Tulane VISTA Blog

Fighting Poverty with Passion

Opportunity Cost Is An Opportunity Lost

“Opportunity cost is an opportunity lost.” I’m sure everyone can remember this mantra from high school economics class. It’s a classic saying that reminds you to think of the hidden downsides to a particular decision. This is especially applicable in the nonprofit sector where the resources available to us (volunteer time, in-kind donations, and cash donations)  are so few.

Let’s first take a look at an essential asset to any nonprofit: volunteer time. Quite often, nonprofits are very protective of their volunteers. While it is fair to retain the people they recruit, it becomes an issue when volunteer time is used unproductively, or not as near as productively as possible. Therefore, nonprofits shouldn’t hesitate to share volunteers.  After all, we are all working toward the same goal, in theory. We strive to make the world a better place. We each have our own sectors and specialties but that’s only the means to an end. It’s only logical that nonprofits help each other out. For example, if I recognize that I have a surplus of volunteers I’m more than willing to refer those volunteers to an organization that I think needs them more and if they feel the same way I hope they do the same and so on.

This can be tailored to a specific volunteer as well. If I notice a volunteer has a specialized skill but is doing non-skilled work for my nonprofit, it would be the most efficient use of their time to refer them to a someone who could take full advantage of their skills. And if the volunteer agrees to the switch it’s an economically efficient transfer.

Same goes for volunteers that have to travel long distances to help out. It makes no sense for them to drive 40 minutes each way to volunteer for an hour. The carbon toll alone likely outweighs their contribution. This is an actual situation with one of my volunteers; however, it is difficult if there are no other options for them to do the same type of work.

Similar logic applies to in-kind donations i.e. donations of goods and services. One must consider if it makes sense to ship an item across an ocean if they same item can be as easily produced in that location. Although, this often is the other way around. For example, it generally costs less and is more carbon efficient to import food from far away than it is to grow it locally. Moreover, it’s important for donors to assess whether the gift they are giving is really needed at a particular nonprofit or if some other gift would be better, or perhaps a different nonprofit could benefit more from the gift. Likewise, nonprofits should be keen to make clear exactly what they need to have the largest impact.

Money is the most difficult to efficiently allocate in the nonprofit world. In the for-profit sphere revenues minus expenditures determine the solvency of an institution. It’s more difficult when profit margins are not the end goal to determine success and failure. Research on the efficacy of charity can be incredibly difficult and tedious in addition to morally iffy. However, that doesn’t mean simple methods of calculating ROI shouldn’t be discounted.

For example, if a majority of expenses are being spent on an administration costs or fundraising expenses it’s usually a red flag for inefficient use of money. There are whole websites devoted to assessing these sorts of things but each nonprofit ought to do a better job self assessing.

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“Charity Navigator is an independent American nonprofit corporation that evaluates charities in the United States.”

Further, we often overlook alternative approaches to problems we care about. If I’m passionate about helping the blind I might think to donate money to train a seeing eye dog. However, for what I’m trying to accomplish, my giving would be misguided. It costs $40,000 to train a seeing eye dog but for that same cost 2,000 people in Africa can be cured of blindness via simple surgery. In short, even though it is difficult to determine the effectiveness of a particular effort, simple research can help us most effectively distribute our charity.

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Trachoma can be cured for as little as $20 with simple surgery. The above map shows the size of each country related to the number of trachoma cases.

I firmly believe it is important to think critically about charity. It’s perfectly fine to devout yourself to a cause you care about and which gives you joy. However, we must be honest and recognize that not all altruistic acts are created equally. We must be rigorous in our choices and ensure that our efforts are really producing good, in the most effective way. If we do so, we can turn a constrained amount of resources into monumental change.

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This entry was posted on May 13, 2015 by in VISTA Field Reports.

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