Efficiency vs Efficacy: the Metrics Myth in Grantmaking

I know, I know. This is a well-worn topic. I myself have been addressing it for years and I am far from unique in that regard. It is hard to find an experienced foundation professional or philanthropist who doesn’t know the limits of pure metrics as a sufficient measure of a worthwhile grant.

But the idea doesn’t go away. There are still those who assume that if they can only get the right numbers, they will be able to compare the objective worth of ngo’s and nfp’s around the world. These measures would determine which group is a more deserving recipient of funds, which group uses contributed or granted funds more efficiently, and which are being profligate with the vast sums thrown their way by unsuspecting donors.

Now – let us be clear: there is nothing wrong with data, if it is useful, appropriately collected, and relevant to decision-making. And there is always value in understanding a budget so that one can determine if an outside fundraiser is taking too much of the pie or how an organization spends its funds. Recommended percentages can be starting points for the review of a non-profit as a part of a grantmaker’s process – especially if it is of an organization with which the funder has little prior experience or knowledge.

However, the push for standardization based on comparative measures or fixed guidelines is not only limited but often misguided. We know full well that entire categories of potential grantees simply don’t fit those rules: start-up/early stage projects or artists to mention only two. That is easy. Virtually everyone would agree that if one is going to fund these kinds of organizations or projects, one must start one’s determination in a very different place.

The issue is deeper and reflects some very problematic assumptions about the sector. There are still too many who believe that the entire sector is fluff, overpaid under-performing incompetents. I recently attended a presentation at a bank where a banker – a banker! – stated, as if it were a fact, that the reason we need new models of solving social problems is that 80% of contributed money never gets to the end-user. Most of it, he claimed, is lost to corruption and inefficiency. [Need one say the obvious about his bank’s decision-making practices?] It is not as if there is no room for creative thinking about how to properly capitalize the human-needs sector, but, please, don’t do it on the backs of beleaguered and mostly underfunded organizations.

I have written elsewhere about the misplaced press attention given to a small number of over-paid executives but too little about the much larger and more shameful reality of those who are underpaid while carrying the burden of serving children, elderly, hungry, homeless, and others. And let us remember that, because of the financial structure of almost every ngo and nfp, any pressure for more “efficiency” quickly redounds to cutbacks in staffing or benefits. In the overwhelming number of cases, there is simply nowhere else to cut.

It is increasingly clear that efficiency is not a very useful predictor of efficacy. I recently read of a study of retail stores that showed that extreme reductions in staff did not lead to more profit but rather led to worse service and fewer customers. The same applies in this sector: A social worker with an unconscionable case-load doesn’t become more efficient but does provide service of questionable quality.

Of course, in our field, there is a huge discussion about “impact” funding and investing [although “impact” is getting a bit over-used.] Many enlightened funders are asking more profound and useful questions about how should we understand or measure long-term effectiveness, and how to establish appropriate funding strategies to get there. At a time when there is great dependence on private philanthropy, we can do no less. But it is clear that we have a long way to go to redress biases and factual misunderstandings about what the sector does and what it is capable of. And we still hear too many articulate simplistic assumptions that all we need to be better funders is better “metrics.” To be sure we need useful data, but it is always useful to recall the oft-quoted aphorism: “not everything that counts can be counted, and not everything that can be counted counts.” Good philanthropy is to fund what works, not what is cheapest!

Richard Marker teaches and advises funders from around the world through both the NYU Academy for Grantmaking and Funder Education and the Wise Philanthropy Institute, both of which he founded. His blog can be found at Wise Philanthropy.