This is a fantastic post and I (unusually) think I agree with basically all of it.
Although I agree with this in principle...
“principles of specialisation and economies of scale from the for-profit world suggest we might expect growth in outputs to outpace increases in budget size.”
I can’t think of many non profit organizations that I’m convinced become more cost effective as they grow, especially when compared with the first 100k-300k they spend. It’s often very hard in the non profit world to take advantage of efficiencies. Also there’s a problem I think as funding increases orgs kind of find ways to spend it to justify those donations.
Often bigger scope means more middle management, higher salaries at the top and less efficiency, while also as organisations grow with mission creep and widening of scope can also often introduce interventions which might be less cost-effective than what they did originally.
Many non profits as they grow claim second order effects to justify these extra costs, like influencing government or building up other organizations doing similar things. The community health worker organizations are classic for this.
“I can’t think of many nonprofit organizations that I’m convinced become more cost-effective as they grow in their core job.”
I can’t say I have many great examples of this either, at least past the first ~3-5 years or ~$1-3m budget. With AIM/CE charities, I think they tend to become more cost-effective in years 3-5 than they are in years 1-2, so there are some gains from very early-stage growth.
Although, I guess one mitigating factor here is that I think early-stage organizations are sometimes effectively cost-offset by a dedicated, high-talent founder. So maybe early ‘on-paper numbers’ don’t fully reflect the counterfactual costs, and that cost would reduce with growth.
My sense is that AMF has gotten a little less cost-effective over time due to working in slightly less ideal countries. GD might be pretty close, as I am less sure how the low-hanging fruit affects them. It looks like their percentage of funding that goes to beneficiaries has been pretty similar over time from a quick Google search.
I’d say this is missing where GiveDirectly is extremely cost effective.
Their corporate and government friendly brand.
If they can turn the tide on cash-transfers being the benchmark for foreign aid (and maybe even internal government policy) then that might change the game in terms of political efficacy.
Give Directly driving attention and attitudes towards cash is good for pushing the aid worlds’ thinking in terms of cost effectiveness, normalizing benchmarking, which has positive spillovers to effective altruism in general
That’s a good shout thanks Ian. From having a brief look, I would say they’re decent examples of orgs that have maintained their cost-effectiveness fairly well but I really doubt they’ve become much more cost-effective over time. They’ve done this through continuing to do 1 thing and 1 thing well which I love. In AMF’s case the cost have nets have come down which helps their cost effectiveness, but that’s not much to do with specialisation or economies of scale within their org specifically..
In my view, this will also depend on how exactly the charity is delivering its intervention. Two examples come to mind where I’d expect much higher cost-effectiveness later on than early on: (1) Tech-enabled charities (e.g. delivering digital healthcare training or facilitating migration) - you need to initially invest a lot into building the tech product, getting users, building partnerships etc. but then, if things go well, you might scale your impact exponentially while only growing your costs linearly. (2) Government advocacy and technical-assistance-type projects (e.g. advocacy to introduce tobacco taxes or assistance with rolling out syphilis screening) - you need to initially invest money into building partnerships and/or running pilots with no or minimal impact but, if your work is successful, you’ll have big impact later on, with comparable annual costs.
Yep I agree with the Tech example, except even as you scale there you’re likely going to need to continue to invest in government partnerships etc. After the initial investment there might be a real spike in cost effectiveness, which might then level out as growth continues.
I would consider the Goverment advocacy and to some extent technical assistance project more of a “hits based approach” (which is great) more than thinking about the framing of long term cost-effectiveness
I like these examples. Maybe someone could do a series of Graphs to illustrate how cost-effectiveness over time could work with different types of orgs? This could help donors and investors understand how their investment functions at different stages of org growth.
Maybe less so in EA than in other charities, but at the ~100K point a hypothetical charity may rely more significantly on volunteer labor compared to the ~1M version of that charity. One could argue that the volunteer labor is a non-economic cost that should be factored into the cost-effectiveness analysis, or could view it as essentially a freebie. From a counterfactual perspective, the correct answer will probably vary.
I think that’s a factor like Joey says between the early and mid stage mark. But after that it’s more the beuracracy, bloat and mission drift which honestly are hard to avoid.
This is a fantastic post and I (unusually) think I agree with basically all of it.
Although I agree with this in principle...
“principles of specialisation and economies of scale from the for-profit world suggest we might expect growth in outputs to outpace increases in budget size.”
I can’t think of many non profit organizations that I’m convinced become more cost effective as they grow, especially when compared with the first 100k-300k they spend. It’s often very hard in the non profit world to take advantage of efficiencies. Also there’s a problem I think as funding increases orgs kind of find ways to spend it to justify those donations.
Often bigger scope means more middle management, higher salaries at the top and less efficiency, while also as organisations grow with mission creep and widening of scope can also often introduce interventions which might be less cost-effective than what they did originally.
Many non profits as they grow claim second order effects to justify these extra costs, like influencing government or building up other organizations doing similar things. The community health worker organizations are classic for this.
“I can’t think of many nonprofit organizations that I’m convinced become more cost-effective as they grow in their core job.”
I can’t say I have many great examples of this either, at least past the first ~3-5 years or ~$1-3m budget. With AIM/CE charities, I think they tend to become more cost-effective in years 3-5 than they are in years 1-2, so there are some gains from very early-stage growth.
Although, I guess one mitigating factor here is that I think early-stage organizations are sometimes effectively cost-offset by a dedicated, high-talent founder. So maybe early ‘on-paper numbers’ don’t fully reflect the counterfactual costs, and that cost would reduce with growth.
Aren’t both AMF and GiveDirectly examples of charities that became more cost effective after scaling into the $millions?
My sense is that AMF has gotten a little less cost-effective over time due to working in slightly less ideal countries. GD might be pretty close, as I am less sure how the low-hanging fruit affects them. It looks like their percentage of funding that goes to beneficiaries has been pretty similar over time from a quick Google search.
I’d say this is missing where GiveDirectly is extremely cost effective.
Their corporate and government friendly brand.
If they can turn the tide on cash-transfers being the benchmark for foreign aid (and maybe even internal government policy) then that might change the game in terms of political efficacy.
Brilliant I love this.
Give Directly driving attention and attitudes towards cash is good for pushing the aid worlds’ thinking in terms of cost effectiveness, normalizing benchmarking, which has positive spillovers to effective altruism in general
That’s a good shout thanks Ian. From having a brief look, I would say they’re decent examples of orgs that have maintained their cost-effectiveness fairly well but I really doubt they’ve become much more cost-effective over time. They’ve done this through continuing to do 1 thing and 1 thing well which I love. In AMF’s case the cost have nets have come down which helps their cost effectiveness, but that’s not much to do with specialisation or economies of scale within their org specifically..
In my view, this will also depend on how exactly the charity is delivering its intervention. Two examples come to mind where I’d expect much higher cost-effectiveness later on than early on:
(1) Tech-enabled charities (e.g. delivering digital healthcare training or facilitating migration) - you need to initially invest a lot into building the tech product, getting users, building partnerships etc. but then, if things go well, you might scale your impact exponentially while only growing your costs linearly.
(2) Government advocacy and technical-assistance-type projects (e.g. advocacy to introduce tobacco taxes or assistance with rolling out syphilis screening) - you need to initially invest money into building partnerships and/or running pilots with no or minimal impact but, if your work is successful, you’ll have big impact later on, with comparable annual costs.
Yep I agree with the Tech example, except even as you scale there you’re likely going to need to continue to invest in government partnerships etc. After the initial investment there might be a real spike in cost effectiveness, which might then level out as growth continues.
I would consider the Goverment advocacy and to some extent technical assistance project more of a “hits based approach” (which is great) more than thinking about the framing of long term cost-effectiveness
I like these examples. Maybe someone could do a series of Graphs to illustrate how cost-effectiveness over time could work with different types of orgs? This could help donors and investors understand how their investment functions at different stages of org growth.
Maybe less so in EA than in other charities, but at the ~100K point a hypothetical charity may rely more significantly on volunteer labor compared to the ~1M version of that charity. One could argue that the volunteer labor is a non-economic cost that should be factored into the cost-effectiveness analysis, or could view it as essentially a freebie. From a counterfactual perspective, the correct answer will probably vary.
I think that’s a factor like Joey says between the early and mid stage mark. But after that it’s more the beuracracy, bloat and mission drift which honestly are hard to avoid.