August 6, 2012

Assessing a Nonprofit’s Ability to Get Results: Be Aware of These Red Flags

By: The Bridgespan Group
When researching a nonprofit’s organization and operations, you may come across a "red flag”—something that will make you think long and hard about investing in the organization. Before providing a few examples of red flags related to a nonprofit’s organization and operations, it is important to consider how to respond to red flags when you do encounter them:
  • Not all red flags carry equal weight. For example, in many cases you’ll find that nonprofits lack vital systems and supports due to a lack of resources. That’s a red flag, but one you may be able to live with; you might be able to provide the resources needed to fix the problem. Other red flags might prove to be more troubling, for example, if they shed light on fundamental gaps or issues, such as an ineffective program or an executive director’s flawed approach. In those cases, more resources may only exacerbate the problem.
  • More important than these red flags, in other words, is the context from which they arise. Try to figure out whether the challenges you identify are surmountable with the support you plan to provide. Are the leadership team and board willing to tackle (or even acknowledge) these weaknesses? If the weakness lies in capacity, consider your own willingness to fund some or all of the non-program expenses that capacity building would require.
  • Stay open minded: Don’t leap to judgment when challenges come to light. Engaging in conversation in the spirit of inquiry will reveal the story behind the weaknesses, how they have emerged, and how you might help address them with your support.
With these tips in mind, here are some examples of issues that should trigger further inquiry as you research a nonprofit’s organization and operations (see last week’s blog for some great starter questions):
  • Staff morale seems low (for example, turnover of non-leadership staff is higher than leadership had planned for).
  • The organization’s leaders are not able to pinpoint where they would like to invest next (for example, in people, systems, or specific sites or programs).
  • The resource needs identified by staff are vastly different from person to person.
  • The process for making decisions is unclear.
Remember that the existence of red flags doesn’t necessarily mean that you should forego investing in a particular nonprofit; instead, it may mean that it is necessary to offer the organization non-financial support, like the examples described here, in addition to the financial support you were considering.
  If you encounter one of these red flags in your research, it may mean that you should take a deeper look into the nonprofit’s organization and operations (to investigate further, check out our full guide). It may also mean that you should investigate related components of the nonprofit, such as its strategy and results, leadership, or finances. If that is the case, consider using our Donor Decision Tool to create a research plan tailored to your needs or you may wish to consult one of the following guides: This is the latest post in our Nonprofit Due Diligence series. Click on the links below to read previous posts. Join the conversation by commenting below or on Twitter at #NonprofitDueDiligence. You can follow Give Smart updates at @BridgespanGroup.

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