If a charity's core program is outstanding, is this enough reason to donate to it? We say no. There is still the question: how will the charity's activities be influenced by additional donations?
There are several reasons that a charity may not use additional funds the same way it used past funds, or the same way as the donor hopes.
For example, we have argued that the surgery charity Smile Train has a shortage of skilled surgeons, not a shortage of funds, for its core program. More examples below.
The "room for more funding" question is the question of what a marginal (additional) donation to a charity results in. This is not the same as the question of how your donation is officially used - we feel that earmarking your gift for the program you want to support is not likely to be effective, as discussed below.
We have found very little helpful research or analysis on the "room for more funding" question, and feel that it is largely neglected in public discussions outside of GiveWell. (Major foundations largely don't have to deal with this question, since they can give enough funding at once to condition it on specific projects; "room for more funding" is mostly relevant to individual donors, among whom impact-focused discussions appear to be rare.)
Donors sometimes "earmark" their donations, restricting them only for use in a particular program. However, just because a donation is formally allocated to a given program doesn't mean that the charity is executing more of that program than it would without the donation. Most charities have unrestricted funds that they use to supplement restricted funds; if a charity can't, or doesn't wish to, expand a given program, it can often offset your restricted donation with a reallocation of unrestricted funds. That is, restricted funds may be fungible with unrestricted funds.
More discussion at our 2009 blog post on earmarking donations.
GiveWell's "room for more funding" analysis has developed significantly since the beginning of our project.
For most of our history, we have had only basic heuristics for assessing a charity's room for more funding, such as examining which programs have been growing recently and looking for warning signs in the financial data (such as a high level of assets relative to expenses). Details at our 2009 blog post on simple ways to check room for more funding.
In late 2009, we first developed what we consider a far superior approach: scenario analysis asking how a charity's activities would change at different levels of total unrestricted funding. This approach allows us to check back later and see the extent to which actual activities were in line with actual funding (and, if there is a discrepancy, to have a conversation about it). Applying this approach has led us to much more concrete, and sometimes surprising, picture of charities' room for more funding:
In our experience, this approach to assessing "room for more funding" requires substantial time investment on our part and on the part of the charity in question. Therefore, we only conduct it for groups we consider highly promising. For those charities that we don't find promising enough, or that we simply haven't done in-depth updates on since developing our new method, we stick to the basic heuristics mentioned at the beginning of this section.
Bennett, Diane. Aid Watch Grinch Edition: Are We Mean to Ask that NGO Ads not be Simplistic and Wrong? (accessed May 30, 2011). Aid Watch, December 15, 2009. Archived by WebCite® at http://www.webcitation.org/5z4xCIRIG
The GiveWell Blog. Room for more funding and fungibility: from the horse's mouth.
To illustrate this, the site has a video of plates of gourmet steak and veggies being transported from a table at an upscale restaurant to starving children in another country – still on their pristine white plates, served by a smiling waitress ... Of course, aid veterans, although not the general public, know that direct donor-to-child transfers never happen because of high transaction costs, so the ad is already misleading in a very well known way. But then we find out that the reality is that CHF is not even primarily a food distributor ... according to Fred Martin, Communications Director at CHF, 'In fact our Food Pak program is a small portion of what we do. We highlight it because it is our flagship program that we've seen work very well in building relationships with the poor so that deeper needs can be uncovered and responded to.' I learned from Fred they also provide beds in eastern Europe and medicines in Asia, which are not identified on their website or their annual report to donors (only the totals of aid given by country or region)." Bennett 2009.