# An essential question that no one is asking charities

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.

• RachelKenya on December 16, 2009 at 12:12 pm said:

Holden;

Thank you for this post. I regularly rant to friends and colleagues here in Kenya about this issue. The real question revolves around the transparent management of funding. I am not saying this to infer that the majority of organizations are doing anything improper with their funding but many of them are undertaking activities outside their core mission statements and expertise. It is one of the reasons the aid world has exploded with thousands of local and international NGOs that I can’t really justify and doubt they can either except they don’t want to lose donations being given. The aid world should be held to the same standards as any other large corporation meaning their donors or shareholders should ask for more transparent, financial reporting.

• David Geilhufe on December 16, 2009 at 1:25 pm said:

So how would Givewell approach the question of unrestricted funding?

What if I find a high performance charity that has a signature program that is highly effective and I give them unrestricted funding that is used on the next program idea that charity has? And that program idea is new and therefore has unknown impact, or was experimental and was a failure. Maybe even the next 10 program ideas after the initial success are failures?

I agree that charities should have an idea of program impact and that should be available to donors. But I hope your rating methodology enables you to recommend institutions with a track record of experimentation and innovation.

• Jeff Tuller on December 16, 2009 at 2:41 pm said:

This is a good discussion topic, not least because as Holden points out, no one else seems to be discussing it.

I’m a huge supporter of doing due diligence before donating to a nonprofit (our socialmarkets site is also in that biz) but this issue speaks to the larger question looming over the whole charity evaluation space: is there a limit to asking nonprofits to prove they are worthy of our support?

Past performance really is a good indicator of the future, so asking charities to measure and publish their impacts is a no-brainer. But on the “room for more ” issue, I’m not sure we have good questions, or would know what to do with the answers.

I think a good place to start is by mining the rich history of failure – examples where more funding produced less impact. Hindight really can be 20-20, and a checklist of things to watch out for could be helpful.

The charities themselves are the best (if understandably reluctant) source for such “failure” scenarious, but Foundations would also have valubale insights. They are the heaviest hitters on the donor side, and often have long, detailed histories with the nonprofits they support… so plenty of skeletons in those closets.

On a practical level, knowing what we don’t know about this issue, what can we reasonably ask of nonprofits now?

• Ian Turner on December 16, 2009 at 10:01 pm said:

David,

This is a real and serious concern, as when a charity’s programs become known as proven to be effective, the charity will be overloaded with donations, such that it can’t scale the proven program and instead spends the donations on other, unproven ones.

As you point out, this is not necessarily an issue in organizations with a track record of good ideas, reasonable execution, and flawless evaluation. But I would wager that such organizations are even rarer than organizations which can prove the impact of existing activities. Indeed, I’m not even sure the former organization exists at all.

By the way, this is also one of my largest (yet unresolved) concerns about VillageReach. They’re really good at running vaccination programs in Mozambique, and at documenting their success. But at least with small donations, that’s not where the organization is going to scale. Instead, they’re going to focus on researching vaccination programs in other countries altogether. That could have a dramatic impact, but it’s risky, as VillageReach doesn’t really have a track record of addressing vaccination issues beyond its single stunning success.

Cheers,

–Ian

• David, as Ian notes, we are open to recommending such charities. VillageReach, our top-rated, largely falls into this category. What’s important is that:

• The charity has achieved success in the past.
• The charity’s future plans sound credible given what it’s accomplished in the past.
• The charity has demonstrated an ability to document how its work is going, such that we expect eventually to find out how its future projects go.

In order to assess these points, one must know what the charity’s future plans are, unless it has succeeded at such a broad range of activities that one would bet on whatever they do next.

In contrast to this approach, I believe it is common for donors to give to a charity not based on confidence in the organization as a whole, but based on an attraction to a particular program that their funds may not end up contributing to at all.

Jeff, we are addressing your question in followup posts on this topic.

• Church Fund Raising Revival on February 2, 2010 at 11:10 am said:

I highly respect all the comments posted here, and as to the author itself.

As for me, I can see the point of the author, yet I do understand why such charities asking for donations instead of having any skilled labor, as you mentioned. In reality, Charities cant be called charity if it doesnt give rise to its real societal responsibilty, although they are not obliged to do such thing. My point is, yes, humans are humans,it’s a normal way to act such, but for goodness sake, we may ask them of the things that bothers us,instead of accusing them the things that we thought.