An Analytic Approach to Selecting a Nonprofit

Abstract

Charity giving continues to be an important aspect of the economic and social fabric of the United States. The number and total assets of nonprofits registered with the Internal Revenue Service (IRS) under the section 501(c)(3) of the tax code have grown significantly over the past decade. Given the significant share of donations in supporting the activities of nonprofits, it is important for donors to have a better understanding of their operations and governance. As the number of nonprofits with similar objectives increases, it becomes overly complicated for donors to make a choice that is consistent with their own purpose for giving. The goal of this paper is to develop an analytic framework for selecting a nonprofit from among competing alternatives. Specifically, we propose a process in which consultants or financial advisors help donors evaluate nonprofits using a set of financial and governance criteria to generate a ranked short list of alternatives for further evaluation. Donors differ in their criteria for evaluating the performance of nonprofits. The methodology we use allows donors to incorporate their preferences for specific criteria to the selection of a nonprofit in a consistent manner.