Effective Altruism: Are Donations Used Wisely?

Charities receive billions of dollars each year in donations. Increasingly, evidence is expected that this revenue actually achieves what donors expect.

Who gives and why?
Charities receive billions of dollars from donors each year.  Of the tens of thousands of charities around the World, private donations to these charities provide around 2.5 times that which is provided by governments in official AID programs and such. Research shows the amount of giving to be in inverse proportion to income. As the rich get richer they give less. As the poor get poorer, they give more. Perhaps there is a hint about understanding here: the closer one gets to the bottom, the more one appreciates the plight of those who are already there.

There is also good reason to believe that people are more likely to follow their hearts than their heads when donating to a charity. The very fact that a charity exists is often associated with good deeds. Donors will rarely stop to question whether their donation will be well used – they will simply assume that it is.

Many donors will give relatively small amounts with little concern about how they are spent. Once a donation is made it is soon forgotten. For many, the act of giving is intrinsically rewarding and hence complete once the donation is made. This motivation for investing is an important one. It represents a desire to help. Their profit is that of seeing the lives of the recipients improved. In contrast, most businesses and employees are motivated predominantly, if not entirely, by the financial rewards for what they do.

These factors have contributed to the establishment of an increasing number of organisations that evaluate charity programs. They have also influenced the rise of a new approach to charitable giving known as Effective Altruism.

Effective Altruism
Effective Altruism focuses on the extent of change achieved by a charity program. Rather than focusing on the inputs, i.e. total funds raised, program diversity, or fund allocation, Effective Altruism is concerned with how much change per $ is actually achieved. In the business world this is akin to Return on Investment (ROI).

It is reasonable to wonder why such an approach has not been commonplace. At least part of the answer probably lies with the generally unquestioned association between charity and ‘good’.

Unfortunately, charities do not always achieve this ‘good’. Enormous growth in the number of charities has turned charity into an industry. As with most areas of human endeavor, there are those who seek primarily their own benefit. Deliberate fraud is a potential problem in the charity industry as is mismanagement, but those issues are for discussion elsewhere. The concern here is with honest, well motivated charities that, nevertheless, fail to use funds well.  Good intentions and proper accounting are no guarantee that funds are expended wisely; that priorities are practicable and cost effective; or that programs achieve their intended aims.

Effective Altruism is an objective approach that seeks to achieve the maximum benefit possible relative to the time, effort, and funding available.  In order to do this it considers not only how much a program costs but also whether that program is the most effective way of achieving its aim and what evidence there is that the results of the program have the desired impact.

Effective Altruism also seeks to promote a giving culture, where it is a norm to give and where open giving is encouraged rather than derided as some form of self-promotion. Anonymous donation may indicate humility and genuine concern but because it is hidden it cannot encourage donation as a desirable social good and something of which to be proud. Effective altruism prefers giving openly as a model for others and thus encourages a charitable consciousness throughout society.

The Effective Altruism approach is well respected today, but it can be argued that there is a fundamental contradiction between the use of a business/efficiency model that is focused on maximising profitability and that of true altruism. This model reflects the very practices and motivations of the commercial, for-profit, world that has been or is responsible for many of the issues that charities seek to alleviate.

Giving in Context
The immediate consequences of large-scale human and natural disaster are readily recognised and temporary relief often well provided. Longer-term effects including those caused by political, social and economic environments tend to be less readily acknowledged and often poorly understood.

A major defect in the tackling of all of these problems is an apparent lack of attention to causes and prevention. Most aid seems targeted at immediate and often band-aid measures that, whilst providing much necessary help in the short term, rarely extend to investigating and mitigating the actual causes of the calamity. The assistance that is provided may not reach those in greatest need, may be ineffective, or may be poorly considered and expensive.

Charity evaluation is thus not an easy task. It has those myriad external factors to consider, besides the inner management, administration and operations of the charity itself. A charity cannot be effectively evaluated without considering the context in which it operates, including regulation, size, reach, focus, geography, environment, societal traits, customs, religion and more.

What is evaluated?
Charity evaluators and charity advisors use varied and diverse approaches. It is not possible within this format to do justice to the detail involved, so what follows represents only the author’s attempt to provide a summary of key factors that may be considered by the evaluators.

Evaluators may select charities they evaluate or may allow charities to apply for or even pay for evaluation. There is significant evidence that a rating by a major charity evaluator can have a substantial impact on the level of its revenue so many will seek it. Others do not consider it necessary or, in many cases, are too small to consider it worthwhile.  Charity advisors generally don’t rate charities but curate available information on charities and provide advice on such matters as fund-raising, publicity and organisation.

Though detail, emphasis and source data vary considerably, charities, charity advisors and charity evaluators tend to consider the following factors of importance to the quality of their operations.

• Financial Health
⁃ Taxation status
⁃ Funding sources
⁃ Donor type
⁃ Level of annual income
⁃ Previous history
⁃ Overheads

• Accountability
⁃ Transparency
⁃ Standardised records
⁃ Geographical reach
⁃ Range & specificity of cause
⁃ Reporting adequacy

• Effectiveness
⁃ Percentage of funding actually delivering programs
⁃ Monitoring & evaluation conducted
⁃ Outcomes / Expenditure
⁃ Program significance
⁃ Program impact

Detailed information on the specific application of these factors will be found on the relevant charity or charity evaluator/advisor website.

Issues in Evaluation
There are many obstacles to effective evaluation. Legislation and monitoring of charities varies with government jurisdiction. Small charities in particular may operate without any financial or operational reporting requirements. This exemption is often also granted to religious charities. Even large national and international charity organisations may operate under exemption from any legal requirement to disclose the extent of their revenue; how it is managed; how much of it actually funds programs; and whether those programs are effective.

Lack of transparency can prevent effective evaluation and may even be employed to cover up wrongdoing or ineffectiveness.

The enormous number of charities in operation presents another difficulty. Effective evaluation requires paid staff with appropriate expertise. Evaluation is time consuming both for the evaluator and for the charity itself. Even if there is good transparency, for small charities any rigorous form of evaluation may simply be impractical.

As discussed earlier, the focus on efficiency and Return on Investment (ROI) can be seen as contradictory to the motivators that underpin charitable undertakings and may cause some useful and necessary programs to be discarded on economic grounds. Such an approach may also reinforce values that contribute to causing the very issues that charities are attempting to alleviate.

The availability of government mandated, audited accounting data is a substantial enabler for evaluators and in some cases a main source of data.

Some charity evaluators and most charity advisors provide information about a large number of charities. They may or may not give recommendations and though some will conduct their own research, many rely on information from public documents or evaluations conducted by others.

More exacting charity evaluators often focus their efforts on relatively few charities and may recommend only two or three. Evaluators also often focus their efforts only on specific types of charity such as those working in health, in education, with a particular community, or in specific geographical location. These charity evaluators will usually depend on both their own research and the results of meta-analysis of randomised controlled trials.

So, do charities use donations wisely?  Yes and No.  There is no definitive answer to the question right now.   However,there is clearly a great deal of effort being invested in attempting to give a better answer to that question.  Increasingly, scrutiny is being applied to what charities actually achieve and whether their efforts are the most effective for the recipients of their programs.  It is a complex area and nothing will change overnight but, the extent of the research being undertaken, the greater scrutiny and the demands for transparency and qualitative analysis augur well for the future.

Selected Significant Charity Evaluators/Advisors (Listed in alphabetic order)

American Institute of Philanthropy
Charities Aid Foundation
Charity Evaluation Services
Charity Intelligence Canada
Charity Navigator
Charity Science
Give Directly
Giving What We Can
GiveWell
Intelligent Philanthropy
The Life You Can Save
World Giving Index

The reader is encouraged to visit the Internet sites of the various charity evaluators or to contact them directly for more comprehensive information.


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Some Relevant Reading

Bialik, C. (2008) Evaluating the charity evaluators. Wall Street Journal, The Numbers. 18/Dec/2008. Available online at: http://blogs..wsj.com/numbers/evaluating-the-charity-evaluators
CAF World Giving Infographic. [Online] www.cafonline.org/worldgivingindex
The Centre for Effective Altruism. Combining empathy with evidence. [Online] http://www.centreforeffectivealtruism.org/
Charities Aid Foundation. (2015) Russian giving 2015. [Online] russiagiving2015-infographic
Charities Aid Foundation. (2015) UK Giving 2014: An overview of charitable giving in the UK during 2014. West Malling, Kent, UK. www.cafonline.org
Charities Aid Foundation. (2015) World giving index 2014: a global view of giving trends,. November 2014. [Online] www.cafonline.org/worldgivingindex
Charities Evaluation Services. [Online] http://www.ces-vol.org.uk/
Charity Intelligence Canada. [Online] http://www.charityintelligence.ca
Charity Navigator. (2015) Giving Statistics 2014. [Online] http://www.charitynavigator.org/index.cfm/bay/content.view/cpid/42#.VhAor7ypQy4
Give.org: BBB wise giving alliance. How we accredit charities. [Online] http://give.org/for-charities/How-We-Accredit-Charities/
GiveWell top charities. (2015) [Online] http://www.givewell.org/charities/top-charities
Intelligent Philanthropy. [Online] http://www.intelligentphilanthropy.com
Shah, A. Foreign aid for development assistance. Global Issues. [Online] 28 Sep. 2014 http://www.globalissues.org/article/35/foreign-aid-development-assistance

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"The Spade" by Roger Hawcroft
Roger Hawcroft

Roger is an online activist & library consultant living in Queensland, Australia. Roger has a diverse work background in both public and private sectors and large and small organisations. Her has degrees in teaching and library & information science. Roger is keen to contribute to a more equitable and peaceful society. Roger feels that his own struggle with an autism spectrum disorder have given him awareness of the difficulties & stigma that is the lot of the disadvantaged every where. He is particularly interested in social justice and human rights and in reversing the trend towards “blaming the victim” in society.

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