RANKING OF CHARITABLE ORGANIZATIONS IN THE UNITED STATES
MBA 636, Applied Organizational Research and Analysis
TABLE OF CONTENTS
TABLE OF CONTENTS 1
EXECUTIVE SUMMARY 2
1. INTRODUCTION 3
1.1. Problem Statement 3
1.1.1. Top Rating Agencies and Their Methodologies 4
1.2. Research Questions: 4
1.3. Objectives 5
1.4. Significance of the research 5
2. THEORETICAL BACKGROUND 5
1.1. Hypothesis 6
2. METHODOLOGY 7
2.1. Data 7
1.1. Descriptive statistics 8
1.2. Regression Statistics 9
2. FINDINGS / EMPIRICAL STUDY 10
3. CONCLUSION 10
4. REFERENCES 11
Charitable organizations play a major role in our economy and provide critical services and resources to families and individuals in need. Although charitable organizations vary considerably in size and purpose, the highest concentration is in the health and education sectors, which include hospitals and universities.Currently, funders, donors, managers, and others primarily use financial data to evaluate the performance of not-for-profit organizations and others use published Rankings of these Charitable Organizations.
The purpose of this research is to determine how Charitable Organizations are ranked and what factors contribute to a higher rank. The findings of this study are expected to provide information to help Charitable Organizations plan effectively and assist donors and other stakeholders make informed decisions when they decide where to donate their money.
Using secondary data from the Forbes top US Charity organizations in 2017, this research studies the performance of the top 20 charitable organizations in the USA and focuses on establishing the relationship between Ranking of Charitable Organizations and the following independent variables.Total Revenue (million $), Private Support (million $), Government Support (million $), Other Income (million $), Donor dependency (%), Fundraising Efficiency (%), and CharitableCommitment(%)
Findings of the study reveal that there is a positive and significant relationship between Private support and Donor Dependency to the ranking of Charitable Organizations.
. Meanwhile, Total Revenue and Government Support fundraising efficiency other income, Donor Dependency, and Charitable commitment to the Ranking of Charitable Organizations have no considerable impact on the Ranking of these Charities.
According to the National Center for Charitable Statistics (NCCS), more than 1.5 million nonprofit organizations are registered in the U.S. This number includes public charities, private foundations, and other types of nonprofit organizations, including chambers of commerce, fraternal organizations, and the civic league.
Charitable organizations play a major role in our economy and provide critical services and resources to families and individuals in need. Although charitable organizations vary considerably in size and purpose, in 2011 the largest number of organizations was in the human services sector, providing services such as employment and housing assistance. The highest concentration of assets was in the health and education sectors, which include hospitals and universities. In addition to being concentrated in a few sectors, a large proportion of all assets were controlled by a relatively small number of charitable organizations—less than 3 percent hold more than 80 percent of the assets (James R. McTigue, 2014).
1.1. Problem Statement
Publications and reports are released annually with rankings of charitable organizations in the United States of America. Ranking and Ratings of charitable organizations exist to provide the general public with knowledge about a charity’s finances. This includes identifying the charity’s income, business expenses, amount of money it takes for them to acquire donations, how much it spends on its self and the length of time the charity could exist without acquiring more donations.
1.1.1. Top Rating Agencies and Their Methodologies
a) American Institute of Philanthropy
The American Institute of Philanthropy rates Charities based on the charity’s fundraising efficiency, available years of assets and the portion of funds spent on the charitable purpose. Generally, charities spending at least 75 percent of their income on the purpose, using a maximum of $35.00 to raise $100.00 and with at least three years of available assets are given ‘A’ ratings. (Philanthropy, 2018)
b) Charity Navigator
This online organization rates charities based on their organizational efficiency and capacity. Essentially, it compares how much money the charity raises, how it is spent and whether the charity could potentially increase the number of donations they receive. Charity Navigator analyzes seven areas of a charity’s functioning, including their program expenses, fundraising expenses and fundraising efficiency in their review. (Navigator, 2017)
c) Better Business Bureau Wise Giving Alliance
This agency only rates 501(c)(3) charities. It requires that charities meet a minimum of 20 standards before designating it as a “BBB Accredited Charity.” Charities not meeting the 20 standards are not accredited. The Alliance’s standards include spending at least 65 percent of total expenses on program activities, no more than 35 percent of donations on fundraising activities and having no more three years of financial resources in reserve.
1.2. Research Questions:
i. What Criteria is followed when ranking Charitable organizations
ii. What factors contribute to a higher ranking for some charitable organizations?
i. To find out the criteria followed when ranking charitable organizations
ii. To find out the factors that contribute to higher ranking for some charitable organizations
1.4. Significance of the research
Currently, funders, donors, managers, and others primarily use financial data to evaluate the performance of not-for-profit organizations. The findings of the study are expected to provide information to help Charitable Organizations plan effectively and assist donors and other stakeholders make informed decisions when they decide where to donate their money.
2. THEORETICAL BACKGROUND
Charitable organization ratings, rankings, and reviews provide potential and current donors with information about organization’s financial operations and stability (Audrey, 2017). They inform donors about the charity’s spending habits, which, in turn, allow donors to make educated decisions about where to spend their money.
This information tells donors how much of their donation will be used to support the charitable cause and what portion of it will be dedicated to the charity’s operating expenses.(Audrey, 2017). Additionally, it lets donors know whether the charity is financially unstable and likely to close their doors in the near future. In this case, because the donation may not actually reach the intended recipients, the donor’s money might be better spent elsewhere. (Blalack, 2016)
Although, measuring performance in the charities is clearly beset with controversy and there are questions about the validity of measuring the construct at all (Goodman et al., 1983), yet the complexity of how to measure performance perseveres due to its substantive importance. Likierman (1993) noted that measuring performance allows the charitable sector to justify its existence. To Sayer (2004: 1), “Unless performance measures are in place it is difficult for the charitable sector as a whole or for individual charities in particular to counter criticism for poor management and ineffectiveness” (Agyenim Boateng, Raphaël K. Akamavi, Girlie Ndoro, 2014)
The criteria for ranking these organizations is however not clear and varies from one reviewer to the other. There is need to establish the criteria used for ranking these charitable Organizations and why some rank higher than the rest.
The purpose of this research is to determine how Charitable Organizations are ranked and what factors contribute to a higher rank
This study seeks to answer the following Hypotheses to determine the significance of the data.
None of the variables are significant to Ranking.( H0 : ?1 = ?2 = ?3 = ?4 = ?5 = ?6 = ?7 = 0 )
H1 : at least one ?i ? 0
H0: There is no significant relationship between Total Income and Ranking
H1: There is a significant relationship between Total Income and Ranking
H0: There is no significant relationship between Private Support and Ranking
H1: There is a significant relationship between Private Support and Ranking
H0: There is no significant relationship between Government Support and Ranking
H1: There is a significant relationship between Government and Ranking
H0: There is no significant relationship between Other Income and Ranking
H1: There is a significant relationship between Other Income and Ranking
H0: There is no significant relationship between Donor Dependency and Ranking
H1: There is a significant relationship between Donor Dependency and Ranking
H0: There is no significant relationship between Donor Dependency and Ranking
H1: There is a significant relationship between Donor Dependency and Ranking
H0: There is no significant relationship between Fundraising Efficiency and Ranking
H1: There is a significant relationship between Fundraising Efficiency and Ranking
H0: There is no significant relationship between Charitable Commitment and Ranking
H1: There is a significant relationship between Charitable Commitment and Ranking
Using secondary data from the Forbes top US Charity organizations in 2017, this research studies the top 20 Charitable Organizations. The study focuses on variables that were used to determine the ranking of the top 20 organizations. They are Total Revenue (million $), Private Support (million $), Government Support (million $), Other Income (million $), Donor dependency (%), Fundraising Efficiency (%), and Charitable Commitment (%).
Table 1: Forbes top 20 US Charity organizations in 2017
NAME OF CHARITY ORGANIZATION Location / Head Quarters Category Ranking by Forbes Total Revenue (million $) Private Support (million $) Government Support (million $) Other income million $) Donor Dependency (%) Fundraising Efficiency Charitable Commitment Charity Navigator Rating
United Way Worldwide Rockville, Maryland Social services 1 3,928 3,540 276 112 100% 91% 86% 3
Task Force for Global Health Decatur, Georgia Health 2 2,704 2,668 28 8 98% 100% 100% NA
Feeding America Chicago, Illinois Social services 3 2,437 2,376 62 99% 99% 99% 4
Salvation Army Alexandria, Virginia Social services 4 3,737 1,883 352 1,502 94% 87% 82% NA
St. Jude Children’s Research Hospital Memphis, Tennessee Health 5 1,980 1,369 89 521 49% 85% 71% 3
Habitat for Humanity International Americus, Georgia Social services 6 1,893 1,173 97 623 88% 88% 85% NA
Direct Relief Goleta, California Relief/development 7 1,117 1,104 – 13 90% 100% 99% NA
YMCA of the USA Chicago, Illinois Social services 8 7,137 1,041 557 1,041 67% 87% 86% NA
Food for the Poor Coconut Creek, Florida Relief/development 9 994 987 6 1 99% 97% 96% 3
AmeriCares Foundation Stamford, Connecticut Relief/development 10 915 915 – – 108% 99% 99% NA
Catholic Charities USA Alexandria, Virginia Social services 11 3,733 895 1,256 1,582 90% 92% 88% 4
Boys & Girls Clubs of America Atlanta, Georgia Youth 12 1,845 869 521 455 87% 87% 80% 4
Compassion International Colorado Springs, Colorado Relief/development 13 819 820 – (1) 100% 89% 81% 3
Goodwill Industries International Rockville, Maryland Social services 14 5,719 814 523 4,381 89% 97% 89% NA
World Vision Federal Way, Washington Relief/development 15 1,012 784 220 8 97% 88% 84% 3
American Cancer Society Atlanta, Georgia Health 16 841 779 6 56 106% 77% 75% 2
Lutheran Services in America Washington, DC health and human service 17 22,058 732 641 20,685 -73% 90% 85% NA
American Heart Association Atlanta, Georgia Health 18 813 670 10 133 100% 86% 81% 4
Nature Conservancy Arlington, Virginia Environment 19 818 636 103 79 100% 83% 68% 3
American National Red Cross Washington DC Social services 20 2,071 625 52 1395 204% 73% 88% 2
1.1. Descriptive statistics
Descriptive statistics were used to describe the basic features of the data in the study. They provided simple summaries of the sample and the measures. Together with simple graphics analysis, they helped to form the basis of quantitative analysis of data. The Ranking (ordinal data) is allocated ratio quantities to make them more realistic.
1.2. Regression Statistics
Each independent variable was tested individually against the ranking (Dependent Variable).
The results of that test are as follows:-
Multiple R 0.931
R Square 0.866
Adjusted R Square 0.788
Standard Error 2.724
df SS MS F Significance F
Regression 7.00 575.98 82.28 11.09 0.00021
Residual 12.00 89.02 7.42
Total 19.00 665.00
Coefficients Standard Error t Stat P-value Lower 95% Upper 95% Lower 95.0% Upper 95.0%
Intercept 4.8202 12.2074 0.3949 0.6999 -21.7773 31.4178 -21.7773 31.4178
Total Revenue (million $) -0.0001 0.0008 -0.1170 0.9088 -0.0018 0.0016 -0.0018 0.0016
Private Support (million $) 0.0049 0.0011 4.4160 0.0008 0.0025 0.0074 0.0025 0.0074
Government Support (million $) 0.0016 0.0026 0.6202 0.5467 -0.0041 0.0073 -0.0041 0.0073
Other income million $) -0.0009 0.0007 -1.4432 0.1745 -0.0024 0.0005 -0.0024 0.0005
Donor Dependency (%) -9.9642 4.0373 -2.4680 0.0296 -18.7608 -1.1677 -18.7608 -1.1677
Fundraising Efficiency -18.0494 23.7976 -0.7585 0.4628 -69.9000 33.8012 -69.9000 33.8012
Charitable Commitment 30.4176 18.1256 1.6782 0.1191 -9.0747 69.9099 -9.0747 69.9099
2. FINDINGS / EMPIRICAL STUDY
The Adjusted R square indicates that all the independent variables collectively contribute to 79% of the variance in Ranking of Charitable Organizations.
The significance F- value (0.00021) in the ANOVA indicates that the overall regression model is significant since it is less than 0.05. (We, therefore, rejected the Null Hypothesis)
The P. Values from the analysis indicate that we do not have enough evidence to prove that there is any significant relationship between Total Revenue (0.9088), Other income (p=0.1745), Fundraising efficiency (p=0.4628), Charitable commitment (p=0.1191), and Government Support (0.5467) to Ranking of Charitable Organizations. (We, therefore, failed to reject the Null Hypothesis)
The study shows that there is a strong correlation between Private Support (p=0.0008) and Donor Dependency (p=0.0296), with Ranking of Charitable Organizations. We, therefore, reject the Null Hypothesis.
This study reveals that Ranking of Charitable Organizations significantly depends on the amount of Private Support and Donor Dependency of a given Organizations.
Managers and CEOs of Charitable Organizations that would like to improve their rankings should, therefore, strive to encourage and build trust and confidence of private donors and the general public in order to increase Private Support to their organizations.
A higher ranking means that funders and Donors will be able to derive trust and confidence in supporting and funding their activities.
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