evaluate itself. She is insistent that we apply the same high standard of metrics and evaluation to ourselves that we want to apply to other charities. She is right, and we are working on it.

The moral of the story

Deciding where to give was exhausting, demanding, and affected significantly by the presence of different perspectives, from Greg’s financial/economic intelligence to Lucy’s and Tim’s expertise and experience. My #1 thought coming out of it all is that we need more of these heated, diverse conversations, and we need them to be happening between more different kinds of people and in more public settings. Making the world a better place is not easy; it deserves to be argued about as intensely and critically as everything else important that we do.

The things I’m proudest of about this meeting:

1. That I changed my mind on two key issues (and ended up switching my vote on 2 of the 3 causes). I feel that it always takes vigilance to keep an open mind, especially when arguing over something I’ve been working on and convincing myself of for months, so it’s always good to be monitoring whether I am operating in a manner consistent with open-mindedness.

2. That Board members were able to challenge our decisions in an informed way. The Board didn’t have access to any special materials (except on global poverty, which isn’t on the website yet but will be). They just read givewell.net , and doing so allowed them to understand the key issues enough to truly apply their own critical thinking. That’s what GiveWell is really about.

Comments

  • michael vassar on December 25, 2007 at 6:21 pm said:

    Even if the training that provides the most benefit to the recipient per dollar spent is interview training, the net social benefit might be greater in some other field. Interview skills sound pretty zero-sum. If you help one person to get a given job, someone else doesn’t get it. They aren’t totally zero sum, as you save employers a search cost, but I doubt that they are optimal.

    I’m glad you chose HOPE, but I wish I knew why you prefer PIH to programs that (by your estimate?) annihilate it in terms of cost per life saved.

    Water pumps and microfinance both have their benefits and their drawbacks. Both need to be evaluated politically and economically. In general, it seems to me that the economics relevant to the effects of water pumps is basically that of natural resource management. Concerns relate to effects on local power structure. Who owns the water pump and gets to harvest profits from its use if anyone. Who is responsible for its maintenance. If it is very valuable, or makes local land valuable, does this overtax the ability of local people to defend their property rights and increase conflict? Does increasing the value of local land and reducing the local demand for labor increase inequality and further impoverish the poorest of the poor? These questions have to be considered for every pump placed, or alternatively, answered in a general way for all the pumps under consideration. Still, this is microeconomics, and is relatively easy compared to the sort of analysis needed to understand the effects of changes in the credit system, e.g. micro-lending. No-one seems to have a very strong grasp on macroeconomics, as even the developed world doesn’t seem to be able to confidently decide on policies, so theoretically working out the probable effects of micro-lending seems impractical, but if the effects seem to be empirically large and positive then they should be fairly easy to document. It seems to me that not documenting the effects of such programs forfeits most of the value in any event, as most of the potential value of any small local economic development program should probably be in the form of increased knowledge of what works in development. One could do any number of such programs, for instance, testing the effects of eliminating trade barriers in a small area by directly paying the costs involved in moving goods through such barriers. Experiments in the provision of a basic income or free “green machine” computers likewise appear worth attempting.

  • Re: Third world economics (water pumps, micro-lending, and so on).

    I’m quite interested to read GiveWell’s detailed report on charities working in this area.

    On the one hand, it has *possibly* the highest bang for the buck. Teaching the third world to fish is, long term, more efficient than giving them a fish day after day, and probably more ‘noble’ (I’m not sure if that’s the word I want, but can’t readily think of a better one) for the recipients.

    But, my suspicion is that in actual practice, most programs aimed at increasing economic growth or otherwise tinkering with third world economies, from the outside, are likely to underperform. Imagine the reverse situation – somebody in a remote part of Africa with only a thin understanding of American culture, politics, law, and economics, trying to donate money or goods to make the economy around you grow more or otherwise operate better. While any single material item (say, a water pump), is likely to have value, I question the ability of outsiders to drive the third world economy forward in this way. Some programs may in fact be successful, but accurately separating the useful from the not-so-useful is probably very hard for outsiders.

    That said, my knowledge of this area is thin, and I’m open to changing my mind.

  • Sony Shah on December 25, 2007 at 7:40 pm said:

    You cite much research and much literature read. Technically, your organization should have a fairly good handle on non-profit research, based on your model. Any thoughts on publishing your findings? I think you will find that there are many people that would be interested in your findings.

  • Erich Riesenberg on December 25, 2007 at 8:12 pm said:

    It is disconcerting that three of the four chosen nonprofits (Year Up, The HOPE Project, and Partners in Health) all have received Charity Navigator’s 4 star efficiency ratings for relatively low administrative and fundraising expense ratios. The fourth, Population Services International, does not appear to be rated, but also has extremely low fundraising and administrative expense ratios.

    I realize your constant, persistent criticism of the ratios are not based on evidence, or even a basic understanding of how the ratios are calculated, but I do hope at some point you will find a nonprofit with a fundraising and administrative expense ratio of say 35% and up worth supporting, so you can have some support for your preconceived conclusion.

  • OT: I see that you classify “global warming” as a developed world charity. I find that a little strange. Of course global warming affects the whole world.

    To the extent you feel a need to pigeonhole on the developed/developing world axis, the anticipated effects of global warming are biggest on people in the developing world. On the other hand, it is true that the biggest greenhouse gas producers — certainly per capita — are in the developed world. In total numbers, the US is still the biggest, but China is second. Regardless, my point is unlike NYC employment or malaria prevention, this is intrinsically a whole world problem.

  • I guess if you have to annihilate something…

    …annihilate it on the “cost per life saved” metric…

  • jfundraiser on December 27, 2007 at 11:31 am said:

    How interesting. You with a five hour board meeting are evaluating the effectiveness of others. Let’s see, how much did that board meeting cost in contrast to the good you provided? What you are finding, I hope is that running a nonprofit is not as easy as it sounds. Effective nonprofits have to deal not only with the “mission” but also with the politics. Hmmmmmmmmmmmmmm.

  • Quick things first.

    -jfundraiser, I encourage you to read something on givewell.net or a blog post or just about anything we’ve written, and see if you have the same comments. We are big defenders of the idea that “overhead” can easily be worthwhile, and that there is nothing wrong with spending a lot of time or money on making tough decisions – in fact, we’d guess that most charities spend too little, because of the misguided emphasis on “lowering overhead.”

    -Sony, everything that goes into our decisions is on givewell.net . Please let me know what you think is missing.

    -Crust, I think you are getting overly hung up on the format of our survey. We didn’t want to create a special “global” category because we thought that would unduly prejudice casual survey submitters. I think most people are familiar enough with global warming to recognize the cause and rate it accurately. The box we stuck it under was pretty much arbitrary, & doesn’t say anything about how we think of the issue.

  • Erich:

    -Interplast spends 37% on overhead (see this link). It’s 3-star this year, was 2-star last year.

    -One of the many random arbitrary properties of the Straw Ratio (and other Charity Navigator metrics) is a tendency to favor larger organizations. The central administration (which a good accountant will count as the only “overhead”) doesn’t tend to grow at the same rate as program. We tend to evaluate very large charities, so nearly everyone we evaluate does well on these metrics, a fact that has nothing to do with their quality of the quality of the metrics.

    -Across the board, we see what we feel is insufficient self-evaluation and -documentation, even for our best charities. Across the board, we are told that this arises out of a desire to “keep overhead low.” I believe it is simply not possible, in today’s environment, for a charity to ignore this issue and spend as much on overhead as it should. This is another reason that the fact that our top charities manage to come out with low overhead ratios does not make the point you seem to think it makes.

    -I put it to you that you don’t seem very interested in genuine dialogue. I tried to discuss these issues with you on Tactical Philanthropy, but you ignored me and then mentioned my comments in a sideways fashion on another thread; I didn’t get an email alert of the response and now I can’t even find your comment. Your rigid empiricism frankly seems rhetorical rather than genuine: we have always advocated a combination of logic and data, but you seem to ignore all the analysis we’ve made freely available about what our recommended charities do and why we like them better than others, instead pointing to correlations between our rankings and Straw Ratio rankings drawn from a sample size of 4.

    I’ve fully disclosed my background, and made clear that I have no ulterior motives in fighting the overuse of these metrics. At this point I am curious about your background. Google tells me you are affiliated with a charitable foundation, so you presumably have a history of doing evaluation yourself. May I ask whether you have made heavy use of these metrics in the past? I’ll be frank: I wonder whether you have a history of decisions that you have a psychological motive to defend.

  • Michael and Phil: I’m afraid you’re going to be disappointed by our research on global poverty.

    What we have done is examined the literature on microfinance. Nearly all relevant studies have major issues with possible selection bias, but the couple that seem to correct for it reasonably still show positive effects on quality of life from the presence of loans … and all of the problematic studies point in the same direction too (which could be a function of publication bias, but still). I’d say the empirical evidence weakly points to a positive effect, though much more is needed (especially because this seems like something that would depend HEAVILY on the specific time and place).

    However, the microfinance organizations we’ve dealt with have not been able (or willing) to provide a substantive picture of what is going on where (structure of program, characteristics of local economy, etc.) This is a huge problem, and one that made me extremely hesitant to grant one such organization. And one thing I’ve learned for the future is that we need somehow to be even broader with our causes – because it is really bad to get stuck making a grant within some narrow category of program, and much better to have the leeway to say “No microfinance organizations have documented what they’re doing, so we’re giving the money to a quality health organization instead.”

    But we give and learn. Despite all the reservations, I don’t think microfinance is as “dangerous” as Michael makes it sound. If people are taking the loans and paying them back with interest, it seems pretty safe to assume they’ve used them for something that made their lives better. The only potential problem is if these institutions are effectively flooding the market with credit, i.e., if there is already sufficient credit available through other means and these institutions are offering unreasonably low interest rates. This is the concern I came in with, and the reason I preferred the pump, but I now don’t think it’s a huge concern for a couple reasons:

    1. The loans are so tiny, and the presence of for-profit microfinance institutions so rare, that it seems much more likely that there is insufficient credit from the private sector. (Knowing the interest rates charged by MFIs in US dollar terms would help check on this. We asked very explicitly for these and weren’t provided them after repeated requests. Yes, frustrating.)

    2. Two Board members whose experience I respect, for different reasons, feel pretty adamant that developing-world credit is insufficient rather than excessive. Tim has, I believe, a good deal of up-close experience with these regions; Greg has none, but is a smart guy who has spent a huge chunk of his life studying the patterns of global credit, in a manner that I feel would make his intuitions in this question pretty good.

    I’m not sure the situation with the pump is as complex/dangerous as Michael makes it sound either, but let’s leave that aside. The point is, the concerns with microcredit – provided that the loans are being paid back with interest – seem pretty confined to one dangerous possibility that I feel somewhat confident is not an issue, and the little empirical evidence we have is positive. Yes, this isn’t enough. Yes, we still have a ton to learn. But given that we had to give a grant in this area, I feel that microfinance was the best way to go.

  • Finally a couple quick responses to Michael’s other questions/comments:

    1. I don’t understand at all why interviewing skills are “zero-sum.” We’re talking about low-skill jobs, where presumably the main question is, “Can this person handle it or can’t they?” Helping the people who can handle it demonstrate that to employers seems analogous to helping employers find the people who can do low-skill jobs. I don’t know why that’s more likely to be a zero-sum exercise than training people in specific skills.

    2. The biggest problem with most organizations that have better $/life than PIH is, frankly, that I can’t tell what 80-90% of the organization is doing, so I only know the $/life for a tiny set of programs. That said, I also think there is room for substantial “bonus points” for PIH because its model is so straightforward and logical. It’s not running around the continent addressing a specific disease; it builds hospitals where no hospitals were before. I would guess that the people running these hospitals don’t have much trouble telling whether they’re serving the most urgent needs, and face little risk of unanticipated and disruptive consequences – unlike more dispersed and “single-bullet” activities including PSI’s.

  • michael vassar on December 27, 2007 at 7:07 pm said:

    Holden: My guess is that microfinance is net beneficial, but increasing availability of credit is not a clean benefit like you seem to be suggesting. If credit is used productively it creates wealth, but also economic disruption. If it is used less productively it increases asset prices. It could easily be the case that for many people it is rational to borrow money to pay for some good but the availability of that credit enables the people selling that good to increase their prices, making life worse for those without easy credit. The degree to which this is a problem depends on the quality of the market. In a perfectly efficient market it will not be a problem, but neither will inadequate credit.

  • Erich Riesenberg on December 28, 2007 at 8:25 am said:

    Holden –

    You write: Interplast spends 37% on overhead

    Interplast’s web site states: Interplast spends less than 10 percent of its budget on fundraising and administration, dedicating more than 90 percent for programs providing reconstructive surgeries and educational programs that increase medical access in developing countries.

    http://interplast.org/financials.php

    Those are very different numbers, and one of you is wrong.

    This is apparently your explanation: Note, however, that the costs given in Attachment B-1 appear to understate the true costs, as they do not account for general organizational overhead. (The attachment does not specify this, but the detailed budget given in Attachment A-2 Pg 3-4 – which does account for overhead costs – has significantly higher expenses than any line item in B-1, even for Africa and China, which Attachment A-2 Pg 2 states are the more expensive regions to visit.) As a rough way of adjusting for these costs, we observe (from Attachments D-2 and D-3) that total expenses are ~37% higher than program expenses in the budget estimates for both 2007 and 2008, so we take $1.5M (the budget for Surgical Team Trips in both 2007 and 2008 – see Attachments D-2 and D-3) and add in a 37% premium. The result is an estimate of about $2M for 1400 surgeries, or about $1400 per surgery.

    http://www.givewell.org/node/40

    It is disappointing, but not surprising, that you would not delve a bit deeper for the reason for the huge disparity, apparently not even contacting the group directly for a simple explanation, rather than your inference.

    Best of luck.

  • Erich, by “overhead” I meant administration PLUS fundraising, just as you did. Interplast’s reported # appears to be only administration. Charity Navigator puts administration at 10% as Interplast does, but the combined ratio at 25% (link).

    Yes, 25% is less than 37% – I’m guessing the diff is that Interplast allocates some of the executive salaries and other central overhead to “program” – but you’re right, I don’t delve deeper. That’s because there are 100 different ways to calculate the ratio, none of which has anything to do with the fact that Interplast performs life-changing cleft lip and palate operations for a quite reasonable amount of money, in contrast to other charities running huge varities of questionable, undocumented, untested programs.

    You haven’t addressed any of the substantial arguments I made – none of which depend AT ALL on the details of how the ratio is calculated – choosing instead to nitpick the most narrow, offhand one I tossed out. This seems consistent with my earlier guess about where you are coming from.

  • Correction: Interplast does say “fundraising and administration.” So, they mean the same thing I mean and that CN means – but they say 10%, Charity Navigator (working off the 990) says 25%, and we (using a more conceptual calculation, rather than the self-classified numbers) say 37%. Maybe, in this huge discrepancy, you see a fascinating field of knowledge to be explored – all the intricate details of how one classifies “overhead.” I see more evidence that there is no method for calculating this number that is agreed-upon, reliable, stable, or non-arbitrary – to say nothing of meaningful.

  • Erich Riesenberg on December 28, 2007 at 10:46 am said:

    You write: I see more evidence that there is no method for calculating this number that is agreed-upon, reliable, stable, or non-arbitrary – to say nothing of meaningful.

    Nope, it takes about 4 minutes to understand why CN and Interplast diverge, it has to do with in kind donations. I wouldn’t try to guess how your inferred, theoretical calucation was made, and it seems you can’t recall either.

    You are correct in that I am not interested in discussing your various theories as to why expense ratios should be ignored, I am simply seeking examples. As you might say, show me the evidence.

    Cheers!

  • The reason we don’t give examples is because we focus on the charities that are best able to document themselves; we don’t generate a large set of “this charity is good” / “this one is bad” recommendations.

    Thus, your insistence on “evidence” means that you are going to be working with a sample size of 4 or so. Our own focus on empirical evidence has no such ludicrous rigidity. We use the facts that are available and human reasoning to fill in the rest.

    But if we were to take on your rigidity, I believe the burden of proof would be on you, not us, to show that the Straw Ratio is a meaningful metric. After all, I don’t think you could demonstrate with your sort of “evidence” that an alphabetical ranking is a bad metric either.

    You haven’t given a shred of evidence OR common-sense analysis for why the Straw Ratio is meaningful. All you’ve done is hint at it by saying we “don’t understand the details,” but you haven’t explained in any way. If you would, maybe we’d start getting somewhere.

    (As a minor point, the difference between “conceptual” and “accounting” Straw Ratios is a real one – as you should know if you do in fact understand the details of these metrics. For example, GiveWell’s own “admin ratio” is extremely low when computed by our accountant – our “programs” include research, so the time I spend on research is allocated to “program” – but there is a much more relevant, much higher “admin ratio” that our donors care about and that won’t show up in any Charity Navigator-style report, which is how much we spend on research vs. grants. Research costs are conceptually, but not technically, “overhead.”)

  • Michael V: it still seems like a pretty convoluted hypothesis to say that the economic disruption outweighs the benefits. You’d have to think that giving people access to thing X systematically prices out people who need X more badly and would otherwise have been able to afford it. Sure, it’s possible. I’m not really sure whether we disagree on anything – on balance microfinance seems like a good bet (and, I now feel, a better bet than a subsidized water pump sale), though there is still a lot to investigate.

  • Erich Riesenberg on December 28, 2007 at 11:50 am said:

    Holden, I think you should sometimes pause and reflect before you comment, to improve your accuracy and coherence, and reduce your contradictions.

    I am afraid you may be confused. I am not asking you why you do not use the expense ratios in your own evaluations. I have never asked that, and never, ever, ever would. That would be dumb, and ignorant. Obviously, your perferred metric of cost per life saved incorporates this information.

    Of course, wheter you use the information is irrelevant, and has nothing to do with the comments you have made. You have written dozens of postings stating these ratios are useless, yet hundreds of millions of dollars flow to charities which would be avoided by the simple use of these metrics. You don’t take care to say these metrics are not useful for your method of evaulation, you flat out say they are useless and should not even be made available, this last point on another blog. At least, until you contradict yourself and say they are sometimes useful.

    Obviously, I, or anyone, can provide a great amount of evidence of poorly performing charities with high administrative and fundraising expense ratios that deserve to be put out of business. Here is a list: http://charitynavigator.org/index.cfm?bay=topten.detail&listid=28 I am merely asking you to provide a few examples proving they are useless, as you claim. I do not understand why you think this is such a ludicrous request.

    You write: (As a minor point, the difference between “conceptual” and “accounting” Straw Ratios is a real one – as you should know if you do in fact understand the details of these metrics. For example, GiveWell’s own “admin ratio” is extremely low when computed by our accountant – our “programs” include research, so the time I spend on research is allocated to “program” – but there is a much more relevant, much higher “admin ratio” that our donors care about and that won’t show up in any Charity Navigator-style report, which is how much we spend on research vs. grants. Research costs are conceptually, but not technically, “overhead.”)

    This is a major contradiction with your own prior rantings against the ratios. You have categorically stated computer systems, executive salaries, and program evaluation increase administrative and fundraising expense ratios. It seems obvious that researching by Givewell would be a program expense, like any program evaluation. It is good that perhaps you have learned a bit about how these ratios are calculated.

    The only reason I have taken the time to comment here is a result of your spurious attacks on Charity Navigator and Direct Relief International. I was curious if you had any reason for these criticisms. Your disdain for expense ratios have made you the darling of nonprofit fundraisers and consultants. That alone should give you pause.

    The single rational comment you have made about these ratios is that they can be manipulated, and that is true. It is unfortunate you did not begin and end your diatribe with that, or that you chose not to work with others to bring about change. For all your talk of nonprofits exchanging information, you have never once talked of attempting to partner with CN or Guidestar.

    This exchange of messages seems pointless. Good day.

  • Erich, the thing I have most trouble understanding is your last statement that this exchange seems pointless. I run a 7-month-old project, unaffiliated with any particular charity except itself. I believe I’ve consistently demonstrated not just a tendency to word things strongly, but a willingness to listen to other arguments and change my mind.

    It’s just that you haven’t made any arguments. All you’ve done is point to our lack of “evidence” (something I’ve addressed) and made cryptic statements about “the way these ratios are really calculated” (which I am intimately familiar with – and it is the truth that different accountants calculate them differently, with no standardized or enforced practices). You haven’t given me a reason to reverse my position – you’ve just observed that we don’t meet a burden of proof that seems irrelevant. I am telling you that if you were to make substantive arguments, I’d listen to them; so if you think this is important, please do so.

    On more minor points:

    • From the very beginning (and you can see this in the first public statement I ever made on the Straw Ratio), I have held the position that the Straw Ratio is NOT inherently/entirely meaningless or useless, in context, but that it is consistently and drastically overused, and that the good uses for it are too hard to come by – and that I’d therefore prefer to see it ignored altogether. I made this same point on the Tactical Philanthropy thread you abandoned. It’s true that I don’t mention that the ratio can, conceptually, in minor ways and when combined with many other things, be useful every time I talk about it – I often stick to the important point, which is that it is misleading, associated with a destructive mentality, and should be ignored. Sticking to the big picture when warranted (for example, in a limited-time TV/radio statement) is not the same as contradicting oneself.
    • Computer systems, executive salaries, and program evaluation do generally increase the Straw Ratio, and that includes our case. This is not the same as saying that they are classified 100% as admin. For example, raising my salary would raise our Straw Ratio, because my salary is considered 25% administration whereas our overall ratio is closer to 10 or 15%. I made exactly this point on the Tactical Philanthropy thread you abandoned.
    • That said, let’s get really detailed and nitpicky and concede that it depends on how your particular accountant is calculating the ratio and the specifics of the situation. This is an unbelievably minor point in the larger context, which is that these ratios are more than numbers – their use is associated with a mentality that leads donors to demand “low admin” in the abstract, and leads nonprofits to cite the same as a defense of insufficient evaluative capacity. I generally say this is the donors’ fault, but whoever’s fault it is, the admin ratio is constantly CITED as a reason for low evaluative capacity (this I can document if you’d like) – and fighting that is far more important than harping on the specifics of one particular number listed in one particular place.
    • You provided a list of charities with high admin ratios. Now you have to give the evidence that these charities are in fact ineffective, if you want to live up to your own evidential standard.

    You still haven’t said anything about your background; you still haven’t given an example or argument for why the Straw Ratio can be useful at all, let alone any attempt to address the bigger-picture issues that come in once you incorporate the unreliability of the metric and the general mentality it’s associated with. But unlike you, I’m not going to say “You’re too stupid to understand me; I’m walking away.” If and when you make a reasonable argument that has any substance or consequences for what actions I should take, I’m listening.

  • michael vassar on December 28, 2007 at 12:21 pm said:

    Holden: We agree that microfinance is probably good, but real economics is full of convoluted effects. I’m just transferring fairly conventional wisdom relating to housing ownership, university prices, etc, to a slightly different domain here.

  • Erich Riesenberg on January 7, 2008 at 3:11 pm said:

    Holden –

    Here is the first I read of your dislike of the use of overhead ratios.

    http://philanthropy.com/live/2007/12/karnofsky/

    You made multiple comments in that online discussion about how you thought it is worthless, including this one: Agreed. We just need to get rid of the ridiculous notion that overhead is bad. It’s an insane idea, it generally takes about 30 seconds to explain why it’s insane, and all of us in this sector recognize that the notion needs to be scrapped. I agree that charities should document themselves, I disagree that they should keep overhead low.

    Again, as I stated previously, you made zero attempt to qualify this comment, you flat out stated overhead should be ignored. Of course, you misuse the phrase overhead, in accounting terms there are administrative and fundraising expenses, and I am guessing it is somewhere in there you create the term overhead.

    It may take 30 seconds for you to dismiss the basic use of these ratios, for the real world it may take a bit more of an explanation.

    You still confound me with nonsensical comments such as this: you still haven’t given an example or argument for why the Straw Ratio can be useful at all…

    You are babbling, and repeating yourself. I have given you many examples, 10 to be exact, and will post them again. Here are 10 charities which I think should be avoided based on their fundraising ratios alone. http://charitynavigator.org/index.cfm?bay=topten.detail&listid=28

    Please stop asking about my personal life, I live in Iowa and I doubt we will ever hang out.

    Best, Erich

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