The Inneffecient Restriction

March 21, 2012 • Blog, Development • by
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Restricted giving should be outlawed. I know, BOLD, right? But come on, since when do we think the professionals don’t know how to allocate resources? If you can’t even trust an organization to do that, should you really be giving them money? Restricted giving is essentially a selfish act, saying that you the donor knows more about the proper allocation of resources than those running the organization.

If you are unfamiliar with the concept, restricted giving is when the donor specifies how their donation should be spent. For example they might specify that it go towards a certain program or cost. We would never do this in the for-profit world, why must non-profits deal with this? Could you imagine telling a company that you would buy their product as long as the income was allocated to production but not to marketing because you felt that was wasteful.

What are your thoughts? Do you hate restricted giving as much as me? If not, why not?

The Leveraged Philanthropic Investment

February 21, 2012 • Blog, Philanthropy & Giving • by
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Don’t give to programming, give to the development team. That’s what Dan Pallotta wrote in a Harvard Business Review’s blog post last week entitled Multiplication Philanthropy. In the post he outlined the idea that if a donor wants to truly have an impact he should direct his resources to be used for fundraising, multiplying the outcome of his donation. He says if you are going to give $100k to an organization you could either give a $100k towards programming or $1m by channeling that money through development.

He and I are of the same heart and mind in that we both agree that overhead is a poor judge of a good nonprofit. He uses that idea as part of the evidence for this new approach to philanthropy. And I have to say that part of me really likes this idea. I think its an interesting one, maybe the next iteration of the matching grant. Obviously, if taken to its absurd conclusion we wouldn’t do anything because we were only raising money, but I think its an interesting point that is made.

I might take it even a step farther though. Instead of directing your money towards fundraising, just write the check. Gifts that have to be used by one department are another are horribly cumbersome to the organization. Unrestricted gifts is the most efficient thing you can do, if you trust the organization to use it wisely. Then they will be putting the resources towards the most efficient trade-off between overhead and programming.

What are your thoughts? What do you think about Dan Pallotta’s idea about giving to help organizations fundraise?

Unfair Trade: Does it exist?

February 8, 2012 • Blog, Economics • by
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Child labor. Environmental degradation. Abusive labor practices. These are all things that we as Westerners we try and avoid in our supply chain. But does this end up hurting the very people we seek to help?

Throughout history, as countries have developed, they have often gone through a period where each of these practices were present. During the period that moved America from poor agricultural society to massive economy, the industrial revolution, our factories employed children, polluted communities, and abused their workforce.

Simultaneously America and its people began to prosper. Incomes rose as people began to specialize and leave agricultural livelihoods. It was certainly a difficult time but the real question is, was it a necessary time? Is it a necessary growth pain to go through a time similar to what Western countries experienced during the industrial revolution?

I ask because I wonder if the efforts of Western consumers to help those in developing country through fair-trade and such is actually hurting them. There has been an outrage of Foxconn and I do not deny that its practices could border on the abusive, yet they have a line out the door of people willing to work there, fully aware of the abuse that takes place.

Is it right for us as Western consumers to force producers to bend to our moral framework? Should we allow them to develop in ways that make us uncomfortable and yet are ultimately beneficial? Is it better to have a larger portion of a country out of work if those that do have a job are paid what we consider a decent wage?

These are questions that I think deserve to be wrestled with* and I’m not sure what the answer should be. I support and purchase fair-trade products but then I ask myself, is there any such thing as unfair trade?



*It should be noted that in large part this is a thought exercise and not necessarily the beliefs or values I hold.

Buy Outcomes

February 6, 2012 • Blog, Development • by
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Buy outcomes. We do it all the time. When you invest your money in a company, the outcome you most generally want is for that company to succeed and make you money. If you lose money on an investment you are upset because it was not the outcome you thought you were purchasing when you invested.

With philanthropy that construct should remain, the outcome should be different. When you give to charity, do you think about the outcomes you are buying? Do you compare between different organizations to see who will give you the most outcome per dollar donated or who is achieving the most impact? I’m not talking about anecdotes and stories, I’m talking about asking who is actually solving the problems they set out to address?

Last week I saw the “Buy Outcomes” banner raised in the most surprising place, Christianity Today. They had a great article in the February issue (unfortunately not online) entitled The Best Ways to Fight Poverty - Really. It was written by Bruce Wydick, a professor at the University of San Francisco and visiting professor at UC-Berkeley. In the article, Wydick contacts a range of economists and has them compare various poverty interventions based upon their impact, success, and expense. It’s a remarkably cogent article aimed at a general audience.

It’s good to see that churches, a large source of philanthropy, are beginning to turn their eyes towards impact.

But we can all learn this lesson. Don’t just give your money away, buy outcomes.

Giving by the (Right) Numbers

January 17, 2012 • Blog, Development • by
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Organization A’s overhead is 5% and organization B’s overhead is 15%. Who should you give to? Many donors would not hesitate to give to organization A because their lower overhead must mean they are more efficient since more of the money goes to the on-the-ground need.

Last week Fast Company had one of those articles that I wish I had written. Entitled, Its Time to Start Judging Nonprofits Like For Profits, the article discussed the problem of judging an organization by overhead alone. They correctly stated that many donors are advised to use sites like Guidestar or CharityNavigator when making their giving decisions. These sites are great for looking up an organization’s financials but they tell you very little about the impact those organizations are having.

The authors write:

“No one would judge a for-profit company for spending on advertising, sourcing the best hires, or using the best equipment. Indeed, these are points that a wise investor looking for long-term stability should seek out in a for-profit. This constant pressure that nonprofits feel from both their mission-driven world and the donor landscape toward minimizing anything that could be counted as “overhead” is destructive and efficiency-killing. Low overhead means burning staff out at an alarming rate, and having trouble sourcing or retaining skilled workers. It pushes organizations toward duplication over cooperation to attract and maintain funding. Worst of all, it forces a short-term view on what should be a long-term mission. This hurts not only the organizations, but the missions they serve.”

I think the authors are right on. Low overhead is not always better. Nonprofits need hard-working, brilliant teams and that takes money. Our most talented people should be addressing our most pressing problems. To attract them they need decent salaries, benefits, and technology. Of course there are horrendous examples of outrageous spending (see Jon Krakauer’s Three Cups of Deceit for one particularly upsetting example) but just because some people abuse donors’ money does not mean that everyone else should live in forced poverty.

As you make your giving decisions of course consult Guidestar and CharityNavigator, but don’t let that be the end of your investigation. Dig into how the organization is impacting people’s lives and addressing problems. Unfortunately, these numbers are currently very difficult to find (if they even exist) but these are the numbers to give by.

The (Ugly) Math of 50-50 Fundraisers

January 16, 2012 • Development, Economics • by
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One of the readers of the Freakonomics blog asked a question about 50/50 fundraisers. If you are unfamiliar, these are fundraisers where you buy raffle tickets and the organization keeps 50% of the money raised and gives away the other 50% to the winner of the raffle. Freakonomics reader Melissa Belvadi writes:

This strikes me as an incredibly bad deal, but a bit complicated to explain why, as it contains 2 components:

  1. As a gamble: poor expected value. I am not sure how to calculate this, but from my experience in Las Vegas where slot machines boast being set to 97% return ratios, a gamle where 50% goes to the “house” seems unlikely to be a good EV.
  2. As a charitable donation: poor “program ratio” - at most, 50% of my donation will go to the “program” (charitable cause) - this is considered a very poor ratio in the philanthropic world where typically 60% is the bare minimum acceptable - the BBB requires 65%

I completely agree with the above analysis. I think that 50-50 raffles are not great gambling or philanthropic decisions but they are obviously popular for a reason. To understand why I wonder if it helps to think about it from the perspective of the purchaser.

A person who purchases a lotto or traditional raffle ticket certainly hopes to win, but I don’t think there is any expectation that they will win. People might not be great with statistics but they understand that the odds are stacked against them. So win they think about their future they face two scenarios: the rare chance they win and become wealthy; the likely scenario though is that they will lose and be out their money.

In a 50-50 raffle the two outcomes are changed. There is still the rare chance that they will win but now if they lose they’ve still done something good with that money so it softens the blow some.

Does your organization do a 50-50 raffle? Do you participate in them? Tell me why or why not.

Experiments in Charitable Giving

December 19, 2011 • Blog, Development, Research • by
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The Freakonomics blog had a post last week entitled, To Ask or Not to Ask: Experiments in Charitable Giving. It was a brief follow-up to their What Makes a Donor Donate? podcast episode.

In the post they talk about the research of James Andreoni, Justin M. Rao, and Hannah Trachtman. In their experiment they positioned bell ringers outside of a grocery story in suburban Boston. They told a portion of the bell ringers to not say anything, to just stand there ringing the bell. They told the rest of the bell ringers to solicit customers as they were going in and out, asking directly for a donation.

Their findings are both interesting and illuminate unintended consequences.

While hardly anyone avoided the silent bell-ringers a full 30% purposefully avoided the ones making solicitations. Among those that did give, the donation increased by 75% for those that gave to the bell ringer who solicited the gift. The conclusion: that asking for the gift drives some people away but the gift size might increase.

Check out the whole post here and read their study here.

Admitting Failure is Necessary

December 16, 2011 • Blog, Ideas, Measurement & Evaluation, nonprofit, video • by
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This guy gets it. This TedX talk is essentially the stuff I think about boiled down to 13 minutes. He addresses the distorted demand in aid, where those with the power who fund services don’t receive them. He talks about the need to focus on soft skills, not hardware. It is a very eloquent and interesting talk and worth your time.

WaterForward: An Experiment in Social Giving

October 31, 2011 • Blog, Development, nonprofit, Philanthropy & Giving, video • by
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It’s long been known that, for some, the motivation to give to a cause is that others will know about it. That’s why everything from buildings to hallways to benches are named after donors and its why we tweet and Facebook our favorite causes. The innovative water provider charity:water is bringing this tradition into the 21st century with WaterForward.

The idea is simple. Someone pays $10 to get you into the WaterForward book which can be viewed online and will be printed after every million members. You get a message that you’ve been placed in the book and you are asked to pay it forward by buying a spot for your friends for $10. They will then be invited to do the same. The only way to get into the book is for someone to buy your spot (though initially there are some other ways to get invited).

I think it is a tremendous way to raise awareness and money at the same time while literally making your fans your development team. This is something that charity:water has always excelled at.

After a quick perusal of the book its hard to tell how well it is catching on but often times these social movements need to reach a tipping point and when they do they’re unstoppable.

To learn more about WaterForward read this article from FastCompany and watch the video below.

 

 

How WaterForward works. from charity: water on Vimeo.

How Cellphones are Changing Aid

October 24, 2011 • Blog, Measurement & Evaluation • by
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If you ask someone in the international development field what technology has improved foreign aid the most in the last 50 years, you’d probably hear that its been the cell phone. Even in places with dilapidated schools, poor governments, and little infrastructure, cell service can be strong and more and more rural populations own and use the little devices.

Cell phones allow rural farmers and craftsmen to connect to international markets which helps them receive a better price for their product. They have opened up the world of banking to millions of people with no local branch. Now, they’re being used for direct cash transfers from international development organizations in times of crisis.

Within the field, the idea of direct cash transfers is hotly debated. The basic idea goes, what poor people need are resources and so the more constraints you put on those resources (it has to be used for seeds, education, housing) the less effective they are. But cash transfers have huge hurdles that need to be overcome. Its costly in terms of the labor required to literally hand out money to individuals. To reduce the cost on the organization they often hand out money in centralized villages, which make it costly for villagers to access the money because they often need to travel for it.

A new research paper looks at how effective it might be for an NGO to give direct transfers via cell phone. They studied the efforts of Concern Worldwide, which offered unconditional, direct cash transfers to approximately 10,000 households in Niger following a drought in 2009-2010.

Instead of following the traditional method of direct cash transfer, they tried a randomized experiment. In 1/3 of targeted villages participants received monthly cash transfers through a mobile program called Zap; in 1/3 they received manual cash transfers, and in 1/3 manual cash transfers plus a cell phone.

Beyond just the ease of the Zap transfers they found that recipients of the mobile transfer actually used the money slightly differently. From the abstract:

“We show that the zap delivery mechanism strongly reduced the variable distribution costs for the implementing agency, as well as program recipients’ costs of obtaining the cash transfer. The zap approach also resulted in additional benefits: households in zap villages used their cash transfer to purchase a more diverse set of goods, had higher diet diversity, depleted fewer assets and grew more types of crops, especially marginal cash crops grown by women. We posit that the potential mechanisms underlying these results are the lower costs and greater privacy of the receiving the cash transfer via the zap mechanism, as well as changes in intra-household decision-making. This suggests that m-transfers could be a cost-effective means of providing cash transfers for remote rural populations, especially those with limited road and financial infrastructure.”

It is unclear why exactly, the recipients of the Zap transfer used the money differently but this is an exciting advancement in international development.

Thanks to Freakonomics for turning me on to the paper.

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