A recent story on NPR caught our attention here at Public Works. It explored how Charity Navigator—the organization that helps inform donors decisions which charities use their funding most effectively—is changing its long-standing system for evaluating non-profits: comparing program spending to administrative spending. Instead, it would be looking at measures of impact and effectiveness of programs’ outcomes. Public Works Partners spends a lot of time helping our clients to evaluate the ways their organizations impact their communities. So, naturally, we were intrigued.

We’ve been known to use Charity Navigator, and we’re sure we’re not alone. It’s easy to appreciate their straightforward approach to evaluation. If we give $10, how much of that money is going into projects versus “overhead” and administration? It seems intuitive that the organization that spends more of its funding on programs must be more efficient.

But the efficiency approach is not a complete, or possibly even useful, assessment. As Charity Navigator has apparently learned, it overlooks how the operation of an organization might contribute to positive programmatic impact. What role, for instance, do staff talent, organizational creativity, or physical space, play in an organization’s outcomes? For many programs, these elements may, in fact, help an organization maximize its impact and decrease waste, even as they increase the proportion of spending on “overhead”. (Fundraiser Dan Pallotta’s popular TED talk from earlier this year provides some compelling perspectives on this.)

The real question, then, is what measures should organizations use to demonstrate effectiveness.

This becomes Charity Navigator’s big challenge as it moves forward. Part of the reason it is such an appealing site for users is that it is a fast, intuitive tool: you look up an organization and see what percentage of their budget goes to programming. Shifting to a more holistic approach will change the entire user experience, and the site will have to find a way to adapt its organizational snapshots to convey this new methodology concisely and effectively.

Charity Navigator may still look at budgets while allowing organizations themselves to set the parameters of how their impact will be measured. Regardless, the new system will almost certainly open up a meaningful dialogue between donors and non-profits as to how success should be measured and considered. The best thing about this change is the recognition that nonprofits are diverse: size, mission, values, budget, and a host of other factors impact how they operate, and how they impact their clients and communities. Taking the emphasis away from overhead might also provide freedom for more organizations, particularly new ones, to invest in innovation and program experimentation that pays off in the long run.