Guide to "room for more funding" analysis

The question of "room for more funding"

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.

• A successful program can rely on many factors besides money, such as skilled labor, political support, and appropriate target populations. Thus, more money can't necessarily be used to do more of it. 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 programs donors want to fund don't necessarily match the programs charities want to carry out. Thus, a charity may focus on one program in solicitations, when its intent is to use donations for another program or simply add them to reserves. We have seen charity representatives make explicit statements to this effect.1 (We almost never come across a charity whose representatives state that it has enough money and doesn't seek more donations).
• Charities may be able to execute different activities with an additional $20 million vs. an additional $1000 - the total amount of additional funding they're getting matters. For example, see our review of the Schistosomiasis Control Initiative (SCI).

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.)

Why earmarking your donation isn't the easy answer

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.

How GiveWell analyzes room for more funding

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 late 2009, VillageReach showed room for several million dollars over six years; as of early 2011, its short-term need had been met and it had room for ~$1.4 million more over the next several years.
• In late 2010, we found that the Nurse-Family Partnership had only a very long-term need for more funds.

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.

More GiveWell content on this topic

• All GiveWell Blog posts on room for more funding (reverse chronological order)
• GiveWell's posts on Smile Train, which appears to be short on surgeons rather than on dollars:
  • Our original analysis
  • Followup two days later: Smile Train removed the charts we discussed from its website.
  • Later followup quoting Smile Train on the topic.
• GiveWell's analysis of the March 2011 earthquake and tsunami in Japan. We concluded that the relief effort, in general, had no room for more funding; the Japanese government had the financial means to mount the best relief and recovery effort possible, and was asking only limited assistance from nonprofits.
• GiveWell's analysis of the 2010 earthquake in Haiti. We concluded that it was unclear whether the relief effort had room for more funding: needs were dire, but many of the most important obstacles to relief - particularly logistical problems - didn't depend on the amount of funding available, and we found it possible that the presence of too many nonprofits was making things worse.

Sources

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.

• 1. Two examples:
  • The GiveWell Blog, "Room for more funding and fungibility: from the horse's mouth."
  • " I was introduced to Skip1.org, a new marketing effort of the Children's Hunger Fund by a friend over Thanksgiving dinner. I was pulled in by the simple message 'Skip something. Feed a child.' 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.