Foundations need to better understand how to evaluate the costs and benefits of projects that nonprofits want to start, two economists argue in a new book, The Robin Hood Rules for Smart Giving. Michael Weinstein, senior vice president at the Robin Hood Foundation, a grant maker that fights poverty in New York, and Ralph Bradburd, a Williams College professor of political economy who advises the group discussed their ideas in an interview with The Chronicle:
How does Robin Hood make its grant-making decisions?
Mr. Weinstein: We take each proposal and the first thing we do is identify all of the poverty-relevant benefits it might produce. What we count as poverty fighting are things that lift the living standards of low-income New Yorkers.
Once we’ve made that list, we assign a monetary value to each of those benefits, whether it’s gaining a high-school diploma, a health benefit, or a lower probability of criminality.
It’s a combination of a probability that the benefit will occur with the dollar value, if it does occur. We add them up and divide it by the cost.
What do foundations need to do differently?
Mr. Bradburd: Look at what are really inputs rather than outputs. How many clients did my counselors see? That tells you nothing.
What you want to know is not how many people did they see, but what change did they make in the living conditions of the people they did see?
To answer the latter question, you have to ask, What would the circumstances of those who were helped have been had this philanthropic intervention not occurred?
How does Robin Hood manage risk?
Mr. Weinstein: We have a board with a large number of hedge-fund traders and financial types who are used to risk and don’t mind it.
I joke that if the program staff reported to the board that every grant we had made the previous year succeeded, we’d all be fired. If nothing fails, you’re not taking any chances.
We look at the ideas that excite us the most and then we impose a hard constraint—one year from today, we will have the data that tell us whether we’re succeeding or not.
We don’t just cut a check, we provide lots of management assistance. Program officers are in contact several times a month with grantees during the year so we find out about problems along the way.
You want to take the right amount of risk.
Mr. Bradburd: Philanthropy has adopted a standard of cost-effectiveness. There’s a difference between lean and mean, and starving and stupid.
Donors should be focusing on the overall benefit per dollar of expenditures, not on just what percentage of total revenues is being spent on administration. Donors should ask the people who are asking them for money how they’re measuring the benefits of what they’re spending.
