Quantifying Impact with the Alpha Framework

“Billions are wasted on ineffective philanthropy. Philanthropy is decades behind business in applying rigorous thinking to the use of money.”
— Michael Porter

Philanthropy is an allocationally inefficient marketplace: for the most part, resources are not directed to the most productive organizations. 

Why? Most organizations are unable to tell you what impact your donation will have. Even if an organization can tell you what your donation purchased, how do we know if that purchase is actually having an impact? And how much of an impact is it having?

When selecting where to invest your money, you expect to receive some amount of return for a given amount of risk - why should giving to charity be any different?

If we value all lives the same, then, similarly to the way we determine which investment will produce a desired return, we should try to donate our money to the organizations that benefit the most individuals.

So, how do you determine the organizations that produce the best outcomes (return on dollar donated)?

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The Alpha Framework

To answer this difficult question, we consider three key criteria:

Evidence of effectiveness:

  • Do interventions within a particular cause exist, and how strong is the evidence behind those interventions? Have the interventions been studied rigorously and ideally replicated?

  • Can the benefits of the program reasonably be expected to generalize to large populations?

Cost-effectiveness:

  • What’s the cost per life saved? How much “good” does your dollar get you?

  • What's the marginal value of your donation? How much good will your additional dollar do?

Neglectedness:

  • How many resources are already being dedicated to tackling this problem and how well are those resources allocated?

  • Is there reason to expect this problem can't be solved by markets or governments?

Quantifying Outcomes: The QALY

To quantify the outcomes of different organizations, we borrow a metric from Health Economics: the Quality Adjusted Life Year (QALY). The idea behind the quality is that there are two ways to benefit someone's life: 1) "Save" (extend) someone's life or 2) improve the quality of someone's life while they're alive. QALY's combine these two benefits into one metric by leveraging survey data bout the types of tradeoffs people are willing to make in order to assess how bad different sorts of disabilities or illnesses are. Below are two illustrations of applying QALY’s.

Example 1: Extending Life

If you were to save a 10 year old child that was drowning, assuming that child’s quality of life would be 100% and they live to 70 years old, then you will have extended their life by 60 years at a 100% quality of life. 100% over 60 years: 60 years x 100% = 60 QALY’s.

Saving a child’s life produces 60 QALY’s

Example 2: Preventing Blindness

According to the World Health Organization, blindness decreases someone's quality of life by around 40%. If we could keep someone from going blind for one year, we would increase their quality of life by 40%. 40% over 60 years: 60 years x 40% = 24 QALY’s.

Preventing blindness in one person produces 24 QALY’s

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The amount of QALY's produced by different interventions varies drastically across charitable organizations. Some charities do hundreds of times the amount of good than others do.

Below are examples of charitable interventions with the corresponding number of QALY’s that the intervention produces.

QALY's per $1,000

The above illustrates the amount of Quality Adjusted Life Years that each intervention produces per $1,000.

The above illustrates the amount of Quality Adjusted Life Years that each intervention produces per $1,000.

Imagine 100x your current return, simply by donating to more effective organizations.

The content on this page has been adapted from Doing Good Better (2016) by William MacAskill.