How to Evaluate Returns on Philanthropic Investment

Hero

ARTICLE

How to Evaluate Returns on Philanthropic Investment

It is essential to evaluate and assess the return on your philanthropic investments to achieve maximum impact. Taking time to reflect on the successes, failures, and outcomes of previous philanthropic efforts can only improve your strategic approach to new charitable ventures. 

How can you assess philanthropic impact?

Impact measurement is a relatively new field that is still growing and developing. While there are no standardized criteria or methods to measure impact, you can conduct your own analysis on your philanthropic activities. Depending on your chosen approach, you can measure the return on your philanthropy in different ways. 

  • If you are directly engaged in running a nonprofit or administering programs via a private operating foundation, your programmatic outputs and outcomes will provide the best metric. 

  • If you provide financial support to an existing nonprofit, you can rely on the nonprofit to report the output and outcomes of their activities. A nonprofit should be able to articulate how it carries out its mission and stated priorities in both qualitative and quantitative data. Unless it is a new organization, a nonprofit should be able to share its strategic achievements and track record with prospective and current funders. 

Be sure to right-size your evaluation to the size of your financial contribution. Evaluation requires a degree of effort, but it should be commensurate with your charitable gift. If you do not wish to collect and review progress reports from grantees, you can access more generalized impact data (i.e., number of programs, individuals served, etc.) through nonprofit monitoring websites such as CandidCharity Watch, or Charity Navigator.

How do outputs and outcomes relate to impact?

  • Outputs are tangible and immediate practices, products, or services that result from charitable activities. Outputs can be quantitative or qualitative, and they are easily observable and measurable directly following the delivery of programs. For example, the output for a scholarship program can be the number of students supported.

  • Outcomes are changes or effects on individuals or communities that follow from the delivery of services. Unlike outputs, outcomes occur gradually and contribute to larger-scale system changes that are not observable immediately after program delivery and, therefore, cannot be easily attributed to one specific program or intervention. Measuring outcomes is traditionally done via randomized control trials that are time and resource-intensive. New developments in technology have initiated a lean data movement to improve the data gathering process for outcomes measurement. For example, a potential outcome for a scholarship program is quality education for financially disadvantaged students, who can then get secure high-paying jobs. 

Outputs and outcomes can demonstrate the impact of your philanthropy, but there are limitations. Given the complexity of social and environmental causes, most nonprofit organizations are only capable of reporting immediate outputs rather than contributions to a long-term outcome. Similarly, one philanthropist cannot take credit for an outcome since many factors go into producing societal and environmental changes. It is important to remember that progress takes time, and it is, therefore, unrealistic to expect significant outcomes within a year, five years, or even ten years.

How can you collect data for philanthropic evaluation?

If you provide grants to nonprofits, you can require an organization to provide a progress report to detail its activities during the duration of the grant period. Nonprofits also often provide annual reports to share their accomplishments with donors and the general public. These are helpful resources in assessing an organization’s effectiveness. To supplement these data, you could also seek input from external stakeholders, such as other funders or community leaders who are familiar with the nonprofit’s work.

When should you evaluate returns on your philanthropy?

If nonprofits submit progress reports to you after a grant cycle, you should review those upon receipt. This information will shed light on the impact of your philanthropic dollars, and it may help you determine whether you wish to continue funding this organization or effort in the future. Again, be sure to have realistic expectations about the kind of progress that can be made in a short time span, such as a year.

As you become more experienced as a philanthropist, you may wish to conduct a holistic review of your portfolio and assessment of its impact. Philanthropic consultancies can conduct this effort on your behalf if desired. This work can be done on an ongoing basis, such as every three, five, or ten years. 

Additional Resources:

  • Seeking deeper insights on how to evaluate your returns on philanthropic investment? Reference this evaluation framework from CSP for key questions to ask.

  • Still trying to understand how to judge a nonprofit’s effectiveness? Giving Compass offers six dimensions to consider.

  • Risk is a factor in philanthropy. The Open Road Alliance provides a framework for assessing how risk can be addressed in a philanthropist’s evaluation process. 

  • Interested to learn more about lean data in impact measurement? Check out Acumen’s Lean Data Field Guide.

Published July 29, 2020