Nov 272010
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Charity Navigator, perhaps the largest online source for evaluating nonprofit groups, recently embarked on an overhaul to offer a wider, more nuanced array of information to donors who are deciding which organizations they might help.

Its reinvention coincides with the growing need of nonprofits to provide more — and broader — information about themselves and their impact in an effort to wean donors off a reliance on administrative-cost ratios and other financial metrics that have traditionally been used to assess charities.

Charity Navigator had been using a system of awarding one to four stars to charities based mainly on financial measures, like how much organizations spend on fund-raising and the ratio of their administrative costs to their overall revenue.

But that focus, on an organization’s expenses in particular, rankled its critics, who contended that choosing a charity based on its administrative costs was a poor way of making sure donations did the most good. “We weren’t very popular,” conceded Pat Dugan, the multimillionaire founder of Charity Navigator. He said he had started the organization out of his own frustration in finding the right charities to support.

“Covenant House, the United WayHale House, all that kind of bad stuff,” Mr. Dugan said, rattling off three prominent organizations scarred by scandals of various sorts. “While I wanted to do something good with my money, I didn’t want to throw it down a rat hole.”

Sean Stannard-Stockton, a consultant on philanthropies, said, “Charity Navigator became the de facto standard, and in some ways, that was detrimental to the nonprofit sector.”

“By focusing on administrative costs,” he said, “it encouraged donors to steer resources toward organizations pushing everything into the cause rather than investing in people with expertise, new technology and other things that make a nonprofit strong.”

Over all, there is a trend toward new ways to measure a charity’s effectiveness in delivering services or results. Over the next three years, Charity Navigator plans to add evaluations of a nonprofit’s accountability and transparency to its ratings, as well as research on its impact and research by other organizations.

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