April 1, 2010 — Root Cause, a Cambridge-based nonprofit that supports social innovators and educates social impact investors, yesterday unveiled a new way to help nonprofit donors, financial advisors, and government decide how to invest in nonprofits with high impact.

According to Root Cause, the new approach fills an information gap for donors, by providing them with more rigorous, research-based recommendations than previously available, to make the most effective decisions in investing for high impact. Reports that identify high-performing nonprofits in other social issue areas are in development.

The first report in the new model synthesizes the most current national research on school readiness programs for at-risk children, and then names 21 high-performing organizations in Massachusetts.

“We’re hoping for a future where the strongest nonprofits are the ones who raise the most money,” said Jacob Harold, program officer in the philanthropy program of the William and Flora Hewlett Foundation, which funded the development Social Impact Research (SIR), the independent research department of Root Cause. “Often now, it’s those with the longest history or the most recognizable brand names that raise the most money, not necessarily the ones creating the most impact per dollar."

"Where possible,” he said, “it's best to have systematic research that looks at which interventions work and which organizations use those effective interventions.”

GuideStar, the preeminent information source on U.S. nonprofits, which makes financial, programmatic and analytic data on individual exempt organizations available to the public, is including the research on school readiness in the new TakeAction section of its website.

The new model reportedly aggregates the most respected academic research on key social problems to uncover the most effective approaches and indicators to track progress. Then, using a comprehensive methodology, analysts evaluate the programs and performance of nonprofits using those approaches. The evaluation criteria for nonprofit performance consider financial health, program efficiency, and longer-term outcomes.

The information is condensed for donors to get quick impressions of the greatest areas of need, why their investment would make a significant impact, and the key factors they should look at in evaluating top nonprofit performers, and then names high-performing nonprofits in that field.

Aiming to Help Investors Make Informed Decisions

Each year about $300 billion in philanthropic giving is distributed to more than one million nonprofit organizations in the United States, but experts say there has been no way to gauge if the resources are going to the highest performers. A report co-authored by the Hewlett Foundation noted that “giving decisions often flow as much from the heart as the head, and donors typically have limited information about social issues and how to address them.”

“Although there’s significant information about a range of social problems and effective approaches, there’s very little available in a concise, action-oriented format that philanthropic investors can easily use to make informed decisions,” says Colette Stanzler, SIR director. “Our research on social issues and high-performing nonprofits helps fill that gap, so foundation, government, and individual philanthropists can invest in nonprofits with a new level of confidence.”