The Robin Hood Rules for Smart Giving by Michael M. Weinstein

Author:Michael M. Weinstein
Language: eng
Format: epub
Publisher: Columbia University Press
Published: 2013-04-03T16:00:00+00:00

The Arithmetic of Small-Bore Benefit/Cost Analysis

RM calls on funders to estimate benefit/cost ratios for proposed or actual interventions or grants. (We use the two words interchangeably here.)

For the sake of simplicity, assume the funder bases grant decisions solely on the basis of the quantitative measures that underlie benefit/cost calculations. Further, assume for the moment that a grant’s benefit/cost ratio remains constant as modest amounts of money are added or subtracted. Later in this chapter we consider when it is or is not wise to make this assumption in practice.

The numerator of the benefit/cost ratio captures the aggregate benefit, as defined by the funder’s mission, created by the intervention. The examples presented in chapters 6 and 7 show how a funder can go about estimating that number. For the denominator, the funder can more often than not simply plug in the cash outlay on a grant (the size of the grant). The denominator becomes more complicated if the funder provides grantees resources other than cash, another issue we will address later in the chapter. The ratio captures the funder’s best estimate of the mission-driven benefits created by a grant per dollar of costs.

Benefit/cost ratios provide guidance for funders who want to spend money where it does the most mission-relevant good. Take the case of a job training program funded by Robin Hood. Assume it generates only one benefit, higher earnings. Assuming that the benefit/cost ratio stays constant as dollars are added or subtracted, a ratio of 5:1 means that Robin Hood boosts the current and future incomes of poor New Yorkers by $5 for every $1 it spends on the program. The numerator for other types of programs that Robin Hood funds may be interpreted similarly. No matter what the nature of the program, as long as its purpose is to fight poverty, the benefit/cost ratio captures the rise in living standards per dollar spent by the funder. Funders can use their estimated benefit/cost ratios for various projects to compare the impact of one project with another no matter how the two projects differ in their approach to accomplishing the funder’s mission.

As such, benefit/cost ratios provide invaluable information by which to decide whether any particular grant is the wisest possible use of the funder’s money. Once benefit/cost ratios are estimated for projects under review, staff can shift funds from programs with low benefit/cost ratios to those with high benefit/cost ratios. Assume, for simplicity, that Programs A and B are both job training programs and shifting a modest amount of money back and forth between the two programs won’t change their respective benefit/cost ratios. Assume that the benefit/cost ratio of Program A is 10:1 and that of Program B is 8:1. Reducing B’s grant by $1 reduces the earnings of poor New Yorkers by an estimated $8. Transferring that same $1 to Program A raises the earnings of poor New Yorkers by an estimated $10. Thus, the mere transfer of $1 to Program A from Program B raises the earnings of poor New Yorkers by an estimated $10 – $8 = $2.

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