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Nonprofit Indicators

Nonprofits are subject to ever increasing scrutiny from both institutional and individual donors, many of whom are equipped with online resources that evaluate their operational effectiveness. I recently listened to Network for Good’s interesting webinar on this topic entitled “Uncharitable?”. Participating were Dan Pallotta, president of Springboard and the author of Uncharitable: How Restraints on Nonprofits Undermine Their Potential, Ken Berger, CEO of Charity Navigator, and Bob Ottenhoff, President and CEO of GuideStar.

Pallotta challenges the reliance on financial indicators (specifically overhead as a percentage of expenditures) to determine an organization’s worthiness for contributed support. This measure, he feels, is one derived from assumptions that are more appropriate in the for-profit sector,and is misguided as a measure of a nonprofit’s effectiveness. Are there organizations that spend too much on overhead and not enough on effective programs? Certainly there are some, but given the variety of challenges facing nonprofits, can this metric really be standardized and used as a basis for comparison? But then taken as a whole, what metrics do accurately represent the realities of the nonprofit sector?

These are not just theoretical questions as thousands of donors today rely on existing measures of effectiveness as defined by organizations like Charity Navigator and GuideStar, both of which have expanded their information offerings. According to Ken Berger, Charity Navigator is revamping their rating system to include transparency, best practices, and accomplishments in addition to financial indicators, and Bob Ottenhoff says that GuideStar has recently expanded the kinds of information that nonprofits can submit to include more information about mission, programs, and how successful they are at meeting their goals.

Are these the right measures (or at least more precise)? What role should we all play in developing more effective measures? To download a transcript or audio version of this thought-provoking webinar, visit the Network for Good website (free registration is required for downloads). Both Ken Berger and Bob Ottenhoff have posted follow-up responses as well.


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