It isn't enough to identify a strong program; we seek to identify strong programs that can productively use more donor funding. This page explains why we are concerned about this issue and how we address it in our charity evaluations.

Unfortunately, we have not found any existing research on the question of how to identify charities with "room for more funding." Here we focus on conceptual risks to a donor and describe what we do to minimize them.

The concern

Even when a charity can demonstrate excellent past impact, this impact may not be representative of what future programs (funded with additional donations) can be expected to accomplish. The link between the program you hope to fund and the program you end up funding may be weakened in the following ways.

Small items/projects within large charities

For example, Heifer International, a large international aid organization, offers donors the chance to purchase an animal for a developing-world family.1 However, a disclosure on the page making this offer states:2

Gifts made through this catalog represent a gift to the entire mission. To help the most number of families move toward self-reliance, Heifer does not use its limited resources to track gift animals from donation to distribution. We use your gifts where they can do the most good by pooling them with the gifts of others to help transform entire communities.

In other words, it appears that while the headline fundraising appeal is made with one particularly appealing expense in mind, the donation itself pays for a variety of (on that page) unspecified activities.

We believe it is to Heifer International's credit that it discloses this issue up front.

We would guess that any time a large organization is raising funds for a small project (or item), it is probably unrealistic to think of that project/item as what "your" donation buys. The reason is that the project/item being advertised is likely one of the most appealing options for donors, and would attract someone else's funding if not yours; your additional donation, by contrast, allows the charity to do more of whatever activity other donors would not fund.

We believe that this concern is significant even when charities stress that they literally assign your funds to the project/item in question. Any charity with significant unrestricted funds available can adhere to the letter of this promise by officially assigning your funds to the project/item in question, which frees up unrestricted funds (previously reserved for this project/item) for other activities. In other words, if your donation displaces unrestricted funds from a project/item that would have been funded anyway, its effective impact is still different from its advertised impact.

It is for this reason that we generally seek to evaluate entire charities rather than projects within charities (as discussed further below). It is also for this reason that we do not give our recommendations to websites such as Kiva3 (which encourages donors to lend to specific individuals through microfinance institutions)4 and GlobalGiving5 (which encourages donors to fund specific projects run by multi-project charities).6

To their credit, both Kiva and GlobalGiving are clear about the fact that donors' funds are going through partner organizations, and GlobalGiving is particularly clear about the potential fungibility of donations.7 We do not believe that these websites intend to deceive donors, and we believe the emotional benefits they provide likely result in increased giving from those who would not be motivated to give otherwise. However, for our target audience – donors seeking simply to maximize their impact in terms of improving others' lives – we do not recommend the use of these websites. We believe that using them is likely equivalent to donating to partner charities (microfinance organizations in Kiva's case and a broad array of charities in GlobalGiving's case).

For donors seeking to maximize impact – for the reasons given above – we recommend focusing on funding a strong organization rather than a strong project or item.

Money may not be the bottleneck to expanding activities

Even when a charity's "flagship" program is appealing, we feel it is still valid to be concerned about whether additional funds will translate to more of the activity.

The reason is that money is not the only possible factor limiting the expansion of a program. Past success may depend heavily on political support, skilled labor, and other factors that cannot necessarily be replicated with additional funds. As a result, your donation may result in (a) an expansion of a program that has been successful in the past, but is much less effective (or much more expensive) when expanded; or (b) funding of tangential activities – or simple accumulation of reserves – for a charity that is unable or unwilling to expand its "flagship" program.

In our experience, it is very rare for a charity to turn down additional funding (particularly unrestricted funding) under any circumstances. We have few indisputable examples of charities that can't productively use additional funding, but we have several examples of charities for which it appears to be a strong concern:

• The Aravind Eye Care System covers the costs of its eye surgeries from revenues, and explicitly uses donations for tangentially related programs. Full review here
• The Smile Train stresses its use of funds to pay directly for surgeries in the developing world, but its financials appear to include large allocations to other activities including provision of educational materials and grants to other large organizations. We speculate that expansion of its key program may be limited by the supply of skilled surgeons, rather than by the supply of funds. Full review here
• The GAVI Alliance, a funding vehicle for immunizations, redirects a substantial amount of its funding to other large funding vehicles. We speculate that it may have more than enough funding for all high-quality proposals. Full review here

How we assess whether a charity has room for more funding

The question of how to determine whether a charity is "overfunded" seems to be one of which practically no public analysis exists. We have gained very few suggestions from reviewing literature and speaking with experts, and have no widely accepted or fully reliable way of dealing with this issue. However, we adhere to the following rules of thumb:

Evaluate donor vehicles, not programs – and seek vehicles for which we can issue blanket recommendations. As discussed above, we feel it is likely futile to seek to fund one project/item within a larger organization, especially when (as is often the case) the organization has a large pool of unrestricted funds at its disposal. In addition, when restricting one's donation is effective, it may ultimately result in a different kind of harm: "micromanaging" an organization and creating misalignment between its priorities and its funding. We prefer to send funds to entities that share our priorities, rather than forcing (or trying to force) our priorities on entities that do not share them.

We do not literally require an entity to be an independent organization (i.e., corporation). In some cases, an entity that is formally a "department" of a larger organization may still effectively solicit, and manage, its own funds, such that donations are not fungible with the larger organization's activities. Rather, we seek to recommend only entities that employ their own fundraising staff. Intuitively speaking, an entity or project that shares fundraising staff with other projects presents a high risk of fungibility; an entity that raises its own funds is likely to guard against fungibility (i.e., to ensure that revenue it pulls in from one source does not result in diverting revenue from another source).

For charities that carry out a broad variety of programs, we feel it is essential to have a past and projected budget by program, as well as evidence of impact for enough programs to account for the bulk of funding (at least 75%). When this information is not made available, we will not issue a recommendation because we cannot have confidence in the organization as a whole.

Focus on reasonably large organizations that appear capable of replicating activities in different regions. We do not believe it would be appropriate, for example, to recommend an organization with a $100,000 annual budget, such that our recommendation could result in a doubling of its available funds. We seek organizations that already have some track record of managing reasonably large amounts of money, and ideally of replicating programs in multiple regions.

Examine basic financial data for basic warning signs. Large accumulations of reserves or stagnant expenses may serve as warnings about a charity's ability to productively use additional funds. Details of our financial analysis are here. We generally only apply this analysis to particularly strong charities (i.e., contenders for recommendations based on other criteria).

Seek "funding gap" analysis.

Our most preferred method of assessing room for more funding is to review a detailed breakdown of a charity's planned/hoped-for expenses, its expected revenue, and the resulting "funding gap." When this information is available, we can assess the reasonableness of projected expenses and the quality of the programs that additional donations are most likely to (effectively) fund. We can also continue to monitor the charity in question over time and assess whether its activities are in line with projections.

It appears that this sort of information is rarely published on charities' websites or even available upon request. When it is not available for a particularly promising charities, we seek to discuss "funding gap" issues informally with staff.

When dealing with charities that serve as grantmakers – evaluating and funding proposals from other parties – we generally ask for examples of proposals that would have received more funding if more funding had been available. When a charity has declined to fund – or only partially funded – strong proposals due to limited funds, we consider this a sign that it can productively use additional funds (and we see the declined proposals as representative of the sorts of activities that additional donations are most likely to effectively fund).

We generally only request and examine "funding gap" analysis for particularly strong charities (i.e., contenders for recommendations based on other criteria).

Sources

• Global Giving original site. Available at http://www.globalgiving.com/, accessed 7/7/09.
• Heifer International original site. Available at http://www.heifer.org/, accessed 7/7/09.
• Kiva original site. Available at http://www.kiva.org/, accessed 7/7/09.

1. 1.

   See http://www.heifer.org/site/c.edJRKQNiFiG/b.2663295/, accessed 6/30/09

2. 2.

   See http://www.heifer.org/site/c.edJRKQNiFiG/b.2663295/, accessed 6/30/09

3. 3.

   http://www.kiva.org, accessed 6/30/09

4. 4.

   "Kiva partners with existing expert microfinance institutions. In doing so, we gain access to outstanding entrepreneurs from impoverished communities world-wide. Our partners are experts in choosing qualified entrepreneurs. That said, they are usually short on funds. Through Kiva, our partners upload their entrepreneur profiles directly to the site so you can lend to them." http://www.kiva.org/about, accessed 6/30/09

5. 5.

   http://www.globalgiving.com, accessed 6/30/09

6. 6.

   See the FAQ beginning at http://www.globalgiving.com/help.html#4.1.1 , which implies that GlobalGiving is best suited to projects within established charities, as opposed to startup/one-organization-one-project funding.

7. 7.

   "Often projects listed on GlobalGiving have other sources of funding, including funding from their project sponsor organization or other donors that make up the remaining funding needs from the project budget listed on GlobalGiving. In addition, "donation options" listed on every project page provide an idea of what the project organization can accomplish with various levels of funding less than the total project need. Organizations warrant that funding received through GlobalGiving, even if less than their original project need, will be spent on the project activities outlined in the project page and they take responsibility for reporting on these activities through project updates.

   In rare cases, the funds donated to a project are insufficient for an organization to go forward with any part of their planned activities. If a project cannot go forward with the funds donated, the project will be removed from the web site and donors will be notified. Donors will receive a GlobalGiving gift certificate equal to their original donation, and GlobalGiving will suggest similar projects already in implementation that donors could choose to support with their gift certificate." GlobalGiving FAQ - http://www.globalgiving.com/help.html#2.3.4, accessed 6/30/09