May 15th, 2013 at 11:00 am
This week our featured book is The Robin Hood Rules for Smart Giving, by Michael M. Weinstein and Ralph M. Bradburd, published by Columbia Business School Publishing, an imprint of Columbia University Press. Enter our Goodreads book giveaway for a chance to win a FREE copy!
Today, we have a guest post from Michael Weinstein, in which he explains how The Robin Hood Foundation decides what to fund when there are so many important programs that need funding.
The Robin Hood Foundation and “Relentless Monetization”
Michael M. Weinstein
We philanthropists face gnarly decisions. To fight poverty, do we train chronically unemployed women to drive commercial trucks or instead pour money into pre-kindergarten programs for poor youngsters? Do we train male ex-offenders to serve as drug-abuse counselors for adolescent boys or fund charter schools? We can’t afford to do everything.
In The Robin Hood Rules for Smart Giving, Ralph Bradburd and I set forth a framework for making the right choices — spending philanthropic dollars with maximum impact.
Our framework, which we dub “relentless monetization,” uses the workhorse of modern economics, benefit-cost analysis, to help funders decide which grants to make. Spending dollars on programs with the highest benefit/cost ratios puts dollars where they do the most good. For example, taking dollars out of one project and spending them on a project whose benefit/cost ratio is twice as high amounts to raising and spending twice as many philanthropic dollars.
The framework does indeed bite hard. Here’s one of many examples.
At the Robin Hood Foundation, we once proudly funded what we saw as the best permanent supportive housing residence in the city. The grantee takes in homeless families, provides them excellent mental-health and other services, and keeps them safely, permanently housed. Using representative numbers, Robin Hood might have spent $300,000 a year to help house 60 families. We say this residence was best because none–not one–of its families returned to the streets. Case closed: great grant.
Or was it? Once our metric algorithms were in place and staff did the arithmetic, the benefit/cost calculation came in low—indeed, very low. Did we immediately pull the plug? No. Perhaps our algorithms were wrong and were missing key benefits. Perhaps our equations were right but our numbers were wrong. We did eventually pull the funding plug, but we did so only after two years of scrutiny. The answer was that permanent supportive housing is a frightfully expensive way to fight poverty. Here, Robin Hood would spend $300,000 a year to save the same 60 families year in and year out. We do that nowhere else. At our schools, the students in the sixth grade change each year. In our carpentry-training program, the trainees change each year. In our micro-lending programs, borrowers change each year.
Our point is not to criticize permanent supportive-housing programs. They pursue an inspiring and important mission. But for Robin Hood in particular, the strategy is not cost-effective. We can spend the $300,000 in other ways that lift significantly more poor New Yorkers out of poverty over any defined period.
Here’s another example where “relentless monetization” leads to surprising results:
The Robin Hood Foundation used to fund a seemingly premier program for training women to run daycare operations in their homes for the children of neighbors. The program proudly broadcast gaudy numbers: 90 percent of its women finished the training program, 90 percent of the graduates set up businesses and 90 percent of them continued in business for at least a year. That’s an overall success rate of about 70 percent – a clear winner.
Or was it? We defunded this group in favor of funding a second group nearby whose success rate hovered around 35 percent. Why drop a program achieving a 70 percent success rate in favor of a program that achieves “only” a 35 percent rate? In a phrase, smart metrics. The gaudy program took in mothers who were already earning almost $8,000 a year and lifted them to $10,000 a year. That’s surely good. But the second group took in women who were ex-offenders earning nearly no income in a typical year and lifted them to about $8,000 a year. Who’s the better poverty fighter: the program that raises the income of a woman by $2,000 a year with 70 percent probability (on average increase of $1,400 per year) or the program that raises incomes by $8,000 with a probability of 35 percent (on average increase of $2,800 per year)? Robin Hood grabs the latter option every time. As we say, smart metrics matter.
The framework of “relentless monetization” hinges on philanthropic outcomes rather than inputs (however well intentioned).
The framework makes sophisticated use of research.
The framework compares actual outcomes to counterfactual outcomes—what participants in philanthropic programs actually achieve vs. what they would have achieved had they not participated in the funded program. Counterfactual outcomes can’t be observed and they are hard to estimate. But they lie at the heart of smart grant making.
And, yes, relentless monetization involves lots of data, numbers and calculations. Ralph and I concede the process is nearly never easy. It’s not always fun. But it is serious. And, best of all, it’s open to outside scrutiny. The framework lays bare every assumption and every calculation. Inviting feedback, Robin Hood’s framework should do nothing but improve steadily over time.