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Why Don’t Social Investors Ask for ROI Data When Donating?

February 26, 2010

(Jeff Mason is vice president of Social Solutions, a leading provider of human and social service software, and serves as chair of the Alliance for Effective Social Investing, a network of more than thirty-five nonprofit leaders committed to driving more money to high-performing nonprofits by helping donors adopt sound social-investing practices. In his last post, he explained why givers must become social investors.)

Return-on-invesment For many, giving to charity is an emotional proposition. And because it usually feels good to "help others," too few donors think about return-on-investment (ROI) when it comes to their giving.

Most social investors, for example, do not ask whether their philanthropic investments actually improved lives or helped an organization achieve specific programmatic goals. Indeed, most donors don't expect anything in return for their donations beyond the psychic benefit that comes from helping people who are less fortunate.

This mind-set has to change, for the following reasons:

  1. Many programs currently funded by well-intentioned donors could be doing more harm than good;
  2. Too often, donations made without any thought to ROI end up being wasted by ineffective organizations; and
  3. It's morally wrong.

Okay, I'm sure many of you are scratching your heads over that last point. I'm not saying that giving for the sake of giving is a bad thing -- the last thing I'd ever want to do is discourage people from giving to worthy causes. At the same time, when social investors fail to do their research and give to organizations that are unknowingly causing more harm than good, it becomes a moral issue, plain and simple.

Fortunately, we are beginning to see a bottom-up movement in the sector toward better performance metrics and management, including a focus on clearly articulated goals and strategies, better methods for monitoring progress toward those goals, the ability to make mid-course corrections, and a commitment to sharing results regardless of outcome.

All these practices are part of a heightened emphasis, within and beyond the sector, on effectiveness. And when they are embraced by nonprofits, donors can begin to tell whether specific programs are working or not, or even whether they are causing harm.

While many nonprofits today have the capacity and management talent to implement such practices, most are unlikely to do so until and unless their donors begin to demand a clear accounting of how their money is being used and, more importantly, to what end.

As more social investors begin to ask for such an accounting, others will follow suit and will begin to steer more of their discretionary giving to nonprofits able to demonstrate their effectiveness. Who knows, with a little luck the ability to demonstrate social ROI might just become a nonprofit industry standard.

That would be something we could all feel good about.

-- Jeff Mason

Comments

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Not to ask for some measurement of ROI is a moral issue, and thanks for saying that. The only thing I'd add to your comments, is that many nonprofits lack the expertise, capacity and capital to put in and run the kind of management systems that allow them to monitor, measure and analyze results. So to expect nonprofits to do a better job on that front, and not help them develop the ability to do it, also would be morally wrong.

Bruce, I totally agree. The kind of resources that are required to run a performance oriented organization typically fall into the overhead category. Donors need to understand that sufficient overhead is essential to running an effective organization. This is well understood in the for profit sector.

Some changes are happening. Charity Navigator is in process of changing it's rating system to move away from a focus on low overhead and increase focus on an orgs ability to perform. Also, work is now underway by Social Solutions, Urban Institute, and Child Trends to develop a web resource that will provide "recipes" for running effective practices. This should prove to be a valuable resource for those who want to do better but don't know how.

If we do a better job of highlighting good examples of performance-oriented organizations and demonstrate the return on investment from their use of management systems that help them perform well, then we'll begin seeing that part of overhead in a positive light.

In reality, won't philanthropy end up being like the commercial markets. Institutional investors, Professional philanthropists, foundations and large donors will demand ROI information and accountability and transparency, and consumers who will follow their hearts and souls, will benefit from the leadership of these professionals. Perhaps the real question should be how do you create metrics and processes that train executive directors and their boards to meet the emerging needs of professional philanthropists for results oriented metrics, and how does the philanthropy community encourage each other to require results oriented metrics.

Thank you so much for your excellent points, Bruce and Jeff.

Accountability must be achieved through partnership: nonprofits measuring their impact, and funders providing financial and capacity-building support.

I totally agree with writer, this will further bring corporate both local and multinationals to invest in social business as well; which helps improve quality poor and at the same time convert them into a pool of effective actors of supply chains. It aslo encourages the poorest to become a part of the economic mapping of multinationals and local businesses.

More investor will join, meaning more money, but again strict accounting as ROT is not easy, but best.

Social Investors need to start asking for Return on investmetment when giving our money, otherwise, It wont solves the problem as author here put in nutshell

Normally you start with the strategy and then you estimate the ROI on the strategy. I would like to suggest a different approach in that you start with the ROI and then based on the ROI you select and execute on a social media strategy.

Interesting (if counter-intuitive) suggestion. Would be great if you could give us a concrete example of this approach in action.

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