Effectiveness for Private Foundations—the Obscured North Star

by: Kyle Anderson
October 7, 2022
Cloudy night sky

It is widely acknowledged that private foundations should prioritize the efficient allocation of resources to foster significant and transformative positive change—a guiding North Star to aspire to. However, evaluating the effectiveness of grantmaking by foundations and the impact of public charities is a highly challenging task. While a reliable measure of effectiveness would be convenient, the reality is that no single measure or metric exists for foundations to assess their own effectiveness or that of the public charities they support.

In contrast to the business world, which relies on profitability as a gauge of effectiveness, private foundations and public charities cannot use this profit-based indicator. Some observers have suggested using the overhead ratio as a potential measure of effectiveness. However, this falls short as it assumes all overhead expenses are unproductive, disregarding the integral role these costs play in enabling organizations to pursue their charitable missions. Moreover, the overhead ratio fails to capture progress towards specific charitable goals, making it an incomplete and non-holistic metric.

Given this challenging landscape, private foundations can take several steps to gain a deeper understanding of their own effectiveness.

Firstly, foundations should articulate their goals with clarity. By clearly defining the problem they seek to solve and narrowing their focus, foundations enhance their chances of making a greater impact. Vague goals lead to ambiguous progress, while well-defined objectives make it easier to track progress and identify public charities that align with the foundation's mission.

Measuring the effectiveness of grants and of public charities is a complex and contested discipline, leaning more toward art than science. The methodology of evaluations and the importance of qualitative or quantitative data remain subjects of ongoing debate. Progress in social and cultural issues is often not easily quantifiable, as they involve unique variables, autonomous players, and an ever-evolving landscape. Attempting to measure the impact of specific interventions within such intricate ecosystems often yields less than satisfactory results. Thus, measurement methods vary considerably, requiring professional judgment and introducing a degree of fuzziness.

Despite the complexity, evaluations should primarily be designed to guide future decision-making. Given their expense and time-consuming nature, evaluations should only be pursued if they provide useful information for future grantmaking. Collaborating with public charities to develop indicators of progress and success is essential. For smaller foundations, this may involve reviewing a charity's website to examine their self-proclaimed accomplishments. However, for larger foundations, this collaboration can be a dynamic and thoughtful process. Regardless, it’s important for foundation leaders to avoid demanding more than what is reasonable, both from themselves and their public charity partners.

Evaluating the effectiveness of private foundations and public charities remains an intricate endeavor that blends art and science. While the findings may not always be profound, foundation leaders should strive to rigorously assess their impact and undertake self-assessment diligently, all in the pursuit of making a positive impact on the world.

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