What Makes a Charity Effective?

This article is taken from The Life You Can Save, the “fiscal sponsor” of One for the World. 

When we give money to a charity, we assume the money will be used to do good. But that’s not always the case. Some charities accomplish very little; a few may even unintentionally cause harm. Most charities probably have some positive impact, but the amount of good they achieve varies widely. By ensuring that you give to effective charities, you can be confident that your donations will make a significant difference.

What makes a charity effective, how do we know whether it’s effective, and how can we use this information to guide our giving?

Myths about Charity “Overhead”

People often assume that low over-head costs—or administrative expenses—are a good indicator of charity effectiveness. After all, the less money a charity spends on operations and marketing, the more direct good it can accomplish in the field, right? Not necessarily.

Some very effective charities have relatively high overhead costs, while some charities with very low overhead accomplish almost nothing. Overhead costs can include investments that increase a charity’s impact, such as training, planning, and evaluation, along with fundraising to help the organization accomplish more and sustain its progress. Overhead rates by themselves reveal very little about a charity’s effectiveness.

Measures of Effectiveness

Are initiatives proven to work?
One of the most important steps in determining effectiveness involves establishing a cause and effect relationship. Can the charity’s reported results be attributed entirely to its actions? Would some outcomes have happened anyway, even without the charity’s involvement? The ideal way to answer those questions is through randomized controlled trials (RCTs), in which one group of randomly selected people receives an intervention while another group does not. Not all types of interventions lend themselves to RCTs, but charities whose projects are supported by evidence from RCTs can usually claim a high degree of confidence in their effectiveness.

Are interventions cost-effective?
Another important factor in determining effectiveness involves cost. Consider two charities, both of which have a goal to save at least 1,000 lives annually. At the end of the year they evaluate their results, and both charities met their goal. But now consider this: Charity A spent $30 million to save those 1,000 lives, while Charity B spent $3 million. That makes Charity B 10 times more cost-effective than Charity A: it achieved the same results at one-tenth of the cost. To put it an-other way, a donation to Charity B would likely help more people than the same donation to Charity A. Cost effectiveness is a key component of overall effectiveness, and plays an important role in making comparisons between charities. One for the World uses data on cost effectiveness, backed by research, independent verification, and other evidence, to identify its recommended charities.

Beyond the Numbers

If we consider only cost effectiveness, charities that use proven, efficient, high-impact interventions, whose impacts can be measured and directly attributed, will rise to the top. They’ll look better than charities that test experimental approaches or have impacts that are harder to measure and attribute, such as outreach and education. Charities working on longer-term issues, whose efforts may not deliver significant benefits for many years, also suffer in comparison when only cost and near-term impact are considered. What else can we use to tell whether a charity is effective?

While RCTs and cost effectiveness are key to identifying charities that deliver the most “bang for the buck,” there are plenty of other indicators of effectiveness. Factors such as a proven track record, transparency, sustainability, rigorous monitoring and evaluation, skill and experience in leveraging funding and strategic partnerships, broad reach and potential for scale, and the ability to generate a wide range of benefits (e.g., job creation, local economic growth, social benefits, environmental improvements) can also be used to identify effective charities.

These indicators may be more difficult to measure, but they are important factors to consider in evaluating effectiveness. One for the World takes into account these factors in identifying highly effective charities.

Finding Effective Charities

Evaluating charities and identifying the most effective among them involves a lot of research and time. Fortunately, organizations like One for the World can help donors identify effective charities, making it easier to find high-impact giving opportunities.

One for the World recommends charities working in intervention areas spanning health care, hunger and nutrition, and economic empowerment. Each of our charities has been rigorously vetted, so you can be confident that your gift will make a real difference in the lives of people who most need help.

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The average American gives 2.9% to charity every year. How much do you give?

Did you know that the average American gives 2.9% of their income to charity every year? Think about that for a minute, and think about how you compare!

I found this out back in 2012, and finally in 2016 will meet the average (chart below). It has been a bit of a journey, and I wanted to share some recommendations, if you are interested in optimizing how you give to charities.

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  1. Set a dollar goal for your donations: a good place to start is 2.9% of your pre-tax income (which is the national average).
  2. Think about the causes that matter to you: define these at the beginning of the year, and try to distribute your donations according to these “investment principles”. This will prevent you from donating to causes that market to you but may not be aligned with your principles.
  3. Track your donations: it’s hard to understand how you are doing against your goal if you don’t have the data!
  4. Review your annual donations in December: see how much you have left to donate vs. your goal. Stick to the principles you laid out in the beginning of the year to make sure you stick to those!
  5. Think of your donations as a portfolio of investments: I like to diversify my donations, which you can see in the chart above. Part of this is because I have a broad set of interests (poverty in the USA and the developing world, environmental issues, the refugee crisis in the Middle East / Europe, etc.). I’ve also thought about the balance of high-impact charities with a scalable, cheap approach (which is what One for the World is all about) and other charities that may not have an economic study to prove their impact, but are still important to me.
  6. Do the research: Don’t just give because an organization seems legitimate, or because they have a stand outside the grocery store. Be diligent and make sure they stand up to scrutiny. Charity Navigatorcovers most traditional charities (though organizations must be operating for 7 years before they receive a rating); GiveWell does a great job with evaluating high-impact organizations. If you don’t want to do the research though, consider relying on an organization like One for the World to find the best charities for you!
  7. Think before you donate to “trendy” causes: Disaster relief efforts can raise a lot of money, but can also be very ineffective (most recently in the aftermath of the 2010 earthquake in Haiti). Make sure to do the research before you donate in this circumstance. GiveWell’s post on this has some great advice as well.

Why think about this now?

People typically don’t give a lot of thought to their charitable giving during the year, but then December rolls around and it is suddenly a huge focus! 30% of all donations in a given year are made in December.

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Note - this blog has been cross-posted from Medium.