Align Expectations with the Level of Risk

There are two philosophical topics that go to the heart of effective giving that haven't been treated thoughtfully elsewhere. The first is the notion of risk. In a regular investment situation, investors understand that if I make a bet on an oil strike or a gold mine, my chance of success is low and my payoff is very high. They understand these investments as being high risk. Philanthropy, however, is the one area where neither experienced nor inexperienced donors understand the risk and nature of what they do.

For example, a $10,000 grant is significant when you make it as an individual. It is also significant to the organization that receives it. But should you expect that the organization will solve poverty in your community because you gave it $10,000? No, it's not realistic to expect that-yet people do. Only the lottery gives the kind of odds that people expect from philanthropic investments: a small amount of money to bring a huge return. You don't play the lottery as an investment strategy. The same is true in philanthropy. As a donor, you need an understanding of the size of the problem you're trying to solve, relative to the amount of money you're investing.

Tailor Outcome Measures to the Mission

The other topic that's neglected has to do with the question of outcomes. Although this is discussed a lot, it is not a nuanced discussion. Donors need to ask themselves: "How much am I putting in and what is reasonable to expect that the organization will be able to do with it? And how does the organization measure outcomes against the mission?"

For example, let's say I support a feeding program for the homeless. I can tell you every night how many people we served a meal to, how many didn't go to bed hungry. But have I affected longrange hunger? Have I made systemic changes in my community? No. The outcome is easy to count, it's straightforward and easily understood, and it fulfills the mission of the organization. However, it may not fulfill the mission that you prefer to fund.

An effective giver has to ask: "What is the mission of the organization I'm supporting and what is success in those terms?" You cannot just look at an organization and conclude that it is successful because it has what I call "counting success." Its success measures must be appropriate to its mission. As a donor, you are right to talk about standards and accountability, but the conversation must also be about what the mission is and determining reasonable benchmarks. One program may be 50% effective, another may be 75% effective, according to their outcome measures. But the 50% effectiveness rate may in fact be very high, given the mission and the risk involved.

Effectiveness Depends on What is Valued

Another point to understand is that what is effective can depend on the population being served. For example, people will argue for hours that McDonalds' french fries taste better than Burger King's. To me, they're the same, but to my ten-and-a-half-year-old daughter Yeti, there's a difference. Similarly, if I've got a youth program serving Spanish-speaking kids and a traditional youth program that doesn't, to some people that difference may be important. I'm an African-American and am sensitive to taking Yeti places where there is no African-American presence. I want her to have a certain experience that provides a positive image for her as an African-American female.

So, just because there are two programs that appear to provide the same service does not mean there is a duplication of programs. In general, donors are not encouraged to understand that what may be an irrelevant difference from their point of view is a critical difference to others. That critical difference can account for differences in success rates with different populations. The people who support a particular program believe it is best for what they're interested in. That's why you have to relate the mission of the organization to the outcomes.

--From a conversation with Pamela Gerloff