Preparing for a Results-Based Evaluation System: Thoughts on the New Charity Navigator System

Back in July, my colleague Richard Larkin commented on the troubling reliance on overhead as a metric for measuring nonprofit success. As he discussed in Nonprofit Quarterly, donors should be judging an organization’s success based on its outcomes, not how much it spends to keep the lights on.

Now, one of the most prominent charity-rating organizations, Charity Navigator, is taking concrete steps towards changing the way the public judges nonprofit organizations. Charity Navigator recently announced plans to add a third dimension to its evaluation criteria. The organization already rates nonprofits based on their finances and governance, but it has also begun looking into how organizations report their results to donors and stakeholders. The project, slated to be fully implemented by 2016, is off to a slow start as Charity Navigator works to determine how best to evaluate the reporting systems and outcomes from multiple charities with a wide range of goals and programs.

In an effort to better inform both nonprofits and potential donors about the looming changes to the system, Charity Navigator’s chief executive, Ken Berger, joined Rita Soronen of the Dave Thomas Foundation for Adoption to discuss the new evaluation criteria with the Chronicle of Philanthropy. I sat in on the live chat, and the following three points stood out to me as the most important considerations for charities to keep in mind as they prepare for the changeover and begin to think about how to report outcomes:

  • Implementing results reporting systems may be expensive, but it’s necessary. Both Berger and Soronen addressed questions about how the costs associated with developing and deploying a results reporting system may divert resources from program activities. However, both argued that it’s possible your organization is throwing good money after bad by investing in programs without first measuring their success. Is a dollar spent on a poorly-performing initiative worth more than a dollar spent to determine how to make that program work better? Most organizations’ leaders are passionate about what they do and can articulate the impact their organization is having; now it is time to communicate those program successes to the world.
  • Different organizations will always have different needs and goals, so how they report is more important than comparing outcomes. The goal of Charity Navigator’s new system is not to pit disparate organizations against each other. After all, a human services organization is going to have a very different definition of success and impact than an advocacy organization. Rather, it is meant to rate how an organization reports its successes, leaving the judgment of what constitutes sufficient impact to the donors themselves. The goal of the ratings system is to encourage transparency and to move donors away from thinking of success in terms of financial reporting.
  • Results reporting is still nascent. There’s a reason Charity Navigator is giving itself a few years to implement its new system: They, and the rest of the philanthropic world, are still determining best practices and what makes sense for different cause areas, missions and organization sizes. This means that you and your organization have the opportunity to contribute to and shape the discussion about what a solid, transparent reporting system should look like.

Donors, more and more, are looking to make sure that their dollars are spent productively and are having a true impact on the causes they care about. The shift away from overhead-based metrics for assessing success is an important development. What is your organization doing to prepare?