Charities ought to be evaluated primarily on their effectiveness, not merely on their financial health and administrative costs. We ought to care much more about how many are helped and how much they are helped than the charities allocation of resources used to achieve such help.
I have been extremely fortunate in my life and I make a decent living (I make a middle-class salary in the US, but since the US is so wealthy, I am ranked in the top 1% in the world based on my current income), so I give a portion of my income to charity every month. Like most people today, I am bombarded with requests for donations by various nonprofits, NGO's, and charities. Who we give to can seem arbitrary, and many people's attitude is that all giving should be commended and to question the choice of organization to which one is giving can be seen as any combination of miserly, cynical, and callous. This attitude strikes me and many in the effective altruism movement as irrational and harmful.
When we choose to invest in a company or buy a product, we are interested in its performance and impact, and we scrutinize its quality before making a decision. Why would a charity be any different? Don't we want to see the greatest possible impact for our dollar? Charity Navigator attempts to answer this question, but does a very poor job of doing so. While attempts to examine the financial health and overhead costs appear to stem from a reasonable position, this is the wrong metric to focus on. William MacAskill, in his new book, Doing Good Better, presents the scenario in which he creates a charity which gives donuts to hungry police officers, and manages to get the overhead down to 0.1% of the charities expenditures, which would earn it a high rating with Charity Navigator. This is of course absurd, since the charities mission is itself absurd, not to mention that no data is known about whether the donuts efficiently reach the donors, or more importantly, how the donuts impact their quality of life. Many people, including Charity Navigator, would conclude that comparing charities is impossible or meaningless, but this position is senseless. Research shows that U.S. citizens typically give about 3% of their annual income to charity, and people's total ability to donate is of course finite. Wouldn't it then make sense to ask whether it is better to donate $40,000 to teach a dog to assist a single blind person, or to distribute 16,000 insecticide-treated bed nets to prevent malaria in impoverished villages in Africa? Some might respond that both are good, or that society ought to encourage both, but we know that resources are finite and that a dollar donated to one charity is one less dollar donated to another. Thus, we are faced with a question of triage, whom should we help first? Any reasonable person would concede that the bed nets will have more impact, particularly given the strong evidence of their cost-effectiveness. It might seem strange to think of charities as competing, but they are after market share just like any for-profit business. And although Charity Navigator takes transparency and accountability into account in their ratings, they admit that, "The final limitation to our ratings is that we do not currently evaluate the quality of the results of the programs and services a charity provides." They present this limitation is if it were some minor omission, but this is much like evaluating Apple as a company by only focusing on it's financial health, not on how well its products work or how much they help people.
Givewell.org has a much more sensible approach to evaluating charities. It subjects charities to independent investigation and demands evidence-backed research from credible third parties. They provide rigorous analysis of top-performing charities and provide the highest quality evidence possible that their programs are not only effective, but extremely cost-effective. For instance, their top-rated charity, the Against Malaria Foundation, distributes insecticide-treated nets to some of world's poorest people, whose communities are often decimated by malaria. These nets cost $2.50 and GiveWell estimates that $3,000 in donations will save a life, and the evidence essentially assures that this is the case. Of course, the benefits of reducing the incidence of malaria go much further than saving lives, it prevents needless suffering and devastating economic damage, as well as many other benefits. When you compare these benefits to say, marginally improving the wing of a museum in an already wealthy community, the most basic moral assumptions should make this an easy choice.
While many will find this approach callous or unemotional, I insist that it be given a fair hearing. For those interested in learning more I highly recommend reading Doing Good Better for a far more thorough presentation of this argument. Or, for those looking to quickly gather some info on the effective altruism movement, you can check out their website.