Overhead Myth Response

We applaud the campaign by BBB, GuideStar, and Charity Navigator to raise awareness about the lack of correlation between a nonprofit’s level of overhead and its performance. The Overhead Myth letter encourages donors to invest in nonprofits based on their results, not based on how lean they are. Root Cause completely agrees with this and was founded 10 years ago with the vision that resources allocated to nonprofits based on results will accelerate social progress. However, the question remains, where do we find the kind of information we need in order to not have to rely on overhead as the proxy for performance?

According to research conducted recently, donors are interested in indicators beyond financials; specifically on better understanding a nonprofit’s impact. Donors are also interested in seeing peer programs compared on standard indicators. However, the research further indicated that while information about financials is easily accessible, information about program performance, particularly at a comparative level, does not seem to exist for the average donor. Why isn’t information about results as easily attainable and standardized as the 990 or audited financials?

Over the past few years, Root Cause has developed a methodology to help move nonprofits to higher levels of performance and to share that information with donors. This work has culminated in the launch of Peer Performance Exchanges for different social issues. We believe that nonprofits should be able to provide, and funders should be able to request, information about program performance (or results) as regularly as they provide or request financial information.

We are currently developing three Exchanges: Youth Career Development, College Access and Success, and Healthy Aging. The Exchanges bring together nonprofits within these fields that have clear and measurable outcomes to receive a third-party independent analysis, including benchmarking, and capacity-building services. The independent analysis is at the core—providing nonprofit programs with an understanding of how they compare to their peers on over 100 indicators of organizational health (including financial stability) and program performance in their field. We also produce a summary report of the analysis, appropriately named the Transparency Report, for programs to share with key funders as a validation of their program and commitment to measurement and accountability.

We are excited that the key donor platforms where donors look for information to make confident giving decisions are focused beyond financials and on performance. And we believe that our work in providing independent analysis for programs through the Peer Performance Exchange will provide donors with the more results-oriented, comparative information they are seeking.