Wealthy families are asking family offices to help them make their charitable giving more effective and so build a stronger legacy. But not all family office executives are experts in analyzing philanthropy, so what should they do?
Bjørn Lomborg, president of the Copenhagen Consensus Center, says the first thing is to work out how much bang you get for your buck. Be unsentimental.
Start small, he says, it doesn’t need to be complicated.
‘Look at what is the cost of the solution being proposed and what’s the benefit. And then you get a sense of what’s your bang for your buck. And we would say, get the best things first.’
The Copenhagen Consensus Center works with 300 top economists, including seven Nobel Laureates, to analyze the cost and benefit of providing solutions to global problems. But you don’t need that, says Lomborg. Not at first. ‘It could be as simple as a back-of-the-envelope calculation.’
How much will this cost? You need to know
‘You simply write down how much your solution is going to cost per person, and get a sense of how much good that’s going to do.’ You might need to estimate how many lives will be saved and set a reasonable value – typically three times GDP per capita, or the cost to the social community, or the cost to the environment if that’s your issue.
‘You can fairly simply get a sense of this,’ he says. ‘It’s not going to be perfect, but that’s not what you’re aiming for. You’re simply trying to say, “For every dollar or rupee I spend, am I going to do $3 of good, or $30? Maybe even $300?” And, of course, it’s important to do the $300 ticket items before you do the $3 item.’
Clearly, he adds, philanthropists won’t make decisions based solely on cost benefit analyses. They will also be swayed by their own passions, experience, and other arguments.
‘A lot of people want to take real action. They say, “I want to help this kid get into school.” “I want to make sure this kid survives or gets good food.” You don’t want to spend your money just on research and lists. You want to make sure most of your money is spent on actually helping people.’
This is only right, he says. ‘But the point I make is, it’s probably a good idea before you start unleashing your millions, or tens or even hundreds of millions of dollars, to make sure that you’re spending it in the best possible place.’
If you do this, you’re going to achieve far more, he says. ‘Because it means that for every dollar, rupee or euro, whatever you’re spending, you will do a lot more good. And that, I assume, is going to be your ultimate goal.’