Tackling the Data-Driven Funding Challenge — a New Skill for Nonprofit Managers

Can you measure your mission? Many nonprofits are being asked to provide metrics of success in order to keep and attract donations and funding.

But it’s not exactly clear how to do this. According to a working paper posted in July to Harvard Business School’s Working Knowledge site by faculty members Alnoor Ebrahim and V. Kasturi Rangan:

The social sector is in the midst of a search for metrics of impact. Over the past 20 years, there has been an explosion in methodologies and tools for assessing social performance and impact, but with little systematic analysis and comparison across these approaches.

When it comes to fundraising and donors, it’s no longer enough for non-profit organizations to talk about the relative value of their mission, activities, and results. Funders are comparison-shopping, and they want to know that their gifts will deliver more bang-for-the-buck if contributed to one organization versus another.

As a sign of this bottom-line orientation, foundations increasingly speak of their contribution “portfolios” using terms borrowed from the financial industry — and nonprofit staffs are under pressure to develop their analytical capacity.

According to a 2009 article in The Chronicle of Philanthropy:

The absence of common standards means that investors can’t compare the social and environmental benefits of different investment opportunities.

The Rockefeller Foundation is working with Acumen Fund, B Lab, Deloitte, and PriceWaterhouseCoopers to develop the Impact Reporting and Investment Standards taxonomy. Work has also begun on a Global Impact Investing Ratings System (GIIRS), which will look at how third-party ratings systems can be developed and aggregated under IRIS.

A recent article in the Wall Street Journal underscores the need:

Many potential donors worry that charities will waste their money. Measuring the impact charities have on the problems they seek to solve—and, in some cases, deciding whether one cause is more deserving than another—has become a pressing issue for the multitrillion-dollar philanthropy industry.

Measuring social value is a highly subjective process. As Ebrahim and Rangan point out, it is not always feasible for nonprofits to gather data in every aspect of their operations. Sometimes funders and government agencies may be better positioned to evaluate impact.

Policy measurement is an area ripe for further exploration. By creating and overlaying data collected about key indicators, such as media coverage, staff activities, public opinion, and legislative decisions and/or votes, policy departments can create indicators and data-driven visualizations that inform their strategy and provide compelling evidence to Boards, funders, and individual donors.

The art of developing an impact measurement program lies in discerning what is possible and striking a balance between detailed analysis and clear presentation. Scalability and sustainability are also important considerations. Presentation requirements favor a limited number of measures, real-time access, and automated data collection and processing techniques using standardized data sources.

Owing to nonprofit disclosure requirements, a volume of nonprofit financial data is publicly available. Subscription databases like GuideStar Premium sell subscription access to downloadable data, which includes income, program expenses, fundraising expenses, administrative expenses, as well as enterprise data systems. GuideStar has also developed a nonprofit ranking system.

Simply conceiving of impact in these terms is evolutionary for many nonprofits. The learning curve and work involved can be daunting. Nevertheless, measures of impact offer significant competitive advantages in marketing and fundraising — and can give major advantages to organizations that crack the code.