A Standardized Approach to Evaluating Nonprofit Performance for Every Giver: An Introduction

The endless conversation about “outcomes” and “impact” needs to come to an end.  It doesn’t need to stop.  It needs to get somewhere.  Concrete categories and conclusions need to take shape and either be adopted or discarded.  That is what my next 7 blog posts are all about.  I’m going to lay out a standardized approach to assessing organizational health and performance in the nonprofit sector.  

Customized VS Standardized Nonprofit Performance Evaluation

Before I present the six categories and 30 standards for evaluating nonprofit performance, I’ve got to be clear about the pros and cons of a standardized approach vs. a customized model.  A standardized system for evaluating nonprofit performance aggregates the highest number of common components that play a role in nonprofit health and performance across all geographic and program areas.  It looks for as many common indicators of success that exist and categorizes them.  Then it admits what it can’t do and leaves the more nuanced work to a customized approach.  At a certain point, it becomes ridiculous to use the same standard to compare the performance of a higher education nonprofit university in California to a small well-digging charity that operates in rural Kenya.  The economic, programmatic, and cultural divides require customization in evaluating performance.  That is why foundations and philanthropists who can afford the staff and consultants to provide customized analysis of individual projects do so.  

However, we cannot scale customized, high-cost approaches.  I work for a philanthropic advisory firm that offers a customized approach, and I know first hand it can’t scale.  So we must identify every possible standard for evaluation that can be broadly applied and standardize it for a diverse set of funders who can’t afford customized due diligence.  Customized expertise in program evaluation will always be out of reach for many donors, but common standards for evaluating nonprofit performance can be scaled to provide the maximum amount of insight for every giver.  That is what I’m putting on the table in the next 7 blog posts.  I am providing everything that can possibly be included in a standardized approach to assessing organizational health and performance in the nonprofit sector.  Then I’m going to ask you to help me make it a reality.

Why Standardize?

I’ve been evaluating nonprofit performance for a while now.  Although each potential grantee I evaluate has sent me down a unique set of rabbit trails, I have also discovered a growing number of common questions to ask and organizational components that lead to success.  I’ve read McKinsey reports on the Nonprofit Giving Marketplace, books like Give Smart and the Nonprofit Outcomes Toolbox, and reviewed nonprofit outcomes software and online toolkits.  I’ve sat in regional and national philanthropy conferences and interacted on blogs and tweet chats where passionate calls for giving to high-performing, high-impact organizations were made.  However, the endless advice and questions and ideas and calls for identifying high-performing nonprofits has not led to concrete, simple, and efficient systems for evaluating nonprofit performance.

One of the most recent attempts has been the BBB Wise Giving Alliance, Guidestar, and the Independent Sector coming together to launch Charting Impact.  Charting Impact did gather a number of thought leaders in philanthropy and identify a simple set of 5 questions about impact.  The simplicity is pure genius.  However, identifying good questions has not been a problem.  If I recorded all the questions smart people have recommended to me to ask about organizational effectiveness, I could create a list of hundreds.  The problem is developing a simple way for people to evaluate the answers.  No one to my knowledge has done that with nonprofit information about impact.  

Groups like Charity Navigator and BBB’s Wise Giving Alliance are among the very few who have created a simple system for evaluating nonprofit information about finances and governance.  In terms of a comprehensive and standardized system for evaluating nonprofit performance, the Donner Canadian Foundation may have the best prototype.  The Donner Canadian Foundation and the Fraser Institute have teamed up to create the most robust, standardized system for annually evaluating hundreds of nonprofits with a resulting numerical rating.  Unfortunately, they do not make those Canadian nonprofit evaluations publicly available or searchable.  What we need is a standardized system that simply and concretely evaluates (1) Governance, (2) Financial Management, (3) Sustainability, (4) Strategy, (5) Efficiency, and (6) Impact.  Then the information and the evaluation results need to be made available in multiple public portals where the majority of donors can access, search, and use the results to make informed giving decisions.  

The Solution

I created Nonprofit Analytics to answer the call for a concrete, comprehensive, and standardized approach to evaluating nonprofit performance that could be scaled for broad use.  And that is where future phases of its development are headed.  The information on each Analytical Overview combined with the 30 standards for organizational health and performance give donors an unprecedented ability to evaluate potential grantees.  I will be explaining the value of each standard we use in all 6 categories to determine organizational health and performance in this blog series.

The major hindrance to scaling the platform at this time is money.  Nonprofit Analytics only has about 300 hundred nonprofits in the database ready for evaluation.  That is because those organizations have a real shot at receiving a grant from our current philanthropic users.  We need at least 10,000 nonprofits in the database to be relevant on a national scale.  If I could convince the Philanthropy division of the William and Flora Hewlett Foundation or the David and Lucile Packard Foundation to award grants to the top-rated organizations each year, then we could create fresh motivation for nonprofits to complete and upload Analytical Overviews to the platform.  We could create the first robust, comprehensive, and easy-to-use standardized platform for evaluating nonprofit performance.  It could even be integrated into grants management platforms like Foundation Source, the Schwab Charitable Fund, or Fidelity’s Charitable Fund if it reached a meaningful scale.

If you’re not convinced about the value of a comprehensive, standardized approach to evaluating nonprofit performance, then you better read my next 7 blog posts about each part of the platform.  In some instances, the performance indicators have been able to predict future success or failure.  That is something every giver should care about.