Resource Allocation Paradigm Shift
Should be performance based
At this point in history there is a lot of talk about social impact investing and there are estimates that the pool of social capital is very substantial … many billions of dollars according to some experts.
While this may be true, the process for the allocation of resources to facilitate progress is dominated by methodologies that have not worked well ever since they were introduced many decades ago.
Decision making is never easy … but it is far worse when there is no subsequent measure of performance. Corporate business performance is systematically recorded in an accounting system and the results reported … some decisions are seen to be good and others not so good. In most allocation of resources in the public sector and in the not-for-profit community is based on projections that justify decisions, but hardly any subsequent review of performance to assess the outcomes.
The role of the monitoring and evaluation process in the not-for-profit community, though expensive, is hardly robust enough to serve as a management tool to justify some very large expenditures … and some academic studies to show performance are equally inadequate.
There is more PR than there is hard performance data … and this is a very unsatisfactory state of affairs. TVM starts to address this by having a focus on the community … and how resources allocated to a community may be expected to have specific impact … and if not what was it that went wrong.
When resources go to a place it is possible to get feedback from the place about what the resources were used for … and what impact there has been from the deployment of the resources. Many people can go to the place and validate the data and the reporting.
At this time, natural disasters are driving!
At this time, the way fund raising is done in the not-for-profit sector is hardly legitimate … a big disaster permits full scale fund raising … and in due course some may be used for the current disaster, but much of the money raised will be used to support the organization and be ready for tomorrow's disaster. The amount of money used to support the ongoing administration of the organization and retain staff is mobilized mainly when disaster is in the news. Organizations do fund raising in a very opportunistic manner. Each time there is a natural disaster … these organizations are ready to do fund raising that keeps them running until there is another disaster. Rather little of the funds raised actually get delivered to the beneficiaries in need arising from the disaster.
The present paradigm for fund raising is mainly about some “story” that “tugs at heartstrings” and makes people part with their money. The story is what counts … nothing about performance is in play! This is not a serious approach, and needs to be changed.
Social investing … and value returns
It has been estimated that the funds available for “social investing” may be as much as $150 billion. Muhammad Yunus has called for something like True Value Metrics to account for social business and to drive a stock exchange for social investment. Others talk about the need for the conversation to move from the scale of charitable contributions to the effectiveness … the value returns … from a charitable investment portfolio!
Fund raising is a specialty
It is no accident that the CEO of many of the best known iconic cultural institutions in the past few years have been specialists in fund raising. Major not for profit organizations depend on philanthropic donations in order to keep their doors open. This goes for great museums, art galleries, orchestras, operatic companies, ballet, zoos, botanical gardens and others. Fund raising has become a high stakes professional activity.
There is other competition. Beyond culture there is fund raising for hospitals, medical research and for education at all level. Big money has been committed by philanthropies to health and education.
Fund raising for social progress is just one part of a big market … with a lot of participants, many with very professional fund raising teams. The problem is not easy to address because the market is not driven by metrics but by perception. Many organizations have built up their reputation by hard work and good PR. Others have achieved fund raising success by being quite crass with their advertising, PR and story telling quite removed from any reality about their operations. It is difficult to tell the difference without hard metrics with independent validation!
Using Impact and Effectiveness Metrics
Differentiating between various organizations
Fund raising should be done using impact and effectiveness metrics that are compiled and accessible based on recognized value analysis methodology. The organization should be able to demonstrate that the data are correct based on participation in the TVM movement. Potential funders need to know what organizations are doing really good work, and which are merely doing the PR to market themselves to donors. In time the TVM network will provide the information needed to make this differentiation.
Reporting aggregates is not enough
Big organizations have accounting systems that aggregate data and permit financial reporting about the organization as a whole. Some organizations have good internal systems to analyze performance, but this information is usually not accessible to interested outsiders … nor is it value based.
Some external analytical work has been done by Charity Navigator and others to create some simple metrics about program performance based on simple financial reporting. In general these metrics are inadequate and virtaully nothing about program performance is easily accessible.
Program effectiveness may be assessed at the community level where activities may be observed and judgments made.
Small organizations that are doing good work … valuable work at low cost … may be listed from a community view. Independent validation of their work may be done by anyone who visits the community. In as many cases as possible, the performance of the organization will be validated within the TVM system by multiple dataflows that report similar information.
Big organizations that are doing good work are only going to be recognized for their performance when there are data about programs and the places where program activities are located. This information exists for operational purposes, but is not usually organized to provide program performance information on a routine basis … but it can be done, and should be done.