How to find the best charities

This weekend, the London Marathon is rolling around again. That might mean that you've already been asked to sponsor someone for their blisters. But if you haven't and you live in or around London, odds are you will be today.

But if you get asked, how do you know that your money will end up being put to good use rather than wasted on buildings, smart cars and status producing projects for charity managers?

We tend to think that any charity is a good charity, but I'm currently reading a new book by philanthropy adviser Caroline Fiennes - It Ain't What You Give, It's The Way That You Give It - which makes it clear that it simply isn't so.

I asked her what we should look for before we give. Can we look at the amount a charity spends on admin and overheads as a percentage of their actual giving and make a stab at it like that with the assumption that the more thatgoes on admin, the less effective the charity is?

We can't. It turns out it isn't reasonable to equate admin with waste. Admin "includes all kinds of useful things like systems to monitor results and evaluate what's working and to make improvements. Obviously that's money well spent." And those that spend it end up as better run organisations.

No surprise then that analysis done by Yale economics professor, Dean Karlan, and published on the Freakonomics blog shows that, in general, "the charities which achieve the most actually have higher admin costs than those which achieve less."

OK, I say, how about just relying on it being big and well known: big charities come under a degree of public scrutiny so they must be OK. Right?

Wrong. "The fact that you've heard of a charity, or that it's big, is no indicator of quality." Large' simply means that the charity is good at raising money (or was in the past), which doesn't prove that it's good for beneficiaries for charities, the business' of attracting money is completely separate from the business' of serving beneficiaries.

The former might involve organising fun-runs and dinners, whereas the latter might involve doing medical research or running a hospice. Just because an organisation is good at one of those, that doesn't for a second mean that it'll be good at the other. Similarly, "being well-known just means that the charity is good at raising its profile, which is not necessarily the same as being good for beneficiaries".

Harder than you'd think isn't it? Still, there are ways to make a better choice by having a go at assessing what difference the charity actually makes, and that can be quite tough to assess. The quick way is to free-ride on the assessment that somebody else has already done.

In the charity world, there are some independent analysts. GiveWell is probably the best, says Fiennes: "it's so fussy that it only recommends about 1% of the charities it assesses," and though it's based in the US, its two top picks globally (working to deal with malaria and deworming) are both based in London, though both work internationally.

Global Giving is an online supermarket' of international development organisations, and all the organisations which it lists have been vetted, as have all the local UK organisations listed on LocalGiving.com.

There are also charitable trusts and foundations who employ people expressly to analyse charities to decide which ones the trusts should fund. Some (but not all) of them are robust, and publish details of which charities they support. So when you're considering any charity, have a look at which big donor organisations already fund it: BBC Children in Need or Comic Relief are apparently a good sign.

That's the quick way (which should work for most of us). The long way works like this. A good charity has two things: a good idea about how to work on an important issue- ie a good strategy - and good implementation of that idea.

Its impact will depend on both the idea and the implementation being good. If you're into formulae, think of it like this: Impact = idea x implementation. Fiennes then offers us six questions which any good charity should be able to answer, the first three about its idea, and the second three about its implementation.

Idea

What's the problem you're trying to solve?What activities does the organisation do?What evidence is there that those activities help solve the problem? (This is important because lots of charities talk a lot about the problem these sad donkeys or those uneducated children but we're also interested in how good that charity is at solving that problem.)

Implementation

How do you find out whether you are achieving anything? (ie, what is the research process?)What are you achieving? (ie, what results does that process produce?)How are you learning and improving? What examples do you have of learning and improving? (This is particularly important because the problems which charities address are the very ones which governments and businesses have been unable to solve: ones which as Warren Buffett observes have already resisted great intellects and often great money'. They're hard, and hence learning and the admin' expenditure on learning are vital.)

To assess a charity properly, you have to rummage about in its public materials and possibly get on the phone find the answers to those questions. You might not have time to do that today as your colleagues circle the office with their sponsor forms but it's worth bearing in mind for next year.

There will be more on charity and effective charitable giving in the magazine next week available to subscribers on Thursday.

Caroline Fiennes is the author of It Ain't What You Give, It's The Way That You Give It: Making Charitable Donations That Get Results, published last month. Get it at a discount here.