This time of year, thoughts often turn to giving. Even in these economically challenging times, Americans still find it in their hearts to give to those in need. For some it may be putting change in the red bucket outside of the department store. For others, it may mean committing to that capital campaign before 2009 arrives. No matter what form your giving takes, all of us want our dollars to be used effectively.

While there are many ways that one can now research their favorite nonprofit via the internet, almost all of these web sites are based on information taken from IRS Form 990, the informational return required by the IRS for most nonprofits. Form 990 is the closest one can get to a set of audited financial statements for a typical nonprofit, although many that are small, religious, or academic institutions are not required to file them. With them, one can reach some general conclusions about size, budget, assets, and so on.

The movement that is getting more and more attention, and rightfully so, is that of the outcomes delivered by nonprofits. Basing nonprofit investment decisions on the outcomes that are delivered, rather than budget size, board composition, or level of current assets, has more intuitive appeal. This new level of examination cannot be easily determined, if at all, from a Form 990. If a nonprofit chooses to include this type of information, there is no standard format, no standard methodology, and certainly no way of determining the accuracy of the information, as there is in strict financial statement reporting.

Making your philanthropic dollars count by looking at the outcomes delivered sounds easy, but it is far from it. One reason is that every nonprofit does a great job. . . just ask them. In all the nonprofits we have worked with in the last 15 years, none have said they do an “okay” or “average” job. This is probably due to the eternal optimism needed by those in the nonprofit world in order to function.

Another more practical reason that outcomes are difficult to ascertain is that many nonprofits confuse them with outputs, which are far easier to measure. Outputs are measures of activity, such as how many attended an organization’s remedial education classes or how many free meals were delivered. Outcomes are measures of downstream impact, such as how many of those who attended the education classes got their diploma and got a job, or how many of those free meals allowed people to get back on their financial feet sooner and become productive members of society.

What becomes very useful in one’s nonprofit funding decision is to use outcomes to determine value. When one can compare apples to apples, value delivered to value delivered, the funding decision becomes much simpler. Having a dollar estimate of value delivered, even if it values some difficult to measure and intangible things, gives a common denominator to the process. As one can imagine, academics and others who study nonprofits, rather than those who actually run them and fund them, consider this nonprofit blasphemy. Or at the very least, a bit too capitalistic and too close to a for-profit mentality.

“Nonprofits are not that different from for-profits?they both must do one thing: provide outcomes that investors value,” according to Tom Ralser, founder of Capital Strategists Group. Ralser, who is also a former tenured professor of finance, recently released the book ROI for Nonprofits: The New Key to Sustainability. “In the for-profit world, the market votes with their dollars by buying or not buying a firm’s product. In the nonprofit world, the market votes by funding or not funding the organization. It’s really the same mechanism at work.”

The challenge, according to Ralser, is translating the good work that nonprofits do into the terms and concepts that funders understand. “All too often, nonprofits think that by describing the outcomes they produce, potential funders will automatically appreciate what they do and therefore give them money. With all of the nonprofits out there asking for money, this is just unrealistic. What many funders are demanding these days is the value of the outcomes produced. Value is something they can get their arms around, easily ,and allows them to make a much more informed decision. Ralser also emphasizes that the larger the amount of money at stake, the more important the communication of value becomes.

All of this can be summed up by the concept of moving from a purely charity mindset to one of investment. Charity has some negative connotations, most notable: the habit of taking any amount of money they can get from any source. If this sounds familiar, it should . . . begging has been around for centuries. Investment, on the other hand, connotes the expectation of value being delivered. Sometimes this value is direct and self-interested (my business will directly benefit), and other times more intangible (my community will have a better quality of life). No matter what the motivation, the end result is that by looking at the value delivered, investors in nonprofits can make sure that their dollars are being used wisely.

So, this holiday season, when you are considering the many philanthropic opportunities that are available, invest in organizations that produce outcomes that show accountability, transparency and results. This investment will yield the largest and most beneficial impact to your community.