I've long been a fan of the idea of charitable, philanthropic and non-governmental organizations (NGOs) using a corporate portfolio management discipline as a way to demonstrate their resource allocation effectiveness. With the holiday season in full swing, and given that Americans gave $295 billion to charity last year, I got to thinking about this topic again.
Like any organization, charitable/philanthropic/NGOs (henceforth referred to as charities) have finite resources that come with infinite potential demands and objectives.
Many charities already reveal how much of each dollar you donate goes to overhead versus directly to projects and initiatives they pursue. This is good as it forces charities to ensure that administrative costs don't get bloated, and it provided some comfort that the vast majority of dollars are going to specific projects and objectives. In some instances, it helps people select charities based on perceptions of efficiency.
Taking a corporate portfolio management, or rather charity portfolio management view would take this further in a way that benefits the charitable organization and the donor. Charities that employ a portfolio management discipline are positioned better to receive the finite personal and corporate donations that exist. This is because the level of transparency a portfolio management provides raises the profile and comfort donor have with the organization.
What this means at a high-level is that initiatives within a charity requesting funding would need to put forward a proposal detailing the specific metrics/results they aim to achieve. Unlike the corporate setting, the results will likely not be measured in dollars and cents, but in the charity's objectives. The metrics could range from kids going through a particular program, # of families helped, meals distributed, acres of rain forest saved, etc. The money being spent is being used for some objective and that objective should be translated into some quantified result projection.
Instead of the "spreading cheese on pizza" school of resource allocation, charities should select those initiatives that can deliver the most significant impact or greatest "charitable return". There are obvious cultural elements and impediments to making this happen, but ultimately, the organization becomes more merit-based as the best initiatives receive funding. In a sense, a marketplace for these discretionary funds is created and the smartest, most-driven people with the best ideas get the resources. There is an element of charity portfolio management which may not be consistent with the egalitarian ethos that many organizations may prefer. However, in the hunt for talent and in instances where money may not be the carrot a charity can offer, rewarding and entrusting your stars with more of the lifeblood of your organization (e.g., donations) can be a powerful motivator.
With the investments selected, the organization would focus on tracking those investments to see if the desired objectives are being met or not met and why. This is partly done to hold people accountable but more importantly, it creates a feedback loop by which similar initiatives in the future can learn from past actions - either right or wrong. Of course, if someone fails to deliver consistently, a red flag is raised. Alternatively, someone who constantly delivers or exceeds expectations can be flagged as a rising star. The charity portfolio management, in a sense, becomes about optimizing funding resource allocation and over the longer-term, it actually enables better human resource allocation.
With this process in place, the charity is positioned to report back to its donors on what went well and what didn't on the specific initiatives their money was used for. They can also use these learnings to articulate ways they'll be improving processes, resource allocation, programs, etc going forward.
Most people who donate to charities know the people who are leading these efforts and working on the front lines are amongst the most caring, compassionate, selfless and purpose-driven people in the world. And personally speaking, it is very humbling to know that there is such a large community of folks like this. Beyond the feel good aspects of giving, charity portfolio management creates a level of transparency about a group's successes and failures that makes donors more comfortable and willing to give. Instead of giving to a cause and hoping for the best, the donor is now more invested as they have a more tangible view into the benefit their donations have created.
Charitable portfolio management is a means for organizations to distinguish themselves from each other and better compete for funding. Elements of a portfolio management discipline and process may be in many charitable organizations today, but significant opportunities to systematize resource allocation and make it more merit-based remain. The effort does require significant process and cultural impediments to be overcome, but the end result could be very powerful for the organizations and the constituencies they serve.
If you are involved with a charitable organization and have any interest in discussing this further, I'd welcome the opportunity to talk further about it with you and help in any way I can.
