Why I Don’t Believe Your Annual Report

February 22, 2012 • Blog, Development, nonprofit, Research • by
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I received your annual report today. You claimed that 80% of your students go to college while only 40% of those in the community do. You told me its more likely your students go to college than become incarcerated, while it’s the opposite for the neighborhood you’re in. The same for teen pregnancy.

But the thing is, I don’t believe you.

It’s not that I don’t believe your numbers. I’m sure you are reporting them as honestly as you can. I just don’t believe that it was you who caused this difference in students’ lives. You’re suffering from the selection bias.

See, the students in your program are not a random sample from the community. While you’re open to everyone, not everyone shows up, just those that choose to. So you can’t compare yourself to the average of the community. Let’s think of it this way.

In year 1 the community has 10 students, 4 graduate high school. So the number you’re comparing too is 40%.

You start your program in year 2 but can only accept 5 students. Of the 5 students who show up to your program you notice that 4 graduate high school, a full 80%. Twice as much as the previous year. What you don’t realize is that no one else graduates high school (because the students with the will to succeed will seek out opportunities like yours to help them succeed). So for the community, 40% still graduate, you haven’t made any difference.

The selection bias is everywhere. There’s really no way around it other than to force people randomly in and out of your program. So be careful when comparing your statistics to the general statistics of your community.

Tomorrow I’ll talk about how to get me to believe your numbers.

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?

Activities vs Outcomes

July 19, 2011 • Blog, Development, Philanthropy & Giving • by
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Activities are the things we do. Outcomes are the things we produce. Outcomes are more necessary than activities and today’s donors don’t want to just fund activities, they want to purchase outcomes.

An activity is handing out food at a food pantry. An outcome is helping people move from food dependence to food independence.

An activity is running an after-school basketball league. An outcome is increasing the odds a student ends up in college.

Activities make up the day to day life of social entrepreneurs and nonprofit leaders. Outcomes are why they started the organization to begin with. Read More…

Why Limiting Charitable Deductions Might Actually Help Charities

July 11, 2011 • Blog, Development, nonprofit • by
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The Philantopic blog had a great post today about the Obama administration proposal on limiting itemized deductions on charitable giving. It quoted a survey by the Association of Fundraising Proposals that found that development officers expect to see at least a slight drop in giving if the proposal goes into effect.

As a University of Chicago trained economist, this make sense. As it becomes more expensive to give, people will do less of it.

But is it a wholly awful scenario? Read More…