Posts Tagged ‘Philanthropy’

GuideStar, a leading online database of non-profits, is now advising donors to consider “mission effectiveness” when choosing the best charity. Financial data is very important, but different missions and other factors should be considered in the all important decision to help non-profits achieve their goals.

At the Jack Miller Center, we take donor intent very seriously, and our commitment is demonstrated by an effort to be extremely transparent with fund allocation and program implementation.

Story from GuideStar:

About Ratios in General

We’ve all heard stories about financial abuses at specific charities—concern about nonprofit wrongdoing has even drawn Congressional attention. Some donors and charity watchdogs advocate using financial ratios to evaluate charities and ferret out the ones that are using their funds inappropriately. These groups and individuals argue that any organization whose ratios fall below certain levels should be regarded with suspicion.

There’s no question that nonprofit organizations have an obligation to manage their finances responsibly. There’s also no question that ratios can be valuable tools for evaluating charitable groups. By themselves, however, these figures can be more misleading than helpful.

Take program ratio—the percentage of an organization’s total expenditures that is devoted to programs and services—as an example. A number of things, such as size, age, and location, affect a nonprofit’s expenses. (For example, a nonprofit in an area with a high cost of living will need to pay more for office space, supplies, and salaries than a comparable organization in a less costly area. For a discussion about nonprofit size and age, see How to Calculate Ratios, below, and Renata J. Rafferty, “Risk and Return: Defining Your ‘Comfort Zone’.”)

An organization’s mission is even more important in determining its costs. Say you are thinking of contributing $100 to either a local art museum or a neighborhood food bank. From the organizations’ financial pages on GuideStar, you calculate that the art museum spends 72 cents of every dollar on programs, whereas the food bank spends 95 cents of every dollar on programs. Obviously, the food bank is the more efficient organization and will put your donation to better use. Right?

Not necessarily. The median program ratio for art museums is 71 percent, and the median program ratio for food banks is 94 percent. Thus, both the art museum and local food bank are slightly above the middle of their respective peer groups.

Why is there such a difference between the two medians? Typically, art museums have higher overhead costs (such as insurance, building maintenance, security) and fundraising expenses than food banks.

At GuideStar, we believe that the ultimate test of an organization’s efficiency is how well it performs its mission. Unfortunately, this criterion is not always reflected in ratios of any kind. Look, for example, at the following two hypothetical organizations that provide job training to people about to go off welfare.

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