Making Every Dollar Count: How Expected Return Can Transform Philanthropy

The William and Flora Hewlett Foundation test-drove this quantitative tool to help its Global Development programme hone its investment portfolio and systematise its grantmaking process. By quantifying the goals, benefits, risks and costs of potential investments, Expected Return changes the way programme officers approach grant evaluation by reducing biases, making assumptions explicit, and creating consistency across programme areas.

The desire to do as much good as possible has always driven philanthropies to ask tough questions of themselves when comparing potential grantees. What is the ultimate goal? What are the most effective ways to reach that goal? How much is it going to cost? These questions are as old as philanthropy itself. What is often missing is a systematic method of answering them. Enter Expected Return, a consistent, quantitative process for evaluating potential investments. Although still in its infancy, Expected Return has the potential to help maximize the return on scarce resources. Flexible, dynamic, and applicable to a broad range of topics, Expected Return asks and answers the right questions for every investment portfolio:

• What’s the goal?
• How much good can it do?
• Is it a good bet?
• How much difference will we make?
• What’s the price tag?

The first section of this paper presents the preliminary benefits of using Expected Return to systematize a philanthropy‘s grant-making process. Section two describes the Expected Return calculation, which is comprised of four components (Figure 1): benefit in a perfect world, likelihood of success, the philanthropy’s contribution, and cost. The result is a systematic estimate of the return on each potential investment and the ability to compare disparate projects. Section three shows how Expected Return will become more robust through better estimation techniques and new applications.

Conclusions: The use of Expected Return helped the Hewlett Foundation’s Global Development program hone its investment portfolio and systematize its grant-making. It helped surface the best available information for decision-making, and helped pinpoint where information that should influence decisions was good, and where more information would be useful.

You can download the full report from the William and Flora Hewlett Foundation Web site.