Calculating Change

What do foundations spend on knowing how well they do? Not an easy questions to answer. Here's a crude guess:

"....A significant amount of money, time and expertise is invested by a small portion of the foundation community on commissioning exactly this kind of information. The results include white papers on issues, trend and sector analyses, evaluation studies, and scans of other funders and their interests or strategies. This is precisely the kind of information that other donors need to make more rational and informed decisions about their grant investments, yet access to this information is completely hit or miss.

How much of this information is out there? We can’t say for certain, as industry-wide data are not collected on the actual investments in such research (an example of the lack of useful industry analysis). However, we can conservatively extrapolate from the numbers of staffed foundations (those with inclination and resources to make such investments), the total industry expenditures on administrative expenses (which would include staff, consultants, and those expenditures on research or evaluation that are managed as contracts and not grants). We can also factor in the number of foundations reporting grants for program evaluation.

These variables are all proxies for the actual key figure: the number of foundations investing in sector research and the level of spending on such information. The proxies, their details, and the source information for each are listed in Table 1.
Table 1: Proxies for investment in sector and industry research and analysis.
Proxy indicator Detail Source
A # Staffed foundations 3,123 Foundation Center, 2001
B Qualifying distributions$30,497,560,000 FC, 2000
C Total Giving $27,563,166,000 FC, 2000
D (B - C) $2,934,394,000 FC, 2000
E # Foundations making grants for program evaluation 213 Foundation Center Online, 2002
F Independent Sector Foundation members 325 www.independentsector.org

There are approximately 3,100-staffed foundations in the United States. The number of foundations that report making grants for program evaluation is 213, a portion of the foundations reported as members of Independent Sector. Of these, perhaps 200 invest a significant portion of time and money in evaluating their programs, researching their interest areas, and commissioning trend analyses, sector scans, and new tool development for gauging their own impact and guiding their future grant decisions. The total funds spent by foundation on administrative expenses that would include consultants, evaluation and research staff, and commissioned research (as well as significant other categories of expenses including Program Related Investments, loans and program expenses) were approximately $2.9 billion in 2000. If we estimate that no more than 5% of this number would be spent on research, evaluation and consultants, we arrive at an annual expenditure proxy of $146,700,000.

Even with the limitations on the above calculations, the final numbers: 200 foundations and $146 million in expenditures are impressive findings. Especially when we consider that the bulk of this work is happening at the smallest point in a pyramid of philanthropic investors that includes these 200 or so foundations, all staffed foundations, all other foundations, all institutional donors (including donor advised funds, estates, giving circles) and individual philanthropists..."

The above text is excerpted from a draft of the article "assembly Required," by Lucy Bernholz, for the Stanford Social Innovation Review. The section above was edited out of the article that will appear in the Review.