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:
- Gain confidence in an entire organization; do not overfocus on one program.
- Examine financial data, looking for a few basic patterns and warning signs.
- 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.