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How Do We Measure Nonprofit Effectiveness?

By Nell Edgington



There is something exciting happening around measuring the value that nonprofits create. Several new efforts are underway to create a system for measuring and comparing how effective nonprofits are.

Just a few years ago, the only measure for a nonprofit’s effectiveness was the percent they spent on overhead expenses. If a nonprofit spent a magic 20% or less on non-program expenses they were deemed worthy of donations. This destructive way of evaluating nonprofit organizations has been losing favor over the last few years as rating agencies like Charity Navigator have recognized the need for a broader evaluation of nonprofit effectiveness. New measures have started to include outcome and impact elements.

But all of this begs the ultimate question which is how do we create a system for measuring and comparing nonprofits across the many social issues and operating models that make up the sector? Because however faulty the overhead percentage measurement was, at least it allowed a comparison of apples to apples. You could see how one nonprofit stacked up against another. But if each nonprofit organization is now creating their own theory of change, and their own outcome and impact measurements, how do we compare those to another nonprofit’s outcome and impact measures?

Enter a host of efforts to solve that very problem. One of these efforts is Markets for Good. They aim to create an infrastructure for evaluating nonprofit effectiveness based on outcomes and impact. You can watch their video explaining their efforts below, or if you are reading this in an email click here to watch the video.

And there are many other efforts to move the nonprofit sector toward measuring outcomes instead of spending practices. These include Idealistics, GiveWell, Philanthropedia among many others. But it’s not clear yet how any of these efforts will be able to analyze and compare the effectiveness of social change efforts because there are many pieces to that puzzle.

To truly be able to evaluate and compare the effectiveness of social change efforts, we have to:

  • Encourage nonprofit organizations to develop a theory of change, because you can’t measure whether an organization has created change if they have no idea what they are trying to change in the first place.
  • Give nonprofits resources with which to measure whether their theory of change is actually coming to fruition. Measuring outcomes and impact takes time and money.
  • Separate a single nonprofit’s efforts to create change from other forces working on the same social problem so that we can understand the effectiveness of a single organization.
  • Create a standardized system for comparing the ability of one nonprofit organization to create change to another’s ability to create change.
  • Connect such a system for measuring nonprofit effectiveness to systems already being created for for-profit social entrepreneurs (like GIIRS) so that those with money to invest in social change efforts can compare the social return they would get in a for-profit and/or nonprofit setting.
  • Communicate the results of those measures to philanthropic and social investors so they can make more informed, more results-focused investments, whether those be to nonprofit or for-profit social change organizations.

To me, comparing the ability of organizations to create social change is an enormous nut to crack. But it is an incredibly worthy endeavor. I applaud Markets for Good and the many other efforts working to create a system for understanding and comparing social change efforts. It will be fascinating to watch this space develop.

Photo Credit: KJGarbutt

 

 

 

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About the Author: Nell Edgington is President of Social Velocity (www.socialvelocity.net), a management consulting firm leading nonprofits to greater social impact and financial sustainability. Social Velocity helps nonprofits grow their programs, bring more money in the door, and use resources more effectively. For more information, check out Social Velocity consulting services and clients.


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6 Comments to How Do We Measure Nonprofit Effectiveness?

[...] Nonprofits are no longer evaluated just based on how much they spend on overhead, but evaluating them based on the social change they create is still hard to do.  [...]

[...] There is something exciting happening around measuring the value that nonprofits create. Several new efforts are underway to create a system for measuring and comparing how effective nonprofits are.  [...]

Perry Kaplan
October 25, 2012

There is a new, and in my view rather disheartening, report available from the Center for Effective Philanthropy that addresses just this issue. Called “Room for Improvement: Foundations’ Support of Nonprofit Performance Assessment,” (you can download it from http://www.effectivephilanthropy.org/index.php?page=publications), the report describes how the expectation of outcome measurement has taken hold, but funding for it has not. With the exception of a handful of federal grants that require evaluation (and those are largely confined to the program being funded), non-profits are not funded to measure effectiveness and do not have built-in measure like profitability in the private sector. Unfortunately, many CBO’s are so committed to service provision that they accept deficit-laden contracts that enable them to provide any services and figure they will make up the difference somehow. The services delivered by nonprofits have become so devalued that government and the public think it is all right that they should have to manage with (in some cases) overhead rates as low as 8%, contracts that are flat-funded year after year, etc. And then they want to know why these agencies can’t report on the impact of their services? When nonprofits are funded in a way that supports an adequate infrastructure, effectiveness measurement will take care of itself, because that will come to be what differentiates agencies–not their ability to snag a grant.

Nell Edgington
October 25, 2012

Perry, I don’t think the report is depressing, rather I think it points out a real opportunity. And I think it’s encouraging that we are even having these kinds of conversations about inadequate nonprofit infrastructure and the need for evaluation funding. That’s a huge step forward. I am optimistic that the nonprofit sector and the philanthropy that funds it will figure out a way to measure, a way to fund that measurement, and ultimately a way to get more funding to flow to the best solutions.

Sara
December 3, 2012

If we are talking about the need to give non-profits resources on how to measure their own effectiveness, WHAT ARE THOSE RESOURCES? How do we measure our outcomes? I work with a few non-profits, and at a seminar this coming winter I am running an activity on measuring effectiveness, or at least knowing how to. What are ideas you can share with me? Aside from collecting feedback and data, how can we measure effectiveness?
Thanks!

Nell Edgington
December 4, 2012

Sara, I recommend you start with Mario Morino’s great book, Leap of Reason (you can read my review of it here: http://www.socialvelocity.net/2011/06/a-call-to-arms-for-the-nonprofit-sector/ He lays out the need for nonprofits to measure outcomes and then gives some very clear, easy steps to get started.

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