When seeking funding, it can be difficult for a nonprofit to explain its cost-benefit analysis model. According to this Philanthropy.com post, non-profits can seek to remedy this measurement problem by using a strategy borrowed from the medical and finance sectors: cost per outcome. According to Perry Yeatman, the cost per outcome strategy can greatly benefit non-profits that are looking to save money and time.
Although we applaud the approach, we at SVM have one issue with the cost-per-outcome model. Unless there is consensus and consistent benchmarks defining success toward the outcome goal, this approach is subjective and ends up unfairly favoring nonprofits who demonstrate reach vs. depth of engagement. As an example, to use the analogy from the article, Nonprofits A & B are attempting to improve student math proficiency. Nonprofit A can quantitatively prove it helped 200 students — mostly from suburban schools — improve their math scores by 10% during their sophomore year. Nonprofit B works exclusively with students who have a C-or-below average, come from low-income neighborhoods, and lack a parental figure. Nonprofit B supported 50 of these students during their sophomore, junior, and senior years, and helped them increase their math scored by 10% and graduate high school. The “cost per outcome” model clearly favors Nonprofit A. We argue this black-and-white method of evaluating nuanced situations can paint an oversimplified picture of outcome success. Without industry benchmarks, the model lends itself to a slippery slope of rewarding nonprofits that focus on reach instead of depth.