A sector-wide logic lapse (collapse?)

Have you ever really thought about how anomalous is our obsession with nonprofit overhead ratios?

Think about it this way - in what other area of your life do you deliberately seek out the product, service, location, or experience that is being made available in the cheapest possible fashion? We don't pick restaurants because they forgo cleanliness, we don't buy clothes we think will fall apart, we don't choose schools for our kids because the administration is keeping costs down and not supporting teachers, and we don't make travel arrangements because we know the airline we've selected skimps on maintenance.

As far as I can tell - only in choosing nonprofits is there an active illogical pursuit of "less is better." Is it because we are so crass as humans that we (donors) don't care about the quality of the services that nonprofits provide to their clients - who are only in some cases the same people as donors?

It makes no sense to me and never has. I think the tools that have been developed to help donors understand administrative and operating ratios have done a disservice by emphasizing these "facts" without asking larger questions, providing some context, and actually clarifying the limitations on their utility.

Not only are these ratios not useful data, taken out of context or without consideration for other issues they are misleading. They happen to be computed and made widely available  because they are easily computed AND somewhat comparable. That's it. That's like using street addresses to compare universities or fax numbers to compare vendors - you can get the information, but so what?

If the money and energy and time that has gone into computing these ratios had been put to use in developing even remotely legitimate metrics of impact, performance, or even activity we'd all be a lot better off. This December, Alliance Magazine, the must-read journal about the global social sector, will publish an issue dedicated to the state of impact evaluation. This interview with Fay Twersky, Director of Impact Planning and Improvement for the Bill and Melinda Gates Foundation, is worth reading.

Lets move the conversation forward and not settle for measuring what we can, but look for ways to measure and analyze what matters.


(This post is an expanded version of a comment I left on the SVP Seattle blog in response to their very useful list of "10 things we'd like to tell every new philanthropist")

Tags: philanthropy, nonprofits, nonprofitratings