We are creating a market for impact to drive philanthropy.
At the risk of minor simplification, businesses share a single mission: maximize profit. It follows that investors can judge performance with a single metric: risk-adjusted rate of return. Financial audits provide investors what they need to know about this metric. Nonprofits, by contrast, share no single mission. Each adopts its own.
Some educate learning-disabled students, fight bullying or stanch political corruption. Still others seek to nourish marriage or love of baroque music. And so on. In a world of idiosyncratic missions, there can be no single metric by which to measure success. Financial audits don’t capture whether the nonprofit succeeds at its mission.
Enter ImpactMatters. This new organization conducts impact audits of nonprofits. This new type of audit answers key questions. Has the nonprofit set forth an actionable mission? Has the nonprofit identified outcomes that tightly reflect its mission? Of paramount importance: does the nonprofit use data correctly when analyzing performance? And does the nonprofit use data to improve delivery of its philanthropic services? Impact audits help donors decide where their money is best spent and help nonprofits identify what they are doing well and, yes, not-so-well. Impact audits, at scale, could transform the nonprofit sector by creating a market for impact that drives philanthropy.
Several initiatives have attempted to solve this nonprofit rating problem, but approaches to date have either been too shallow (using administrative data only, for example) or too restrictive (eliminating many nonprofits and only recommending a few). Furthermore, and critically to our approach, nonprofit rating systems have been designed to serve the donor only. We envision an impact audit process that provides direct feedback to the organization, to help it improve.
ImpactMatters is catalyzing the impact audit space, conducting the first impact audits of nonprofits and developing standards and guidelines for others to replicate the impact audit process. If we are successful, we anticipate that other firms will shift into this industry and that an annual impact audit could become a de facto requirement for nonprofits. In addition, just as generally accepted accounting principles have improved practice over time, the Impact Audit Standard could improve practice across the nonprofit sector by creating new norms for effectiveness.
We judge our own success based on the following metrics:
ImpactMatters is funded through core grants and commissions from funders and nonprofits.
Core grants enable us to test ideas, conduct strategic impact audits and disseminate results.
Funders and nonprofits can also commission ImpactMatters to conduct an impact audit. The impact audit approach provides intensive, cost-efficient vetting for evidence of impact.
Through an impact audit, funders get assurance that their support will flow to evidence-based organizations, while keeping costs low and supporting a public good that improves decision-making for other donors.
Dean founds IPA
Innovations for Poverty Action (IPA) discovers and promotes effective solutions to global poverty problems. Since 2002, IPA has worked with over 400 leading academics to conduct over 600 impact evaluations in 51 countries.
Through his experience with IPA, Dean recognizes that there were two crucial gaps going unfilled in the nonprofit sector:
- Donors lack systematic guidance about the impact of nonprofits.
- Nonprofits lack systematic guidance about how to improve based on evidence.
Evaluating Charitable Organizations
To test ideas about how to solve these problems, Dean designs and teaches a seminar at Yale on evaluating charitable organizations. Elijah takes Dean's seminar, and they start exploring ways to put Dean's ideas on charity evaluation into action.
Dean and Elijah found ImpactMatters
Dean and Elijah launch ImpactMatters in the summer of 2015 with a vision to change how nonprofits and their donors use evidence to achieve impact. The first impact audit is published in December 2015.
Release of the Impact Audit Standard
ImpactMatters publishes its Impact Audit Standard, putting forth a new method for donors and nonprofits to understand and benchmark their impact.