KIPP is one of the most well-known and, we believe, effective charities in the United States: it has a long track record of improving students’ performance in school and Secretary of Education Arne Duncan has cited it as a model for education reform. In our recent analysis of KIPP, we’ve been surprised to learn that despite these accolades, some KIPP schools are considering cuts to core parts of the program (such as reducing Saturday school and the number of teachers available for after-school activities) and are being forced to significantly slow down the opening of new schools. KIPP Houston requires approximately $1.4 million to prevent these cuts and could use an additional $12-13 million productively to fund opening 3 new schools.

How does such a successful and acclaimed organization struggle to raise the funds necessary to continue expanding? We think a big part of the explanation comes down to the fact - which we’ve discussed before at length - that the issue of “room for more funding” (the question of how additional funding would affect a charity’s activities - i.e., the impact of the marginal donation, as opposed to the average one) is neglected by givers.

We came across the close to $15 million funding gap at KIPP Houston by probing the “room for more funding” situation for the KIPP Foundation, the national organization that we have been directing donors to. In the course of conversations on this topic, we ended up agreeing with KIPP representatives that

• The KIPP Foundation itself doesn’t have short-term “room for more funding”: it is committed to executing against its Board approved budget only. This does require a significant amount of philanthropic funding annually, but current needs pertain to future years.
• Specific KIPP regions do have room for more funding - and the KIPP Foundation doesn’t generally give grants to these regions (doing so isn’t in its model). The KIPP Foundation directed us to KIPP Houston as a specific KIPP region with a funding gap and capacity to expand.

Bottom line:

• One of the most acclaimed and effective programs in U.S. education needs $1.4 million to avoid cutting core programs and an additional $12-13 million to continue its expansion.
• This fact highlights the benefits of deeply analyzing “room for more funding,” something we’ve seen very little discussion of elsewhere in the context of charitable giving.

Details follow. (Note that we still recommend international aid organizations above U.S. organizations; this analysis is most relevant for donors who wish to focus on the U.S.)

Donors who want to support KIPP Houston directly can do so using our donate page for KIPP Houston.

Background

Over time, we’ve put more and more time and thought into the question of how to analyze a charity’s “room for more funding”, i.e., the question of how additional funding would affect a charity’s activities.

• For the early years of our project, our analysis was loose and conceptual, as we looked at basic heuristics.
• In December 2009, working with our top-rated charity VillageReach, we arrived for the first time at what we considered a “gold standard” room for more funding analysis, showing specifically how VillageReach would change its plans in response to different levels of total unrestricted revenue.
• During 2010, we started revisiting our recommended charities looking for a similar level of understanding. One of the first charities to provide it was our top-rated U.S. charity, the Nurse-Family Partnership (NFP). NFP told us that existing commitments can sustain the organization through 2015 at which point the organization would likely need additional donations to continue operations.

  We believe that donations to NFP are good: they provide a long-term safety net to an outstanding organization, and they support the cause of more effective and accountable charity more broadly. Nevertheless, we don’t think it’s fair to consider donations to NFP, today, to be the best option if there are other organizations that would use them to fill a more pressing need.

• The Knowledge Is Power Program (KIPP) is another U.S. charity we rate highly, and in response to KIPP’s question about how it could improve its rating, we responded that we’d like the best possible understanding of its room for more funding. KIPP Foundation representatives agreed to this and were extremely helpful. They were open that while the KIPP Foundation does not have the same type of long-term funding commitments that NFP has, and does require a significant amount of philanthropic funding annually, it does not have a compelling use for additional funds in the short term. But, the KIPP Foundation went on to clarify that, some of the regional networks (i.e., the actual KIPP schools) in the KIPP family do have pressing, if not urgent, financial needs.

  The KIPP Foundation does not have a mandate to directly fund KIPP schools. (For more on what it does, see our review of KIPP.) The KIPP Foundation told us that some of the regional networks have significant room for more funding. The KIPP Foundation referred us to KIPP Houston, which it believed could significantly benefit from additional funding.

KIPP Houston’s Room for More Funding needs as of July 2011

Based on this lead, we reached out to KIPP Houston, and in speaking with John Murphy, KIPP Houston’s CFO, it became apparent that it has a significant and immediate need for more funding. Specifically, KIPP Houston, which relies on money from the state for close to 85% of its annual operating budget, is planning for expected state budget cuts of 6% for the coming school year and 8.5% the following year, which would leave it with a budget shortfall of 4.7 million for the coming year.

Two notes on the data:

• The actual deficit would be slightly lower in the upcoming year and slightly higher in the subsequent year, but the average deficit over the 2 years is $4.7 million and our understanding is that KIPP would (we believe appropriately) budget for the two years together.
• We are relying heavily on KIPP Houston’s expectations for future state cuts. A two-year state budget cut of $4 billion has been passed by the legislature and according to a recent newspaper report (archived), a 6% cut across the board is expected in year one, while the subsequent year’s cut has not yet been allocated across schools, and we do not know when that will occur.

KIPP Houston told us that it expects to be able to raise an additional $1.7 million in donations (relative to what it had previously planned, a 50% increase from the previous year) and that it hopes to save $0.4 million by finding areas of potential savings (through operational efficiencies, etc.), thereby filling around $2.1 million of the funding gap itself. It could also use $1.2 million in bond income to fill the gap, though KIPP Houston told us that this would reduce its ability to expand in the near term because it had intended to put these funds toward expansion.

The remaining gap, estimated at $1.4 million, would need to be addressed through some combination of spending cuts to some of the items listed below; the final decision has not yet been made.

Potential cuts to KIPP Houston Operating Expenses in 2011-2012

Expense	Maximum amount
“KIPP Unique” Expenses - These include program areas such as, Field Lessons, KIPP Time (extended day) and Saturday school. Specific changes in this area will be left up to the discretion of school leadership.	$2.4 million
Putting a hold on the teaching fellows program (resulting in the replacement of fellows with teacher aides). Specific changes in this area will be left up to the discretion of school leadership.	$0.5 million
Freezing administrative hiring for expansion of KIPP Houston’s network.	$0.75 million
Reducing employee compensation plans, professional development and/or benefits packages.	$0.75 million

We asked KIPP Houston what it would do if it were able to raise additional dollars above and beyond its new fundraising goal (and close some of the gap). Mr. Murphy indicated that since many aspects of the state budget are still up in the air, these decisions have not been finalized, but were KIPP Houston able to raise additional dollars towards its budget shortfall, it would likely reinstitute “KIPP Unique” expenses and employee compensation, benefits and professional development packages first (with much of the details left to the discretion of campus directors), items we see as core to KIPP’s operations. In addition, this tightening of their budget and the use of bond income also means slowing down expansion plans in the Houston area, resulting in fewer students being served by the KIPP program than intended. Mr. Murphy explained:

“We recently were able to purchase property for our 24-26th schools and it is literally right in the heart of our more than 7,000-student waiting list. We could start things up there right away, but right now we can’t afford the construction because our capital is minimized. Those three schools could serve approximately 1,600 kids, but right now we just have to hold off and wait.”

Conclusion

As we’ve written, even a charity with proven impact isn’t necessarily a good investment - a key question is the impact of the marginal donation (not just the average one). For years we’ve recommended the Nurse-Family Partnership and the KIPP Foundation to U.S.-focused donors based on their strong case for impact, but as our analysis of “room for more funding” has sharpened, we’ve discovered that neither has a short-term need for more donations - and this in turn led us to find a specific KIPP network (KIPP Houston) that does have short-term room for more funding. (Note that we still recommend international aid organizations above U.S. organizations; this analysis is most relevant for donors who wish to focus on the U.S.).

While donating to the Nurse-Family Partnership or the KIPP Foundation does mean supporting an outstanding organization that relies on philanthropic donations to operate - and therefore is making a positive impact - we think there is a huge opportunity for a U.S.-focused donor to support organizations like KIPP Houston, for which more funds will make the difference between expansion and cutbacks.
Now the question is, how much of that nearly $15 million funding gap can we help close?

Donors who want to support KIPP Houston directly can do so using our donate page for KIPP Houston.

We’ve always been interested in GAVI, a large funding vehicle for immunizations (which we consider to be one of the best interventions out there for accomplishing good).

Until recently, GAVI projected a need for $3.7 billion between 2011-2015 (archived). However, yesterday there was an announcement that GAVI had raised $4.3 billion, more than enough to cover this need (archived).

In the past, we’ve refrained from recommending GAVI because we have trouble fully understanding its activities, but we’ve been continuing to revisit it and think about how we might gain better understanding. Now we are fairly confident in not recommending GAVI because it appears to have all the funding it needs (which, given its area of focus, we consider very good news).

This situation illustrates one of the trickier room for more funding-related challenges of individual giving. Even if a nonprofit has significant funding needs today, are there big donors right around the corner about to swoop in and render your donation irrelevant?

Before we recommend a charity, we seek as good an understanding as possible of its room for more funding, and this includes asking it about what revenue it expects in the future. This is the best way we know to avoid recommending a charity just before its funding gap is closed by megadonors, but we don’t think this approach is foolproof. We continue to find the issue of room for more funding - and in particular, the possibility of a GAVI-like situation - to be very difficult to deal with.

The situation in Japan is tragic and worrying, and our hearts continue to go out to those affected and responding.

On Friday, we recommended that donors wait to see how the situation unfolds before giving. At this point we are ready to make a recommendation, though of course this is subject to change as the situation changes.

We believe that

• Those affected have requested very little, limited aid. Aid being offered far exceeds aid being requested. (Details below.)
• Charities are aggressively soliciting donations, often in ways we feel are misleading (more on this in future posts).
• Any donation you make will probably be used (a) by the charity you give it to, for activities in a different country; (b) for non-disaster-relief-and-recovery efforts in Japan.
• If you’re looking to pursue (a) and help people in need all over the world, we recommend giving to the best charity you can, rather than basing your giving on who is appealing to you most aggressively with images and language regarding Japan.
• If you prefer (b), a gift to the Japanese Red Cross seems reasonable.

Overall, though, a gift to Doctors Without Borders seems to us like the best way to effectively “respond to this disaster”. We feel they are a leader in transparency, honesty and integrity in relief organizations, and the fact that they’re not soliciting funds for Japan is a testament to this. Rewarding Doctors Without Borders is a move toward improving incentives and improving disaster relief in general.

Donate to Doctors Without Borders

Below, we give the evidence we’ve found that the relief/recovery effort does not have room for more funding.

Because the situation is changing rapidly, we often include archived versions of the pages we link to (these archives will retain their content even if the pages themselves are changed).

Determining room for more funding in a disaster

As argued previously, we think it’s an open question whether a given disaster has room for more funding. Our basic (evolving) process for assessing the needs in a disaster situation is:

1. First see whether a significant gap exists between requested and pledged/committed aid. Requests for money are, in our view, a necessary (though not sufficient) indicator that there is room for more funding.
2. Next, collect whatever information is available about the progress of the relief effort, and look for signs that money is or isn’t a primary bottleneck to a better effort. In the case of Haiti, we’ve found signs that non-monetary issues have been primary obstacles to progress.
3. If it seems that more money is both requested and needed, look at what is being spent, and on how many people, and make an assessment of how this giving compares to everyday relief for the world’s poor. In the case of Haiti and the Asian tsunami, we concluded that relief appeared less cost-effective than everyday international aid. The story might be very different in less-publicized disasters that have more trouble attracting funding.

At this stage, we don’t believe that this crisis passes the first test above. It looks to us like more aid is being offered than requested.

Info from OCHA and ReliefWeb

One of the first places we look in a situation like this is to U.N. Office for the Coordination of Humanitarian Affairs (OCHA), which is “the arm of the UN Secretariat that is responsible for bringing together humanitarian actors to ensure coherent response to emergencies,” as well as its affiliated site ReliefWeb. ReliefWeb is especially useful because in addition to consolidating official updates on an unfolding crisis, it consolidates official appeals for funding. Here’s what we observe from these sources:

• There is no official appeal for Japan at this time. See the list of appeals (archived) and appeals page for Japan specifically (archived), which includes funding information but no appeal.
• Very limited assistance (and even more limited funding) has been deployed by Reliefweb-reporting sources. Both the latest situation report (PDF) and latest funding summary (both updated as of today) make it clear that
  • Most assistance being provided is in the form of specialized relief teams, not cash.
  • Committed or gifted cash from Reliefweb-reporting sources includes $1 million from Sri Lanka, about $750,000 from the U.S., and other gifts bringing the total to about $2.2 million - about twice what Zynga has raised for Save the Children through social gaming.
• Contrast with Haiti: a comparable situation report (PDF) 3 days after the disaster announced an appeal for $562 million, with $66 million already gifted and $359 million pledged.

Japanese Red Cross

The latest official update from any Red Cross appears to be a March 12 information bulletin from the Japanese Red Cross (archived). This bulletin opens with the following:

This bulletin is being issued for information only, and reflects the current situation and details available at this time. The Japanese Red Cross Society, with the support of the International Federation of Red Cross and Red Crescent Societies, has determined that external assistance is not required, and is therefore not seeking funding or other assistance from donors at this time.

I’m not exactly sure how to square this with the donate page for the Japanese Red Cross (archived), which states:

If you wish your fund to be distributed directly among the affected population of the earthquake and tsunami, please direct your fund to the following bank account. If you need the receipt of your fund, please state so clearly in the comment section of the bank transfer order. All the fund received under this account will be transferred to the Distribution Committee, which is formed around the local government of the disaster-affected prefecture and to administer the distribution of fund.

One possible interpretation is that funds will be given directly to those affected by the earthquake, but funds are not needed for the relief effort itself.

Japanese government

This quote from Reuters (archived) is consistent with the above picture:

Japan’s government has received offers for assistance from 91 countries, and has accepted assistance from about 15 based on assessed needs, mostly for specialized international urban search and rescue (USAR) teams and medical teams.

Charities
Charities seem to be sending a very different message from the above sources. By and large, they seem to be aggressively soliciting donations, and we feel that many are implying these donations will be used in the relief/recovery effort. (Details in a future post.)

However, a close look at the language they’re using reveals that their actual involvement in relief/recovery may be very limited and they are seeking donations for other activities. Gizmodo’s Mark Wilson did a good early analysis of this phenomenon, and a look at the up-to-date descriptions of activities from the Chronicle of Philanthropy (archived) and InterAction (archived) still appears to me to indicate limited involvement, and to be full of language that raises questions about whether involvement is forthcoming. A few examples:

• “Catholic Relief Services: The organization said Friday it has personnel standing by throughout the pacific, waiting for requests for help from Caritas Japan.”
• “Oxfam America: The organization’s Web site this morning displayed the headline “Worst Quake in Japan on Record” and asked visitors to donate to its Saving Lives 24/7 Fund.” The Saving Lives 24/7 fund (archived) appears global in focus.
• “Save the Children: The charity said Friday it is mobilizing people and supplies to respond to the earthquake. The organization has worked in Japan for 25 years. On Saturday, it announced it had partnered with online game company Zynga to add calls to donate in the company’s games. On Sunday, the charity said it has sent an emergency team to assess needs in the worst-affected areas.”
• ” World Vision: The charity this morning reported that its offices in Indonesia, Papua New Guinea, the Philippines, and the Solomon Islands are on alert to assist in tsunami response. A team is also on standby for possible deployment.”

One notable exception is Doctors Without Borders, which has been completely explicit that it is not seeking funding for Japan relief. Its note on funding for Japan (archived) states

At this point, we are drawing on unrestricted donations given to MSF to fund our efforts, and we are not accepting donations specifically earmarked for recovery efforts in Japan. We greatly appreciate your generosity and encourage your support of our work. We will continue to post updates on our homepage, Facebook, and Twitter as new information becomes available.

Many other organizations may also be soliciting donations only for global efforts, but Doctors Without Borders has the most clear and explicit note that we’ve seen.

On Friday, we stated that “we prefer Doctors Without Borders … because of its past decision to stop accepting donations for Haiti relief; this greatly reduces the risk in our eyes that it will over-solicit, a very important concern in this case.” It appears that Doctors Without Borders has, in fact, not over-solicited.

This may cause Doctors Without Borders to raise less money in this disaster, but we’re hoping at least some donors will reward it.

The bottom line

I wouldn’t want anyone to take this post as an argument that (a) the situation in Japan is anything other than extremely tragic and extremely challenging; (b) you shouldn’t give to charity.

My interpretation, rather, is that

• the people and government of Japan are extraordinarily well-prepared, as well as competent and well-resourced, and do not need significant external assistance in order to mount a maximally effective relief and recovery effort.
• Therefore, you as a donor do not have the power to improve the relief and recovery effort in Japan. If you do give, your gift will probably be used (a) by the charity you give it to, for activities in a different country; (b) for non-disaster-relief-and-recovery efforts in Japan.
• Of the above two possibilities, I find (a) more appealing, because Japan is a wealthy country and everyday needs are greater elsewhere. But if you’re looking to pursue (a) and help people in need all over the world, I’d highly recommend giving to the best charity you can, rather than basing your giving on who is appealing to you most aggressively with images and language regarding Japan.
• If you prefer (b), a gift to the Japanese Red Cross seems reasonable.

Overall, though, a gift to Doctors Without Borders seems to me like the best way to effectively “respond to this disaster”. We feel they are a leader in transparency, honesty and integrity in relief organizations, and the fact that they’re not soliciting funds for Japan is a testament to this. Rewarding Doctors Without Borders is a move toward improving incentives and improving disaster relief in general.

Others with similar sentiments

• Brigid Slipka makes the excellent suggestion of putting aside a donation and giving it later.
• Saundra Schimmelpfennig further defends this idea.
• Felix Salmon urges unrestricted gifts to help people in general, not donations targeting Japan.

We are currently updating our review of Nurse-Family Partnership National Service Office (NFP NSO) (one of our top-rated charities). We did our main review of NFP NSO in 2008 and since then we have continued to develop our research process, and in particular our approach to assessing room for more funding, i.e., how much more money a charity can productively use. At this point we feel that NFP NSO has room for more funding only over the long term, and that potential donors should take this into account.

This conclusion is not final, but it seems like an observation worth sharing now. We plan to publish our updated review of NFP NSO, including our final take on its need for individuals’ donations, later this year.

Details: In 2007, NFP NSO launched a campaign to raise money so that NFP NSO could become, over a ten-year period, self-sustaining on the fees it collects from local NFP programs. In 2007, NFP NSO successfully got commitments of approximately $50 million for this purpose, the full amount it sought (see Annual Report 2007 (PDF), page 31, and our phone conversation with NFP NSO (DOC)).

Since then, NFP NSO has revised its cash flow projections, making the projections less optimistic in light of the weak economy. It has shared these cash flow projections for our eyes only. The projections anticipate that donations will be needed for several years to cover the gap between earned revenues (from local NFP programs) and expenses, and that it will take until 2021 to get to the point where earned revenues cover 98% of all expenses.

From these projections, it appears to us that existing commitments can sustain NFP NSO through 2015, at which point the organization will likely need more donations in order to continue operating. It also seems likely to us that any additional donations in the meantime will be essentially “held for a rainy day,” i.e., saved for the point at which they are needed to cover this gap. Because NFP NSO’s goal is to become self-sustaining on earned revenue, it seems unlikely that it would use more donations to directly increase the reach of its program (e.g., through providing its services to local NFP offices for free or reduced prices).

We feel that NFP NSO is an outstanding organization, with a stronger case for its effectiveness than any other organization we know of doing work on U.S. equality of opportunity. Therefore, we very much hope that it raises the funds that are necessary to continue operating, and in plenty of time. However, it seems important to note that its need for more funds - and ability to translate them into more outcomes - is fairly far off, when compared to that of (for example) VillageReach. (Note that we don’t mean to compare NFP NSO to VillageReach in terms of outcomes, or in general. We’re simply contrasting longer-term vs. shorter-term room for more funding.)

Note: NFP NSO reviewed and approved this post prior to publication.

It seems like no one is sure why Unitus is closing its doors. That said - what can we learn from this situation if, as stated, Unitus is closing down because it has accomplished its mission and no longer needs to exist?

“We have always thought of Unitus as a project, and that when we completed the project, we would have the integrity to say we were done,” says Joseph Grenny, one of the seven founders, and the chair of Unitus’s board. (From the Chronicle of Philanthropy’s report on Unitus)

From a donor perspective, what this quote is describing is the issue of room for more funding, which we’ve discussed at length (see our page and blog post series on this issue). No matter how successful a program is, there are limits to how much it can be productively expanded.

In December, we argued that room for more funding is a key question few others are asking charities. The Unitus case – if they did in fact shut down because they “completed the project” – lends support to our argument.

• Last year, Philanthropedia polled 130 professionals in the sector; Unitus came up as a top recommendation.
• The Omidyar Network has granted $11.7 million to Unitus since 2005. (See the Chronicle story.)

We can’t find evidence that Unitus itself gave an indication that its use for more funds was limited. According to the Puget Sound Business Journal, Unitus was “interviewing potential candidates for its vacant top fundraising post as recently as a month ago.”

Donors shouldn’t rely on a charity to tell them when it’s running out of room for more funding. We believe that the issue of “room for more funding” is one of the most under-recognized issues in the field of charity evaluation, especially for individual donors.

We’ve previously argued that the “headline program” a charity uses to raise money may not be the one you’re effectively funding with donations - even if your donations are formally restricted to that program. (See our full series on the topic).

Now the Chronicle of Philanthropy quotes a fundraiser saying exactly the same thing, as a suggestion for charities rather than a warning for donors.

Nonprofit organizations’ biggest concern with the approach Kiva and DonorsChoose take is that it brings in donations that must be used for a specific purpose, rather than undesignated gifts that can finance anything, including overhead expenses.

But that’s an accounting issue, not a fund-raising issue, argues Michael Cervino, vice president of Beaconfire Consulting, in Arlington, Va.

“If you’re already planning as an organization to spend money on A, B, and C programs at a certain level, then there is no reason not to use that program as a poster child for your fund-raising efforts,” he says. “Go ahead and raise that money. You’re going to spend it there.”

In a previous post, we asked whether Haiti earthquake relief has “room for more funding” and concluded that, in general, it isn’t clear. (For more on the general topic of “room for more funding,” see our 5-post series on the topic.)

Of course, it probably makes a big difference which organization we’re talking about. We’ve seen a lot of different charities soliciting funds in the context of the Haiti earthquake, and some of them may have greater abilities than others to translate funding into relief assistance. The problem for donors is that by and large, these charities aren’t accompanying their appeals with the information we’d need to have a sense of their “room for more funding.”

The key questions we feel charities should be answering

We assert that any organization raising funds in the context of Haiti earthquake relief should provide clear, prominent answers to the following questions:

1. How much are you trying to raise?
2. Roughly speaking, what activities are you seeking to fund?
3. How much have you raised so far?
4. If you raise more than your target, what will you do with the remaining funds?

Answers to such questions would make it possible to hold organizations accountable (well after the fact) for how they actually spent money raised in their relief appeals.

Charities’ answers to these questions

We’ve examined the online appeals of charities that (a) have raised $10 million or more in the context of Haiti relief, according to the Chronicle of Philanthropy’s tally or (b) have come up via Google Adwords on relevant searches (”Haiti”, “Haiti relief”, “Haiti donations”, etc.) (We also included Yele Haiti due to the attention it’s received, even though it did not meet either of these criteria.) It seems fair to say that all of these charities have done significant fundraising in the context of the Haiti relief effort.

For each, we looked on their website for answers to the above questions, both by clicking relevant links and by Google-searching the site. (Note that this work was mostly done last week.) We provide our results in Excel format.

Most (not all charities) provide at least an overview of what sort of aid they are looking to provide. However, only 6 out of 17 appear to give any target for how much they’re looking to raise; only three appear to be sharing how much they’ve raised to date (although many more appear to be sharing this information via the Chronicle of Philanthropy’s tally); and only two (the two mentioned in our previous post, Heifer International and Doctors Without Borders) are explicit about what they will do with “extra” funds.

We don’t believe that a top-down pooling of funds is the only way to make sure money gets to the organizations that can use it productively. We see potential in the idea of different charities’ raising funds for different efforts, as long as they make it clear how much they are looking for and why; make it possible to hold them accountable for how they spend the funds they raise; and are explicit about the point at which they’d spend funds on other potentially worthy causes. However, from what we can see, charities aren’t currently sharing enough information along these lines.

Donors have given more than $560 million to charities “to help earthquake relief efforts in Haiti.”

How much of that money has funded/will fund earthquake relief efforts in Haiti? How much should?

Money isn’t the only thing needed to deliver relief

Reports from the relief effort have stressed logistical challenges, such as blocked roads and limited access for planes and boats. See, for example, this interview on Reuters AlertNet from the 18th:

” The capacity of the Port-au-Prince airport is about to be increased but it is still a small airport. It’s very congested … The seaport is not operational and needs to be fixed in the coming days … It’s a big traffic jam of vehicles carrying humanitarian assistance and carrying people who want to leave Port-au-Prince … A massive effort is needed for Haiti but it needs to be done in a coordinated way. We need more realism about how long it takes to get an operation of this magnitude in such an intensely complicated environment running. A feeding operation for 2 million people is the goal. We know that in every case it takes time in the beginning and more time when every structure on which we can rely has been so appallingly hit.”

We’re not sure of the extent to which these issues have improved since. But we think it’s important to note that they do not sound like the kind of issues that can be solved directly by more supplies or even more money.

In fact, it is easy to see how deliveries of supplies and arrivals of volunteers could make things worse, if they are not carried out in full consideration of conditions within the country. We speculate that charities that are desperate to help, but without a strong on-the-ground presence, could be dropping off supplies without a clear plan for their distribution, and thus worsening congestion. This dynamic is described (for the case of the 2004 tsunami) in a Global Post article (H/T Good Intentions Are Not Enough):

although officials didn’t request any medicine, they received 4,000 metric tons of it, or more than 4 pounds for each person in the tsunami-affected area. There were multiple-year supplies of antibiotics, and palette loads of drugs unknown to health care providers. Seventy percent of it was labeled in a language that locals did not understand … In the end, most of the drugs had to be incinerated — you can’t simply send such a stock to the dump, where it would seep into the ground water and create another health hazard. That cost donors and the Indonesian government millions.

Other charities may be reluctant to overspend on the relief effort, for exactly these reasons. Doctors without Borders, which has a major prior presence in Haiti (over $15 million spent there in 2008, according to its activity report), is explicit that it is no longer seeking to use additional donations for the relief effort:

We are incredibly grateful for the generous support from our donors for the emergency in Haiti … We are now asking our donors to give to our Emergency Relief Fund. These types of funds ensure that our medical teams can react to the Haiti emergency and humanitarian crises all over the world, particularly neglected crises that remain outside the media spotlight. Your gift via this website will be earmarked for our Emergency Relief Fund.

Just because charities are soliciting doesn’t mean they need more funding for Haiti earthquake relief

Heifer International, is explicit about the possibility that its Haiti appeal will be overfunded, leading to funds’ going to its other activities:

Funds raised in this appeal will be used in the recovery and rebuilding effort in Haiti in the wake of the earthquake. Any funds that exceed the level needed to provide relief in this rebuilding effort will go toward the disaster relief fund and for the entire mission of Heifer International.

Other charities may be less explicit. (We have argued before that even if donations are formally earmarked for a project, they may effectively end up funding the charities’ general activities.) Worse, some charities may in fact be soliciting for Haiti and intend to spend the money in Haiti, even if they can’t do so productively.

In an ideal world, charities that had no strong and underfunded presence in the relief effort would not be soliciting donations in the context of the relief effort. But it seems to us that this crisis (and the media coverage around it) arouses people’s emotions in a way everyday suffering can’t. That gives charities reasons to “capitalize on the opportunity” - reasons that may be

• Straightforwardly selfish: fundraisers are evaluated by how much money they bring in.
• Based on morality: donors want to give more to a relief effort that can be usefully spent, but they give less to other humanitarian initiatives than can be usefully spent.

This dynamic could explain why so many different charities are clamoring for donations under the heading of “Haiti earthquake relief” (details forthcoming in a future post).

Can you make sure your money is going to the Haiti relief effort? Should you?

There are strong arguments that the gift you make for Haiti, in the heat of the moment, would be better applied to (for example) a bednet distribution program in Africa.

However, in our view, the fact that there are many other worthwhile activities doesn’t absolve charities of responsibility for being clear about how funds are spent, and if anything it increases the responsibility of donors to understand what they’re paying for and how it compares to their other options for accomplishing good.

We believe that “room for more funding” questions do not get enough attention. In future posts, we’ll be discussing how those questions might be answered in the context of the Haiti relief effort.

We’ve just updated our review of our top-rated organization, VillageReach. (Our July 2009 version is still available for posterity.) The big picture remains the same – we feel this organization has a stronger case for cost-effective impact than any other charity we’ve seen – but there have been changes in VillageReach’s financial situation and plans, as well as substantial new information on its answer to the “room for more funding” question.

Ultimately, VillageReach has answered this question in what we consider the “ideal” way: by specifically outlining its projected activities, and outputs, at different levels of projected revenue.

• VillageReach’s top priority for unrestricted donations is to reactivate its pilot logistics project in Cabo Delgado (the Mozambique province where the project was carried out) and part of Niassa (a neighboring province).
• It currently has enough funding to expand into one or the other (Cabo Delgado or part of Niassa).
• About $400,000 in additional funding would close the full gap needed to expand into both over the next year. An additional $1.2 million in needed funds are projected over the full 3 years.
• Beyond that point, VillageReach has committed to expand into additional provinces at a cost of about $1 million per year.
• Thus, if VillageReach brings in over $1.5 million in unrestricted donations, we will expect to see it planning further expansion of its logistics program in Mozambique. If it brings in over $2.5 million over the next year, we will likely suspend our recommendation on the basis that it has as much funding as it can productively use.

(Full details available at our discussion of VillageReach’s future activities.)

We know that these numbers are projections, and subject to significant change and error. But what’s valuable about them is that they’re specific enough, and concrete enough, that VillageReach can be held accountable. Based on how much revenue it brings in, we know which activities we can expect it to carry out. This is a truly meaningful projection of the “impact of your donation.” It’s a picture of organization priorities, which can be checked over time (”we will do X if we get $Y”), instead of a discussion of how “your” funds are allocated, which we ultimately can’t see a way to verify in the face of concerns about fungibility.

It’s interesting to me how much work it took to get to this point. When we originally asked VillageReach for “funding gap analysis,” it provided a picture of the minimum amount of funding it would need to continue activities (the October funding gap memo (PDF)). It seems to us that funders often ask the question “Is your organization stable? Are there other funders contributing here?” but rarely ask the question “What is the maximum amount of funding you can productively absorb?”

But we don’t ultimately see why analysis like this should be so rare. The final product here is simple. It’s a matter of being clear about organizational plans and priorities – it doesn’t involve nearly the same kind of complexity and expense as, for example, gauging the impact of past activities.

We feel that it’s feasible for almost any charity to provide substantive, useful, relatively simple information answering “How will future donations be used?” The reason few charities provide it seems to be that few donors push for it.

We recently argued that Smile Train has “more dollars than doctors” for its core program. In that light, yesterday’s Virginian-Pilot article (which quotes me) is interesting:

• The main story is that Smile Train has been trying to make substantial and unrestricted grants to another major cleft surgery charity, Operation Smile. This despite the fact that Smile Train has in the past raised concerns about Operation Smile (”intentionally fabricated tens of thousand of surgeries… distorted its financial reporting… squandered millions of dollars… provided shoddy medical care….”)
• The story quotes Smile Train’s President as appearing to explicitly support the “more dollars than doctors” idea: “Smile Train focused on funding operations by doctors in the countries in need … Mullaney concedes, though, that in some countries, such as Somalia and Haiti, the need outstrips the number of surgeons available to do the work.”

It’s hard to make sense of Smile Train’s wish to make unrestricted grants to Operation Smile, except by accepting that Smile Train is out of room for more funding in its core program.

Possibly, Smile Train’s concerns about Operation Smile have been addressed. Arguably, the decision to grant extra funds to other organizations is admirable (we don’t know whether other charities respond to the same situation by simply piling up assets). But it certainly seems difficult to argue that Smile Train’s donors should think of themselves as funding more of the “$250 per surgery” core program.

We previously discussed some simple ways to get at the difficult question of “room for more funding.” One approach that has been more difficult than expected is asking charities themselves to help figure out where more funds are likely to go - answers tend to be vague and tend to target what the charities think we want to hear. How to get specific, concrete, and credible info?

One approach can work specifically for grantmaking charities, i.e., charities that pool donations and make large grants to other organizations. Grantmaking charities are more common than you might think in international aid - arguably any large organization like UNICEF or CARE can be thought of as making grants from its central office to its many projects around the world.

The question we ask such charities is: Can you share examples of strong grant proposals that went underfunded - or rejected - because of insufficient funds?

This is a very different request from asking for rejected grant proposals. An organization may be funding a small percentage of grant proposals, while still funding all reasonable ones. However, an organization that can show proposals that are both strong and underfunded is making a strong case that it has room for more funding.

The Against Malaria Foundation, our 3rd-ranked international aid charity, gave a stellar response to this request. At its GiveWell review, you can see both approved and rejected proposals, and it seems fairly clear that funds are indeed the bottleneck to approving distribution of more insecticide-treated nets.

Asking for a grantmaking organization’s “best unfunded grant proposals” is a pretty simple idea. But you won’t see it requested in any tax return, included in any online charity information database, or mentioned in any of the various impact/outcomes frameworks that various nonprofit sector actors are putting together. Evidence that the “room for more funding” question is largely neglected as of today.

We have been struggling with the “room for more funding” question since the first days of GiveWell, and we have gradually developed a variety of approaches to it.

The most basic approach, and the one we’ve used for most of our history, consists of the following:

1. Gain confidence in an entire organization; do not overfocus on one program.
2. Examine financial data, looking for a few basic patterns and warning signs.
3. Ask the charity how additional funds will be used.

Gain confidence in an entire organization

We generally seek to scrutinize and examine activities accounting for over 50% (at a minimum) of a charity’s budget. Some organizations are small enough or simple enough that doing so is fairly straightforward. Other organizations are large and complex but very well-documented. Organizations that are both complex and poorly documented generally don’t get past the first stage of our process.

Our decision to evaluate entire organizations instead of individual programs has, arguably, drastically reduced our options for recommended charities. We have found that many large organizations can’t even answer the “What do you do?” question at the organization level.

But as of now, we see no other reasonable choice. We strongly doubt that donating to a particular program is wise or efficacious.

If you gain confidence in a whole organization, you can give there without worrying too much about what specific activity is next on the agenda. As long as you continue to hold the organization accountable over time.

Basic patterns in financial data

Late in the process with a strong organization, we will analyze its financial data. The details of our financial metrics here. Questions we ask include:

• Is the charity large enough that it can plausibly absorb substantial additional funds? (This question is actually applied at the beginning of our process.)
• Have the charity’s expenses been growing over time, implying that it is on a general trajectory of expansion?
• Does the charity have a reasonable level of assets, given its size? If its assets are too low, we worry that it isn’t stable; if they are too high, we worry that it is piling up reserves because it cannot productively spend additional funds.
• Which programs does the charity spend most of its funds on? Which programs have been expanding in the past, and are projected for future expansion, implying that they are on a general trajectory of expansion? (Note that this question generally requires a different kind of financial data than is provided in audited financials and tax returns. And we have been surprised at some of the charities that cannot/will not share such financial information.)

We don’t have a set formula; no single “No” answer will disqualify a charity from getting recommended. But asking these basic questions has raised serious questions about some charities (examples: Smile Train, The Carter Center), while our top charities have more or less sailed through these basic tests.

Asking charities what their plans are

This approach has turned out to be far more difficult than it sounds.

In our first year of research, we used a grant application with a question asking specifically:

What would a significant increase in funding (including, but not limited to, a Clear Fund grant) allow your organization to do that it could not do otherwise?

You can see answers via the grant applications submitted by U.S. equality of opportunity charities. Overall, responses were not very helpful.

• Charities have a tendency to try to tell funders what they want to hear.
• Charities often are very bad at guessing what we want to hear.

In many cases we followed up with charities and tried harder to make our meaning clear and get meaningful answers, but it’s only recently that we’ve really developed questions that seem to get us somewhere. We’ll be discussing these in future posts.

Yesterday we discussed the difficult question of “room for more funding”: how can a donor determine how more funding will translate to more activities?

One common practice is to try to “force” your donation to fund the activities that attract you. Charities will formally honor your restriction by allocating your funds to the program in question.

But let’s look at an example of this in practice. Say you want to support Smile Train’s core program of funding developing-world doctors, so you restrict your donation to that program. This restriction can’t change the fundamental underlying issue that we perceive: Smile Train has more funds available for this program than it has appropriate doctors.

So what happens? Smile Train might refuse your donation, but what seems more likely is that they’ll restrict it to the program you requested - freeing up an equivalent amount of unrestricted funding for their other activities (research, “provid[ing] materials on cleft lip and palate for free to anyone interested in this birth defect,” etc.) While “your” money pays for the core program, the effect of your donation is that more of the other programs get funded.

In other words, the idea that your fund is “restricted” to the core program is a close parallel to the illusion that it is “restricted” to non-overhead costs.

Could there be cases in which a restriction “works”?

We think so. It seems to us that the necessary conditions are that

• The program you restrict your donation to has no unrestricted funding allocated to it - so your donation can’t “replace” such funding, and the charity must react to your donation by increasing that program’s budget. (More precisely, if the amount of unrestricted funding allocated to the program exceeds the size of your donation, your donation will merely “crowd out” unrestricted funding; if the amount of unrestricted funding is less than the size of your donation, your donation will have to increase the program’s budget size by such amount. Thus, the larger your donation is, the more likely it is to be able to actually affect an organization’s priorities.)
• The program you restrict your donation to can productively use more funds (not a given).

How often do the conditions above actually hold? We aren’t sure, and have been trying to get a clearer picture. We have been working on analyzing major international charities’ restricted/unrestricted funding situations, and so far have produced the following using their most recent audited financial statements (generally from 2008):

The purple, orange, green, and red all represent revenues that are “restricted” in some way, and the black represents the fundraising and administrative costs that presumably have to be covered with unrestricted revenues. The blue is calculated as unrestricted revenue minus “operating costs” - i.e., revenue that is likely free to be used at the charity’s discretion.

Since several of these lines are distorted by large (and possibly concerning) amounts of in-kind donations (i.e., gifts of goods rather than cash), we reproduce the charts with in-kind donations excluded to get a clearer picture of the restrictions on cash revenue:

What seems clear is that most large charities have a sizable chunk of “free unrestricted” funding available. This doesn’t fully answer the question we posed - there still could be some programs that are funded almost entirely with restricted funding (and that could be expanded further).

More investigation is needed. In the meantime, we note that

• We would guess that cases fitting the conditions for “meaningful restricted funding” are rare - i.e., when you give to a multiprogram organization, your donation usually will expand what they want to expand, regardless of how you restrict it.
• We have a general aversion to restricting donations. It seems like “micromanaging” an organization in this way is asking for trouble: the charity may avoid your intentions using technicalities or spend the “extra money” allocated to a program badly, and in any case, you are creating an extra headache for the charity.

Thus, our current rule of thumb is to find an organization whose existing priorities you are comfortable with - and give unrestricted.

Further challenges raised by this rule of thumb

The above rule of thumb can be tricky to apply, because you have to (a) identify what counts as an “organization” (b) identify the organization’s priorities, which (as we previously discussed) can be very difficult. We’ll briefly discuss (a) here, and discuss (b) in future posts.

Cases where it’s not obvious what counts as an “organization”:

• One of our top charities, the Stop Tuberculosis Partnership, takes donations through the UN Foundation, and requests that they be earmarked for the “Stop Tuberculosis Partnership.” Should such gifts be thought of as restricted gifts to the UN Foundation or as unrestricted gifts to Stop TB?
• A recent debate on Tactical Philanthropy brings up a cancer research program within a university. Can/should one meaningfully earmark a donation to this program as opposed to the university as a whole?

To us, the ultimate test is “Do the people who exercise discretion over the pool of funds including my money have priorities that I’m comfortable with?” We perceive the UN Foundation as a pass-through that does not exercise discretion over the Stop Tuberculosis Partnership budget. We would guess that the university situation is somewhere in the middle, with different parties exercising different amounts of discretion, but that to a large extent, the cancer research program is responsible for raising its own funding rather than reliant on the discretion of the university. Both of these cases contrast with something like earmarking a CARE donation for a particular country - that donation is going to go into the pool of funds allocated with discretion by the central office.

Future posts will discuss some ideas for tackling the more difficult part (b): getting a handle on an organization’s true priorities, even as it tries to assure you that your funds will pay for the program that appeals to you most.

If a charity demonstrates that its core program has changed lives in the past, is likely to change lives in the future, and gets great “bang for your buck,” is this enough reason to donate to it? We say no.

The missing piece: Will more funding lead to more of the good program(s)? We generally call this the “room for more funding” question, and we’ve seen next to no helpful discussion of the issue within academia, within the nonprofit sector, or anywhere else.

Often, when I raise this issue, the response I get is “But is that a real problem? Are there charities that have great programs they can’t or won’t expand with more funding?” The answer is yes. Examples:

• Our analysis of Smile Train strongly suggests that its core program of directly funding doctors has “more money than doctors.” Thus, over 50% of Smile Train’s funds go to activities far from what their fundraising focuses on, including grants to other organizations, research, and “provid[ing] materials on cleft lip and palate for free to anyone interested in this birth defect.” Perhaps these activities have value, but it would be a mistake to donate to Smile Train just based on their headline program.
• The Aravind Eye Care System is one of the more impressive humanitarian organizations we have seen, performing vision-restoring surgery extremely cost-effectively. They have been so successful, in fact, that their core program doesn’t need donations - as they have explicitly told us. Revenue from for-pay surgeries subsidizes free surgeries, and donations are used on entirely and substantially different programs such as distribution of spectacles and free food.
• Today’s Aid Watch post gives an excellent picture of why it’s so important to be wary:
  

  according to Fred Martin, Communications Director at CHF, “In fact our Food Pak program is a small portion of what we do. We highlight it because it is our flagship program that we’ve seen work very well in building relationships with the poor so that deeper needs can be uncovered and responded to.” I learned from Fred they also provide beds in eastern Europe and medicines in Asia …

  As long as charities can get away with it, their incentive is to advertise the best program they have, even well beyond the point where that’s the program that needs more money.

There can be many bottlenecks to expanding a program besides money (skilled labor, environments that are conducive to the program, etc.) If you want to fund great programs, you have to ask not just “What have you done and has it worked?” but “What will you do with more funds than you’re currently expecting?”

We haven’t identified any easy answer or simple formula for this question. We believe that “restricting” your donation to the program you favor is generally a futile endeavor (more on this in a future post).

We have developed some relevant ideas. In addition to some rules of thumb for avoiding the most tangled cases, we ask the strongest charities for documents that speak to the “room for more funding” issue directly, such as examples of un-funded but strong project proposals and financial “scenario analysis” (details to come in future posts).

However, we have found that requesting such documents is an uphill battle because the request is generally so foreign. You won’t see financial scenario analysis on any standard list of “documents a charity should be sharing” (from the IRS or anyone else).

Foundations arguably don’t need to deal with the challenge discussed here, because they can give money in large enough chunks to dictate which projects get carried out. (The extent to which this practice is wise is another question). This may be why no one else seems to be asking for information on “room for more funding.” Whatever the reason, it’s an issue that needs much more attention than it’s getting.