Tuesday, March 01, 2011

From a Foundation Perspective - What Makes An Effective Nonprofit?

Once in a while I like to write about what “the other side” is saying. The “other side” being the foundation point of view. I recently came across this article by the Association of Small Foundations entitled, “What Makes An Effective Nonprofit?” The thrust of this report is that there are five main characteristics that make a nonprofit effective and donors should consider the overall effectiveness of an organization or the potential of an organization to be effective and give a gift to increase effectiveness. So what do they think is important? The basic stuff of course – but here are some interesting highlights:

The five characteristics which are common to effective nonprofits:

1. Clear mission and purpose - The most fundamental quality of an effective nonprofit is clarity about its mission—both what it seeks to accomplish and why this purpose is important.

2. Ability to perform key functions  - Communicate vision, Engage stakeholders’ input , Achieve results and track impact against a few key measures, Plan for the future and be a learning organization.
3. Strong practices, procedures, and policies -  Effective nonprofits also follow good practices in three functional areas: finance, governance, and organizational and program development.  The list in this topic included:

• Solid fiscal management processes are in place including a board finance committee, careful cash monitoring, and regular budgets monitored with monthly cash flow statements.

• Diverse range of funding

• Efforts to establish and maintain a reserve fund, ideally 3 to 6 months of operating expenses.

• A strategic plan is in place and used. It is reviewed annually and adjusted as necessary. Key staff refer to it when talking to you.

• Regular client input is welcomed and used for continual program improvement.

• Other organizations doing similar work speak highly of the organization.

• Staff can articulate key accomplishments, lessons learned, and future directions.

• The organization is recognized as an institution; it is not identified solely with one or two individuals who work there.

• The organization is able to demonstrate measurable outcomes.

4. Good people -  Above all, nonprofits depend on one key resource to fulfill their missions: qualified, skilled, and talented board members, staff, and volunteers. Since people are key to performance, look for nonprofits that invest in their human resources.
5. Ability to mobilize others -  The ability to mobilize and engage volunteers, other nonprofits, businesses, and government agencies is an essential skill for nonprofits seeking to address the root causes of problems and bring about long-term change.

Recommended Due Diligence
In advising small foundations to do due diligence, it suggests looking at things on this list.  In the financial review it recommends annual reports, 990s, financial statements (which I was glad to see they note an audit is optional and not required) and budgets.  It strongly recommends doing a site visit and talks about the importance of meeting with the executive director, assessing the competence and professionalism among staff and observing the interaction with clients.

I find that many small nonprofits don’t publish an annual report and I think this is a huge missed opportunity. In this report it is listed as the first thing that small foundations should look at.  See my companion piece to this article at the Nonprofit Capacity Blog on nonprofit annual reports.

So What Really Caught My Eye
What is most interesting about this report for me were the last two items – Good people and the ability to mobilize others. I personally really value these two characteristics and I think that too often nonprofits that ARE effective don’t emphasize those characteristics about themselves enough. Listen up – foundations may actually be looking at this.

The report doesn’t discourage a donor from making grants to organizations that don’t meet all of these criteria. Rather it encourages donors to consider the potential of a nonprofit and fund the things it will help make them effective. A summarizing quote: “ As a donor, you have not only the power to identify effective nonprofits but also to build and strengthen the ones most aligned with your goals. In other words, excellent nonprofits are often made, not found.”
An interesting perspective…from “the other side.”

Read the whole report here.

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