Four Steps to Moneyball Philanthropy

By Charles Eaton

A buzzed-about term currently making the rounds in philanthropy circles is moneyball philanthropy.” Its the idea, based on the book “Moneyball” by Michael Lewis (a great movie, too), that philanthropic organizations and individual donors should make better use of metrics to analyze charities before choosing which ones to fund.

This idea of using metrics to judge value isnt new to philanthropy, but moneyball philanthropy suggests we have been measuring the wrong things. To extend the baseball analogy: Before sabermetrics (the specialized analysis of baseball through objective evidence, especially baseball statistics that measure in-game activity) as described in Moneyball,” scouts looked at batting average, number of steals and the “eye test” (visual evaluation) on prospects when making recruiting decisions. Sabermetrics gave the Oakland Athletics the ability to see that on-base percentage correlated much better with runs the building blocks of wins than batting averages did. In philanthropic terms, moneyball techniques applied to giving would mean focusing less on traditional metrics such as administrative costs and program outputs (for example, number of people served, number of free meals given away, etc.) and more on program effectiveness.

When it comes to charitable giving, people mostly give with their hearts. They experience an altruistic feeling, then get distracted before seeing if their gift made a difference. Imagine going online to order the newest iPhone and not caring whether it ever came in the mail! Emotion, not data, drives our decisions on where to give. A personal connection to the cause or a request from a friend or colleague is the most likely reason someone gives. We need to ask: Are the outcomes from the charitys programs worth the money spent and, if that same amount of money was applied to a different project or charity, would there be better return on investment?

Oaklands general manager, Billy Beane, used metrics to find the best-value players in the market to put together a winning team with one of baseballs smallest payrolls. Moneyball philanthropy could imply finding those charities that arent household names but that are still highly effective, have sustainable models and are producing unusually good outcomes. Thats a daunting goal, but one that I think could be applied by individual donors and philanthropic institutions alike. What if you took a few minutes to look a little deeper and try your own version of moneyball philanthropy to find those hidden gems in the charitable world?

Here are four things you might want to consider when judging the value and effectiveness of the next charity you donate to.

1. Check the List of Worst Charities

Lack of legal standards for nonprofit organizations has allowed some individuals to take advantage of the system. There are organizations that do little good beyond providing jobs for their leaders and their leaders relatives. Stay away from charities that have become so notorious they are listed among the worst charities as recently compiled by the Tampa Bay Tribune and the Center for Investigative Reporting. Check GuideStar and other charity watchdog groups regularly.

2. Dont Buy Into the Overhead Myth

Its one thing to demand that a significant percentage of dollars raised by a nonprofit go toward charitable programs. Its quite another to demand an unreasonably low overhead percentage. Even GuideStar, which holds charities to strict standards, has recently come out against the widespread practice of judging nonprofit effectiveness by using the Low Overhead Litmus Test. Efficient ineptitude has always been the biggest waste of charitable dollars. Lets worry about an organization being effective before we worry about it being efficient.

3. Look at Outcomes, Not Outputs

Dont be distracted by outputs. An output is something a bureaucrat can count, such as number of school lunches served. An outcome is something we care about, such as the health of school children. The Creating IT Futures Foundation reports a lot of numbers in its latest white paper; from the number of adults who enroll in IT-Ready training to the number who become CompTIA A+ certified. But the only number that really counts in the end is whether an individual ends up in a paid IT role. Thats the prize we keep our eye on. Being able to ferret out the right outcomes is something you have to do as a smart funder.

4. Find Charities With Long-Term Solutions

Some nonprofits will always be around. For example, there will always be need for a Red Cross, as there will always be natural disasters. But other programs should be on track to work themselves out of existence. The Rotary Club has taken on the challenge of wiping out polio. Once that program is successful, the group will move on to another problem. They will likely solve it. Putting a Band-Aid on problems might make us feel good momentarily, but it doesnt push the needle toward a cure.

Its the Bottom of the Ninth: Who Will You Send to the Plate?

Nonprofit shouldnt mean non-effective. Lets get serious about solving problems and start applying moneyball philanthropy to how we invest our social impact dollars. Personally, I dont like being left out of the playoffs any more than Billy Beane did. Do you?
 
Charles Eaton is CEO of the Creating IT Futures Foundation, the philanthropic arm of CompTIA.