How ARK AID appraises charities
The basic assumption:
"The heart is deceitful above all things, and desperately wicked" (Jer 17:9). ARK AID keeps this in mind when appraising charities. ARK AID does not assume that all aid organizations are functioning properly until the opposite is revealed by way of the media or otherwise. Nonprofits must demonstrate that they are doing good.
What ARK AID rates:
1. ARK AID only rates organizations that have some claim to being Christian
2. ARK AID only rates organizations that claim to help the extremely poor
3. ARK AID only rates very large 'support-charities'* and the 'output-charities' when that information is made available.
4. ARK AID only rates that single aspect of an organization that has to do with the effectiveness of help for the extremely poor (Multipurpose charities that also have as their purpose aid for the extremely poor invariably receive lower rating scores-which is not a judgment about the charity as a whole).
*definitions for terminology between apostrophes are contained in the glossary
What this means: The stakeholders served by ARK AID are exclusively those whose desire it is to make a maximum impact by providing 'direct' aid for the extremely poor in a Christian context.
Appraisal between input and output
ARK AID is conducting research in the science of the comparative analysis of the predictive power of metrics used in output and outcomes predictions of 'Christian' nonprofits involved in poverty alleviation. This activity is done with the corollary of establishing a succinct algorithm that assigns a relative value to a nonprofit. This research, collating of data, and value determination is done with a view to bench-marking nonprofits for the benefit of benefactors who want to let their mind meet their hart, and generate a maximum impact, when giving to help the marginalized of this world. ARK AID is in this sense a partner in the effective altruism movement. The effectiveness of an output, even when it has been classified as a maximum impact project, is still proportional, not only to the input (the gifts given), but to the effectiveness of the throughput of the input for that project; a much neglected area of investigation and concern.
The results of this investigation and appraisal are represented on a benchmark scale given as a percentage, or a number out of 100. This relative value of a nonprofit is displayed by way of data visualization on a web page using a multiple range slider to show the various metrics used for appraisal. The resulting value is then transposed into the common 5 star value representation system and given a total evaluation grade of a number out of 100.
Each charity has 4 segments (metrics) of evaluation, (each of which are given an evaluation grade in %).
0-100% points for segment 1 concerning 'Revenue' [50% of the slider];
0-100% points for segment 2 concerning the 'Religious' [20% of the slider];
0-100% points for segment 3 concerning the 'Recipients' [15% of the slider]; and
0-100% points for segment 4 concerning 'Results' [15% of the slider],
all of which are displayed as data visualization in the bottem row of the columns (channels), on a multiple range slider. Each segment (channel) of the slider shows the resulting calculated charity appraisal points in the middel row. The total amount of points in the 4 segments are then transposed to the 5 star value system and shown below the slider. An example:
It is possible that the slider be used to increase or decrease the size of one or more segments. When this is done, the remaining segments are decreased or increased proportionally as to size which in turn influences the number of points allotted to each segment. When the total amount of points change by this action, then also the value ascribed to the 5 stars change. This action allows for viewer input by the evaluation of nonprofits. It allows for personal preference as to the relative importance of the various segments of evaluation (the channels) by changing the percentage of their influence. It is also possible to add segments and give a personal points value to those segments in the case that one is of the opinion that another area of evaluation should be added to the 4 that ARK AID uses. And again, the new total points value of the charity will be ascribed to the 5 stars visualization.
Explanation of the 4 segments of evaluation:
Efficient appraisal of each segment is dependent upon the transparency about these segments as it is supplied by the charity, especially as it pertains to the 'output-charity'. When transparency is deficient, an educated guess is made in which the benefit of the doubt tends to the negative side, the thought being, that perhaps someone is hiding something, which is the same as the giving of a negative evaluation because of a lack of transparency. For this reason transparency, as such, is not included as one of the segments of ARK AID appraisal.
R1 (Revenue) is a measurement of the effectiveness of the throughput of a 'gift', between the giving and the 'spending'. This accounts, in the case of ARK AID appraisal, for a maximum of 50% of the total evaluation of a charity. For each percentage point above zero, one point out of a hundred (or, 1% out of a maximum of 100%) is allotted to the total evaluation. An example: a 'fund-raising-charity' has a total annual revenue of $12,000,000; grants of a portion of this amount are given to the 'mother-charity'; then the mother re-grants a portion to a 'partner-charity' which itself also has overhead costs. The partner-charity 'spends' $8,000,000 for the 'project'. This is 67% of the total annual revenue which means 67 R1 evaluation points are allotted to the charity.
R2 (Religious) is an appraisal of integrity (50 points) and identity (50 points). This applies foremost to the 'output charity' and secondarily to the 'control charity', 'fund raising charity' and other organizations in the 'charity-chain'. Questions are asked as to the truth factor of claims about results, costs, fund raising methodology, donation anchors, investment policy, etc. Inquiry is also made about the meaning of the professed 'Christian' identity, of explicit or implicit values, a statement of faith, etc.
R3 (Recipient) is an assessment of the poverty level of the benefactors of the gift. The amount of points ascribed is inversely proportional to the average population income per day (100/$1=100 points and 100/$4=25 points, etc). More then $10/day=0 points. Measurements are according to purchasing power parity. The measurement is country dependent, excepting for those cases in which the recipient group is clearly identified.
R4 (Results) takes a look at those things that are indicative of the level of accomplishment that an 'output charity' would probably realize. This includes levels of professionalism (max 25 points), specialization (max 25 points), concentration of project locations (max 25 points), and methodology of checks and balances (max 25 points). Results measurements are only indicative; we hold that a quantification of results as such, and more so of impact, although desirable, is at its best only partially attainable. It may seem to be insufficient to give only a maximum of 15% relative metric value for results measurements. After all, this is what giving is all about. But we hold that the variables of Revenue, Religious, and Recipient are themselves indicators of Results. Less Revenue (throughput of the gift), as an example, is indicative of the fact that Results would also be less.
So, why another rating organization? What's wrong with what's out there already? First of all, what is out there? Not much. The accreditation agencies that for a fee give a stamp of approval do not rate. They do not even make public the rejection of those nonprofits that apply for a stamp of approval and do not meet the requirements. And as to organizations that rank or rate charities, they are very scarce. Many countries do not even have a single organization of this kind. Rating organizations that work internationally are nonexistent; this, while many nonprofits work internationally, having offices in many countries, and transferring grants back and forth among themselves. A value determination of accreditation agencies and a 'rating' of rating organizations are explained in separate section of this writing.
Aid appraisal is not a neutral science;
but is founded on predetermined presuppositions, axioms, and basic assumptions. It is necessary to be
transparent about these departure points. When making appraisals, ARK AID has regard to the following basic assumptions:
1. Charity appraisal is not a neutral science
Philanthropy is all about voluntarily doing good; about giving to make an impact. But what is good? How are maximum outputs and impact to be measured? All impact measurements are based on value judgments about what good is. But whose values? For a Christian the measure of truth and goodness is God Himself, His Word, and the pattern of His love for man (philos-anthropos: Titus 3:4). One then, for example, takes into account eternal values and the impact of eternal destiny next to temporal social improvements when assessing a charity. For missionary work, to give another example, this means that an assessment of output is as much based on faithfulness as it is on success measured in numbers of converts. For others with different values, these metrics of eternal values and conversion would be rated quite differently, even having a negative value. There ought not to be the presumption of neutral ground when making appraisals.
2. Because appraisal implies the making of value judgments, contrasting charities, without assessing basic values, invariably implies apples and oranges comparisons.
It is common practice when rating charities, whether by those doing comparative ratings or those accreditation agencies giving a stamp of approval, that comparisons are restricted to that which charities have in common. Umbrellas and toasters have a financial aspect in common. They both cost money. But comparing the two on this basis would be recognized as absurd. Giving 10 dollars to the 35 billion dollar endowment fund of Harvard University or giving it to a mother whose child is dying because of diarrhea can be compared. Both have a financial component: fund raising costs, overhead costs, assets, money flow transparency, salaries, etc. But the more fundamental component is value-based; whether it is better to give to the one, or to the other, to both, or to neither.
3. Apples with apples value comparisons are only viable when one has respect to charity output task (projects) comparisons and not to charity organizational comparisons as such.
An example: charity 'A' and charity 'B' both claim that 90% of gifts that they receive are for project costs. 10% is for fund raising and administration. 'A' and 'B' both have the same partner 'C' to whom they give grants. How do they compare?
Charity 'A' has three projects: (1) education (about 'A' and what 'C' is doing), and (2) advocacy (about the need to give to 'A'), and (3) grants to 'C'. 'A' gives 50% of gifts to 'C', 20% is used for education, and 20% is used for advocacy.
Charity 'B', on the other hand, has only one project and that is giving grants to 'C'. 'B' gives 90% of gifts to 'C'.
So, how can 'A' be compared to 'B' without making a value judgment about the impact and social good of education and advocacy? They can't. As the nature and tasks of charities become more diffuse, output and outcomes measurements, comparisons, and appraisal becomes more problematic. An example: just 4 charities, each with only 10 characteristics which need to be measured, would result in 10,000 variables, as is the case for a 4 number pin code. Task comparisons are vital. Charity organizational comparisons are only relevant to the degree that they have a bearing on the realization of the task.
4. In assessing aid given toward poverty alleviation, it is imperative to restrict task measurements to a single task group in order to be meaningful.
The implication is that a value judgment is not provided by ARK AID about other charity tasks such as education of the more well to do, advocacy, culture, environment, etc. The consequence is that comparisons are not made between charities involved in poverty alleviation and others involved in remotely related or other non-related tasks. The stakeholders served by ARK AID are, for this reason, exclusively those whose desire it is to make a maximum impact by providing 'direct' aid for the extremely poor.
5. In assessing aid given toward poverty alleviation, it is desirable to restrict task measurements to 'direct' aid in order to be meaningful.
In an indirect way poverty can be reduced by giving towards education, good governance, advocacy, environment, as well as numerous other causes, sometimes even more effectively then by 'direct' aid. Research in the area of effective altruism and comparative impact measurement of differing tasks is of tremendous importance but extends beyond the scope of ARK AID appraisal activity.
6. 'Direct aid' is to be understood differently than 'earmarked aid'.
Appeals to give to a charity are often accompanied with a promise that a gift will be earmarked for a certain project such as adoption of a child mentioned by name, a cow for a poor person, mosquito nets, etc. Appeals for CEO salaries, fundraising costs, etc. are never made. Unless provisions have been made to ….......................
Misconceptions about charity appraisal.
In order to rate a charity properly, it is paramount to define the terms used; what is a charity, a gift, a grant, fund raising costs, overhead, project costs, christian, poor, etc.? Even a word like 'we' needs to be defined when it is claimed that 'we' help so many millions of people. Often the use of these terms are understood differently by the charities themselves and potential donees. For that reason, and for clarity, it is necessary to dispel with some common myths about charities, their work and their values. In so doing, we define the terms that we use in accordance with common usage. For this, go to the glossary.
The impropriety of using fund raising costs as a legitimization of nonprofit propriety.
Virtually all nonprofits, all charity rating organizations, and all charity accreditation agencies use as one of their foremost criteria of assessment and evaluation the factor of fund raising cost ratios. The lower the fund raising costs compared to the total funds raised, the higher the assessment. This ratio is most often displayed by way of a slice in a pie diagram. A potential benefactor, at a glance, is made to understand that a small slice of the pie, as compared to the projects slice, implies that only a very small portion of a gift is used for overhead. The implication then is: this must be a very good charity.
But this kind of appraisal, together with the visual portrayal in a pie diagram, we believe to be fundamentally ungrounded and often purposefully misleading. This is evidenced by the following:
1. 'Fund raising costs', as the term is used by the various organizations means almost everything; and therefore nothing. Excluded from the calculation of the costs is, very often, everything that is normally associated with fund raising costs, as for example advocacy costs (for the need to give to the charity), education costs (about the needs of the poor and the need to give to the charity), even administration costs and CEO salaries, or an unexplained portion thereof, and so on, all of which are then attributed to 'project costs' and not to 'fund raising costs'. After all, it is argued, project costs are all those costs which have to do with realization of the project, which, of course, it is claimed, would involve fund raising or administration costs (most often in an unexplained way), otherwise the project could not be realized. With this broad definition of 'project costs' it could easily be argued that 100% of donations are used for project costs. But nobody would believe that, and therefore the pretense of a small overhead.
2. Fund raising costs made by call centers, banks and gift transfer agencies that charge for services, and other charities that pass on donations and grants to the nonprofit being evaluated, all of which have already deducted a portion of the original donation, are generally not included in the calculation of the fund raising costs of the nonprofit under investigation. When fund raising costs are calculated on the basis of gifts and grants received by the nonprofit, and not on the basis of gifts given by the donor, then any claim about the worth of a charity on the basis of fund raising costs is meaningless.
3. When grants are received from governments, churches, endowments, other NGO's, etc., for which no, or minimal costs were made to attain, then the inclusion of these grants for the ratio calculation is misleading. Including monies extracted from assets or derived from the investment of assets (whether from interest on savings, stock market gains, or similar) in the ratio calculations is equally misleading.
4. Statistics show that spending to do professional fund raising is effective and can be very profitable. But statistics reveal as well that the overall amount given by the general populace on the basis of per capita income has also remained stable for decades. This means that success in fund raising for the one charity, inevitably results in a decrease of funding for other nonprofits. 83% of all funds raised in the USA goes to only 1% of the nonprofits (in other countries the numbers are probably not much different). Another way to say this is that 99% of nonprofits receive 83% less funding out of the total amount given because of the fund raising success of the 1%. Only when it is proven that the successful fund raising nonprofit is better (not in fund raising but in doing good, dollar for dollar) could it be established that a good fund raising ratio would possibly be indicative of the worth of the nonprofit. If the opposite is true, a good fund raising ratio would be indicative inversely of how undesirable it would be to give to that nonprofit. Just another reason why fund raising ratios in themselves are meaningless.
5. Optimal fund raising ratios based on 3rd party grant making to a nonprofit invariably implies that the nonprofit is indebted to the grant maker in the sense that the conditions for project realization are for an important part dictated by the grant maker. Government grants, for example, might be given under the condition that only certain countries or project types are allowed, or that a demand is made for the absence of religious activities or otherwise, etc. Positive fund raising ratios may in this case be indicative of other adverse tendencies and point to restrictions for the nonprofit to do good.
6. It is often the prospect of fund raising success that is the determining factor of a nonprofit for the choice of projects and locations. And that success is in turn often determined by the amount of media attention given to a country, a catastrophe, or other need. Locations where the need is perhaps much greater, and projects that produce a greater impact but less revenue, are then not addressed, all of this due to an unhealthy focus on fund raising. The desire of fund raising success often stands at odds with the possibility of doing a maximum amount of good; another reason why fund raising ratios are not indicative of nonprofit propriety.
What has been said of the 'fund raising' slice of the pie is equally valid for the 'administrations costs' and 'project costs' slices.
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