AEA365 | A Tip-a-Day by and for Evaluators

TAG | finances

I am David Erickson, the Manager for the Center for Community Development Investments at the Federal Reserve Bank of San Francisco.

In the community development finance and socially-motivated investing worlds, there is both universal agreement for the need for better social outcome measurements and no consensus on how to do it. And yet the pressure to innovate in this area is coming from many sources—from government, consumers, investors, and others.

Lessons Learned: A growing consciousness among consumers and investors about social and environmental issues is already changing the types of products and services that are available in the marketplace. Government, too, is seeking to change the ways it does business by providing more resources to programs that are proven to work and by directing funds away from programs that don’t. Xavier De Souza Briggs, Deputy Director of the Office of Management and Budget, captured this idea at a recent Federal Reserve conference where he explained that leaders in government are trying to change “the DNA of the federal government” so that it can take more risks and reward investments that yield better social outcomes. That change – both in the market and for government – requires better data on social impact.

If it is possible to use investments – by the government and socially-motivated investors – to improve society, the question is how do you know they are succeeding? How do you do this where investments cover a wide range of issues? How do we agree what constitutes impact and what tools can be developed to track it? What is the role government can play to enable standard setting and measurements?

Hot Tip: The Board of Governors of the Federal Reserve System and the Federal Reserve Bank of San Francisco are hosting a meeting titled “Advancing Social Impact Investments through Measurement: New Capital for Community Development” to tackle those questions on March 21, 2011 in Washington, DC.

Resource: Our journal, the Community Development Investment Review, recently devoted the full issue to measuring social impact, including articles exploring social metrics and investing, measuring nonfinancial performance, and the role of the federal government in measuring and defining social impact in the impact investing field. All articles are available for free download.

Do you have questions, concerns, kudos, or content to extend this aea365 contribution? Please add them in the comments section for this post on the aea365 webpage so that we may enrich our community of practice. Would you like to submit an aea365 Tip? Please send a note of interest to aea365@eval.org. aea365 is sponsored by the American Evaluation Association and provides a Tip-a-Day by and for evaluators.

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We are Ehren Reed and Johanna Morariu, Senior Associates of Innovation Network. We work with foundations and nonprofits to evaluate and learn from programs, projects, and advocacy endeavors. For more than fifteen years, Innovation Network has been an intermediary in the philanthropic and nonprofit sectors—our mission is to build the evaluation capacity of people and organizations.

For some time, the evaluation field has lacked up-to-date, sector-wide data about nonprofit evaluation practice and capacity. We thought that such information would not only be helpful to us as evaluation practitioners, but could also inform a wide variety of other audiences, including nonprofits, funders, and academics. The State of Evaluation project (www.stateofevaluation.org) is Innovation Network’s answer to this need. In May 2010 we launched a survey to a nationally representative sample of 36,098 nonprofits (all were 501(c)3 organizations) obtained from GuideStar. We received 1,072 complete responses from representatives of nonprofit organizations (for a response rate of 2.97%). Survey results are generalizable to all U.S.-based nonprofits, with a margin of error of plus or minus 4%.

Lessons Learned:
With a tip of the hat to David Letterman, here are the “Top Ten” highlights from State of Evaluation 2010: Evaluation Practice and Capacity in the Nonprofit Sector:

1. 85% of organizations have evaluated some part of their work in the past year.

2. Professional evaluators are responsible for evaluation in 21% of organizations. (For more than half of nonprofit organizations, evaluation is the responsibility of the organization’s leadership or board.)

3. 73% of organizations that have worked with an external evaluator rated the experience as excellent or good.

4. Last year, 1 in 8 organizations spent no money on evaluation. (Less than a quarter of organizations devoted the minimum recommended amount of 5% of their budget to evaluation.)

5. Half of organizations reported having a logic model or theory of change, and more than a third of organizations created or revised the document within the past year.

6. Quantitative evaluation practices are used more often than qualitative practices.

7. Funders were named the highest priority audience for evaluation.

8. Limited staff time, limited staff expertise, and insufficient financial resources are barriers to evaluation across the sector.

9. Evaluation was ranked #9 of a list of ten organizational priorities. Fundraising was #1, and research was #10.

10. 36% of nonprofit respondents reported that none of their funders supported their evaluation work. (Philanthropy and government sources are most likely to fund nonprofit evaluations.)

This report—State of Evaluation 2010—marks the first installment of this project. In two years, we will conduct another nationwide survey and update our findings. To learn more about the project, please visit www.stateofevaluation.org.

This contribution is from the aea365 Tip-a-Day Alerts, by and for evaluators, from the American Evaluation Association. Please consider contributing – send a note of interest to aea365@eval.org. Want to learn more from Ehren and Johanna? They’ll be presenting as part of the Evaluation 2010 Conference Program, November 10-13 in San Antonio, Texas.

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My name is Kristen Cici, and I am the owner of The Advancement Company (http://www.theadvancementcompany.com) and blogger at NonprofitSOS: http://www.nonprofitsos.com. I tend to primarily work with nonprofit organizations and am interested in nonprofit capacity building.

Hot Tip: When most think of evaluation they think of evaluating a program or policy. I like to help people think of the other ways one can use evaluation in their work, such as a performance review. The tip I am going to share comes from my blog post “Want to know how your nonprofit is doing financially?”, and will help you determine an organization’s financial sustainability.

One of the best ways to gain insight into how an organization is doing is look at an organization’s Defensive Interval, which will tell you how long that organization could survive with its cash on hand. To calculate the defensive interval:

(Cash + Marketable Securities)/(Operating Expenses/365 days)

Note: Marketable Securities are liquid investments, things that can be bought or sold with little effect on their price. They typically have maturities of less than a year, so for example a 6 month CD would be considered a marketable security.

Organizations should have at least 90 days worth. For more ways to look at how you organization is doing financially, check out “Want to know how your nonprofit is doing financially?” at NonprofitSOS and calculate the debt ratio, program expense ratio, and working capital ratios for your organization!  http://bit.ly/financialdefenseintervals

This contribution is from the aea365 Daily Tips blog, by and for evaluators, from the American Evaluation Association. Please consider contributing – send a note of interest to aea365@eval.org.

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