I am often asked for tips on how best to evaluate a nonprofit organization being considered for funding. Is it the ratio of income to expenses? The composition of the board? The organization’s logic model and outcomes? Its success in public policy? I often wish there were a magic algorithm that allowed you to put in all the relevant factors and come out with a score that indisputably confirms the health of a nonprofit. The truth is that there are many factors that contribute to how to evaluate the strength of a nonprofit, and depending on the donor’s intent or the focus of your giving, you can weigh any number of factors when deciding how to allocate your gifts, volunteer your time or engage more deeply with an organization.
There is no shortage of tools out there to help you with this task. Experts in nonprofit management like Bridgespan have written extensively on this topic. They posit that effective organizations have strength in five key areas: leadership, decision making and structure, people, work processes and systems, and culture. These key areas are, according to Bridgespan, directly linked to results. If you are interested in a deep dive on a nonprofit’s financials, TDC and the Nonprofit Finance Fund both have sophisticated tools to help analyze a nonprofit’s financial position. Their “Capitalization” workshop for grantmakers is one of the best approaches to understanding the nonprofit balance sheet and incorporating that into your giving. The RISE (Relevance, Impact, Sustainability and Excellence) Framework developed by Rebecca Riccio at Northeastern University and widely used by the Learning By Giving Foundation in its Giving With Purpose class is also an excellent, simple tool. And if peer-to-peer learning interests you, Associated Grant Makers and Maine Philanthropy Center, two regional associations of grantmakers, provide training, funder networks, research and other services to foundations and corporate giving programs. Even a surf over to Guidestar can give you a copy of a nonprofit’s most recent tax return with a few clicks.
The press widely covers this topic, too, and is always interested in reporting about trends in nonprofit management and accountability. A recent Boston Globe article outlined the compensation and benefit packages of local nonprofit CEOs. The Chronicle of Philanthropy regularly covers issues of nonprofit leadership, compensation, and management.
With all these tools available, how do you get to that magic answer, short of getting your own MBA or CPA? I’ve found that starting with the question of “what do you want to know and why” will guide a donor in the right direction. Are you concerned that your gift is not moving the organization forward in the most constructive way? It’s probably time to look at the organization’s strategic plan. Do you engage directly with the CEO but are concerned about who will take her place when she retires? Probably best to ask about succession planning. Are you worried that the organization has posted several years of deficits or have concerns about its debt service? Numbers do tell a story, so it might be time to look closely at the audit and engage with the CFO in a constructive conversation.
Using your own goals as a filter helps the evaluation process become more of an art than a science. You’ll be informed by both the best tools out there as well as the focus of your own giving, and not someone else’s abstract ideal of a “good” organization. Success is when you put the emphasis on the parts of the evaluation process that are most important to you and your giving, and not just react to the most recent headline, fad or trend.