How To do Things?: That is the Question

In July 2007, I will be at the CASE Summit for Advancement Leaders in Chicago presenting ideas about how development operations measure and monitor "development ROI." I am excited to present on this topic, and my fellow roundtable members, Mark Peterson from SMU and Matthew Ter Molen at Northwestern, will offer invaluable insights. Undoubtedly, all three of us will challenge the conferees to think strategically about the relationship between our investments in people and programs and the incremental dollars these investment will accrue. Undoubtedly, we will talk through some of the ever-sophisticated tools we have conjured up (monte carlo simulations, portfolio expected value calcs, and the like) to increase productivity.



And yet, I find myself a bit concerned by this trend. Yes, ROI and related concepts will force us to be accountable over broader timeframes, to understand and implement practices that improve the long-term, life-time value of our donor base. However, I worry greatly that we will borrow tools from finance and position them as success metrics without understanding how they drive our organizational behavior and business practices in certain directions. And how they may drive us away from more fruitful ones as well.


A clear way to understand how financial terminology in development can both inform and distract is to compare and contrast ROI to development's old stand-by, cost-per-dollar raised (C$R). C$R is derived by dividing total allocated costs to a fundraising program divided by the cash this program raises. Leading annual funds in higher education often generate C$Rs in the range of $.10-$.22. National organizations that rely of direct marketing for a healthy portion of their operating resources are generally content with C$Rs of $.35-$.60. The time frame for most C$R calculations are annual, as they are tied to the budgetary cycle of the organization.


ROI, on the other hand, is best calculated by examining the incremental returns a fundraising program raises for each additional dollar of investment. This calculation assumes that the investments a fundraising operation makes today in identifying and cultivating relationships will pay off in future years. The investments made today include hiring and training staff and in information technology to increase the capacity of a development operation to manage more relationships with quality over a long period of time. The broader base of relationships managed over time equates to a much greater probability of securing more dollars from this prospect base year-in and year-out. Thus, an operation that invests sufficiently and prudently will realize greater productivity as the donor base grows and the amount given per donor increases.


If C$R were the key metric driving resource allocations, then a development operation would endeavor to raise the largest gifts from the easiest donors with the fewest staff and related costs. C$R, if left unchecked, thus creates a cherry-picking fundraising culture.


If ROI drove the show, then a development operation would allocate resources to those activities that could be demonstrably tied to raising more dollars per donor over time. Operations can become more productive so long as they stay focused and implement business practices effectively.


Please note that both of these terms speak to organizational efficiency, the ability of the development organization to do things right (to paraphrase Peter Drucker). For certain fundraising objectives, such as unrestricted current-use funds, C$R serves an organization sufficiently well by driving behavior toward scalable and cost-effective practices, such as direct mail, email blasts, use of volunteers for leadership-level solicitations, and the like. Somewhat in contrast to C$R, ROI should be foremost on the minds of development leaders seeking to leverage longer-term fundraising projects, such as capital campaigns, to promote continuous improvement (and re-investment) over longer time frames.



There is apparently little to dislike about C$R or ROI as success metrics.


However, C$R and ROI (and the vast majority of financial metrics frequently used in the for-profit sector) are like lasers that illuminate a very small area intensely but cannot shine a single photon on how effective a development operation is: the organization's ability to do the right things (to finish my earlier paraphrase of Drucker). The question of effectiveness quickly turns the discussion to what organizations accomplish and to what ends. Gauging effectiveness requires organizational leaders to stop and evaluate. Achieving efficiency, on the other hands, is to do more in less time, the veritable sprint all development professionals in higher education now find themselves running.



Today, I do not have clear-cut metrics for effectiveness, although a number of guiding questions quickly come to mind: Did we raise sufficient monies for the right purposes in an ethical way to advance the mission and vision of the university? Are we leveraging fundraising success to promote more and better philanthropy to the institution? Are we serving all of our stakeholders--such as donors, faculty, staff, students, and fundraising professionals--in a professional and impactful manner?


I will write further about measuring effectiveness in future blogs, especially in the context of strategy. To anticipate a blog or two, I see strategy as the process of reconciling effectiveness and efficiency on an organizational scale within an ethical framework.


I welcome your comments to this discussion.



Houston, Texas