Rating Charity Effectiveness

In our last post, The Overhead Myth, we noted that this welcome new initiative urges prospective donors to look at the whole picture, and in particular, indicators of program effectiveness instead of financial ratios, as the main measure of a charity’s worthiness.  So far, so good.... this kind of thinking in the charity ratings business is long overdue.  But it brings up a troubling question:  How will watchdog and ratings organizations “rate” program effectiveness? 

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The Overhead Myth

The last 15 years have seen a strong movement towards using financial ratios to rate a charity’s effectiveness.  These financial ratios measure how much of your donated dollar goes to overhead and fundraising costs, versus how much goes to the charity’s actual programs.  This makes sense – it is wiser – and more effective – to give to an organization that can put more of your donated dollar to work for the desperately poor.  But, this has created a problem:  We have come to rely so heavily on these financial ratios, that we have forgotten to ask the more basic questions.  What are the results?  Do their programs work?  In a word, are they effective?

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