Are we worried whether the compartmentalized accounting of mission and fundraising related financial activity via outsourcing to a different organization can incur PR costs as well? If an organization is worried about “look[ing] bad” because some of their funds are being employed for fundraising, thus lowering their effective percentage, would they be susceptible to minor “scandals” that put to question the validity of GiveWell’s metrics by, say, an investigative journalist that misinterprets the outsourced fundraising as misrepresentation of effective charity? If I found out an organization reported a return of $15 on every $1, but in fact received a lot of money from outsourced fundraising which returned only $3 on every $1, their “true rate,” when the clever accounting becomes opaque, may be significantly lower than $15, say $5 or $8. If I am a candidate donor that made his decision through an organization like Givewell, and my primary metric is ROI, I may feel cheated, even if that feeling is misplaced.
I suspect the above consideration is not very likely to be a big issue, but I did want to bring it to our attention as to give pre-emptive awareness. In the unlikely case it is worth thinking about, it may point to the different issue of measuring charity effectiveness by pure monetary ROI being equivalent to measuring the effectiveness of software by lines of code. If that is the case, perhaps a hybrid measure of monetary ROI and non-monetary but quantitive mission-related metrics can be employed by Givewell. Looking through their full reports, however, I sense this may already be the case. Anyway, this shows one has to be very careful when employing any one-dimensional metric.
So I think the complaint about “clever accounting” is wrong. The counter-argument is somewhat technical, so it might still incur a PR penalty, but it’s not actually true.
As an individual donor considering where to donate based on ROI, you don’t actually care about the ROI that includes fundraising, because the fundraising doesn’t target you. The fundraising is targeted at people who currently don’t choose their charity based on ROI, so it actually makes sense to treat it as a completely exogenous process for the purposes of marginal ROI calculation.
(EDIT: because the average ROI is the integral of the marginal ROI, it’s clear that the marginal ROI has to get lower somewhere for the math to work out. I think the right way to do the accounting is to say that the low-marginal-ROI donations are those that come from the people whose minds are changed by Effective Fundraising. I smell some weird decision theory stuff going on behind the scenes here but I’m not quite sure if it’s interesting or important.)
A helpful thought experiment is replace “fundraising org” with “org that creates additional people who donate to the highest-ROI charity” (because that’s what they’ll be doing; if EF discovers a higher-ROI charity, then they’ll switch to fundraising for that one instead, hopefully). This might make it more clear that you shouldn’t include fundraising costs in the cost of a particular charity—the charities “just happen” to be where the newly-minted altruists are donating their money.
EDIT: By the way, this objection has been raised both times EF has been brought up to a wider audience. So if anyone can think of a cleaner/more intuitive way to explain the counter-argument above, it would probably be quite high-value.
Are we worried whether the compartmentalized accounting of mission and fundraising related financial activity via outsourcing to a different organization can incur PR costs as well? If an organization is worried about “look[ing] bad” because some of their funds are being employed for fundraising, thus lowering their effective percentage, would they be susceptible to minor “scandals” that put to question the validity of GiveWell’s metrics by, say, an investigative journalist that misinterprets the outsourced fundraising as misrepresentation of effective charity? If I found out an organization reported a return of $15 on every $1, but in fact received a lot of money from outsourced fundraising which returned only $3 on every $1, their “true rate,” when the clever accounting becomes opaque, may be significantly lower than $15, say $5 or $8. If I am a candidate donor that made his decision through an organization like Givewell, and my primary metric is ROI, I may feel cheated, even if that feeling is misplaced.
I suspect the above consideration is not very likely to be a big issue, but I did want to bring it to our attention as to give pre-emptive awareness. In the unlikely case it is worth thinking about, it may point to the different issue of measuring charity effectiveness by pure monetary ROI being equivalent to measuring the effectiveness of software by lines of code. If that is the case, perhaps a hybrid measure of monetary ROI and non-monetary but quantitive mission-related metrics can be employed by Givewell. Looking through their full reports, however, I sense this may already be the case. Anyway, this shows one has to be very careful when employing any one-dimensional metric.
So I think the complaint about “clever accounting” is wrong. The counter-argument is somewhat technical, so it might still incur a PR penalty, but it’s not actually true.
As an individual donor considering where to donate based on ROI, you don’t actually care about the ROI that includes fundraising, because the fundraising doesn’t target you. The fundraising is targeted at people who currently don’t choose their charity based on ROI, so it actually makes sense to treat it as a completely exogenous process for the purposes of marginal ROI calculation.
(EDIT: because the average ROI is the integral of the marginal ROI, it’s clear that the marginal ROI has to get lower somewhere for the math to work out. I think the right way to do the accounting is to say that the low-marginal-ROI donations are those that come from the people whose minds are changed by Effective Fundraising. I smell some weird decision theory stuff going on behind the scenes here but I’m not quite sure if it’s interesting or important.)
A helpful thought experiment is replace “fundraising org” with “org that creates additional people who donate to the highest-ROI charity” (because that’s what they’ll be doing; if EF discovers a higher-ROI charity, then they’ll switch to fundraising for that one instead, hopefully). This might make it more clear that you shouldn’t include fundraising costs in the cost of a particular charity—the charities “just happen” to be where the newly-minted altruists are donating their money.
EDIT: By the way, this objection has been raised both times EF has been brought up to a wider audience. So if anyone can think of a cleaner/more intuitive way to explain the counter-argument above, it would probably be quite high-value.