Choosing a discount rate, of course! Great post on New York Times Upshot blog by Michael Greenstone of the University of Chicago. He talks about the “social cost of carbon,” a critical element in evaluating climate policies. The great uncertainly surrounding climate effects in the distant future suggests a lower discount rate, and therefore a higher value to current actions that may not bear fruit for many years. This is applicable to a broad range of educational, social and health issues throughout the nonprofit sector. If the risks, say, 20 years from now are potentially very high, you may want to hedge your bets in spite of the uncertainty.
Author: Bill Roberts
Compared to What?
Numbers are meaningless without comparisons, such as:
- Comparisons over time (trends)
- Comparisons to a plan, such as budgets or strategic goals
- Comparisons to a benchmark, such as competitors or peers
Well-managed organizations make use of comparisons of all three types. Benchmarking may be the least-used comparative tool, but can be one of
the most powerful. Most nonprofits do some sort of benchmarking to establish staff salaries, and endowed charities often wish to compare their investment allocation and performance to their peers. But there are many other opportunities to compare oneself to others in the same field. Surveys with a wide range of comparative statistics are available from, among others:
American Alliance of Museums
American Association for State and Local History
Council on Foundations
League of American Orchestras
National Association of College and University Business Officers
The Numbers Guy hopes that more trade associations will conduct benchmarking surveys as a service to their members, and that they will keep them up-to-date. Encouragingly, surveys targeting particular issues or fields are often sponsored by the big national foundations, like Ford, Kellogg, Pew and Wallace.
Often management participates in benchmarking surveys, but is reluctant
to share the results with their board because of fears that comparisons will be unfavorable or that the results will be misinterpreted. These fears are well-justified, but can be overcome with careful preparation and thoughtful reflection by all the players. It is worth the effort.
Preparation for the use of benchmarking should include a discussion of the choice of peers with whom one will be compared. If there is no agreement on who constitutes a peer, there is unlikely to be agreement on the meaning of the comparison! Comparisons to aggregate data can also be problematic, since discussions often degenerate into speculation about the composition of the database.
Management and boards are usually more comfortable with comparisons to specific peers or competitors, if that is possible. After all, the object of the exercise is to stimulate a discussion on current performance and strategic choices, and those discussions will be more productive if they start with a forthright analysis of the differences between your organization’s environment and those of others.
Good managers thrive in a competitive environment, and good boards will respond constructively to the challenge of benchmarking.
About the Numbers Guy
Bill Roberts, the Nonprofit Numbers Guy, is a retired foundation executive. He has been the chief financial officer at the Colonial Williamsburg Foundation and the executive director of the Robins Foundation, a family foundation in Richmond, Virginia. Before joining the nonprofit world, he had a career as an international banker and senior loan officer. He believes that causes and institutions are stronger when they show respect for quantitative data and the people who gather, analyze and present it.
Email: bill@nonprofitnumbersguy.com
Number Fumbles
This has not been a good month for numbers people. The political conventions were bad enough. Then there was disheartening news regarding much-admired national institutions. I am talking about universities and football, and not getting into trouble together, as is usually the case, but rather getting into trouble separately.
We knew that many for-profit universities were taking advantage of trusting students by overstating the workplace value of the degrees they offer. Not-for-profit law schools were also guilty. Now, it appears that the value of plain-old liberal arts degrees may also have been oversold, based on sloppy surveys of employment status of recent graduates. This matters because young people burdened by student loans can seek relief from their debts if they can show that they were misled by the degree-granting institution where they paid tuition. It could get expensive, and not just at the for-profit colleges, as Jeffrey Selingo points out in a Washington Post opinion piece.
Then there’s football. I played in high school and college. I loved the game, and escaped serious injury, although not all of my teammates were so lucky. We now know that concussions can lead to long-term neurological damage. After fierce initial denial, the response by parents, athletes, coaches, trainers and medical professionals has been gathering strength. There is room for uncertainty regarding the appropriate protocols, and the NFL and the colleges have a big stake in preserving the game.
One would hope that the evolving changes in the game would be guided by a spirit of open inquiry that puts the interests of the athletes first. However, the New York Times recently investigated claims being made by an NFL-funded study that evaluated the increase in safety from teaching a technique called heads-up tackling. Preliminary results showed a 74% decrease in youth football injuries, including concussions. Unfortunately, by the time the study was complete and published in a peer-reviewed journal, it turned out that the reductions in injuries were due to an entirely different set of protocols, which are required in only one of the national youth football leagues, Pop Warner Football. The Times reported that the initial results were not withdrawn or corrected. Meanwhile, many in the football establishment continue to repeat the mistaken claims.
These incidents leave the Numbers Guy very frustrated. We have pages and pages of Generally Accepted Accounting Principles (GAAP) that specify how profit and loss accounts should be presented. Doctors and lawyers are required to adhere to well-documented professional standards. Academic research is governed by well-documented ethical and statistical principles. But here we have bad information that has caused significant harm to young people and there is no one to issue professional sanctions or simply fire the careless or incompetent. I don’t think that the courts are the best place to settle these matters, although too often they are the only place where someone who was harmed can seek redress. The press does a lot of good, but they are limited in the number of issues they can explore and the resources they can devote to investigations.
Does anyone have ideas on how to upgrade the level of fact-gathering, fact-checking and fact-presenting in our society? I’ll be looking for answers and sharing them here, and I welcome comments from readers.