Non-governmental organizations (NGOs) make a substantial difference in quality of life all over the world. Household names like Amnesty International, the Carter Center Human Rights Program and the International Committee of the Red Cross are just some NGOs that are dedicated to supporting the public good.
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Unfortunately, not every NGO uses its funding in an effective, transparent and responsible way. Some NGOs believe so strongly in their agenda that they’re unwilling to change ineffective programs. It wouldn’t be right to judge NGOs by private sector standards. However, they also should not be judged by objective measures. These three NGO performance metrics provide a good starting place for evaluating NGO effectiveness.
Return on investment (ROI) is the quintessential metric of private sector success. For every dollar spent by investors, companies should not only recoup what was spent but also generate additional profit. NGOs, or “third sector” organizations, aren’t necessarily in the business of building donor wealth, although some innovative public-private partnerships (PPP) have created returns for investors while providing tangible benefits for society. Instead, NGOs exist to clean up water supplies, build shelters and educate orphans in war-torn regions.
Social ROI (SROI) measurements are often created by individual NGOs or by NGO consultancies. For example, Amnesty International uses a complex “Dimensions of Change” model that analyzes not only the outcomes that its programs should accomplish but the degree to which change is realistic under different circumstances. SROI provides a good overall picture of an NGO’s performance. It’s a useful end-of-year measurement, and it’s also useful when providing annual reports to donors.
Cost-benefit analysis attempts to quantify the ratio between the amount of money invested in a project and the benefit it could generate for investors. For example, if an energy company forecasts that investing $1 billion in a new oil refinery may generate $5 billion in new revenue, then the benefit of building the refinery outweighs the startup cost. NGOs should use cost-benefit analysis before launching a new program and asking their donors to fund it. Costs that should be analyzed include what it costs not to do the project, what opportunities the NGO gives up in order to fund the project and what the NGO will lose if the project fails.
NGOs look at cost-effectiveness to see outcome efficiency relative to how much they are spending. Cost-benefit analysis informs whether new projects should be started; cost-effectiveness evaluates a project’s efficiency over its lifetime. Some experts shy away from this measurement because they argue that human value, such as the number of lives saved by providing clean water, supersedes monetary measurement. However, NGOs have a fiduciary responsibility to get the most for their donors’ dollars, and cost-effectiveness is a crucial metric for overall stewardship.
Cost-effective analysis gives NGOs the chance to drill down into their cost structure. For example, if a program that was once cost-effective has grown too expensive, then the NGO can find more efficient ways to have the same or better impact. If a once effective program has ceased to have an impact, then the NGO can find out why the program is no longer effective and then change it or fold it as needed.
Private donors typically give from a desire to effect change and to increase their own happiness. Alternatively, corporations give as part of a social responsibility plan, and giving to an effective NGO improves their branding and their shareholder value. Additionally, public sector donors give taxpayer money to NGOs, and they expect NGOs to deliver positive results for the taxpayer’s investment. To be worthy of the public trust and to keep their word to the donors who support them, NGOs should be able to quantify how well they’re using donor money to fulfill their missions.