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Reflection and resolve: New Year's resolutions for nonprofits. (Effective Grantmaking).

The year 2002 has been rather turbulent for America's nonprofit sector. Controversies concerning the disbursement of September 11 relief funds created a public relations predicament for the sector. Nonprofits faced new challenges working with foundations, as well. Several foundations announced cuts in funding and changes in priorities throughout the course of the year.

The announcement that probably had the largest impact came from The David and Lucile Packard Foundation, which cut its grantmaking budget to $200 million for 2003, down from $250 million in 2002 and $451 million in 2001. In addition, the Packard Foundation consolidated its grantmaking from six giving programs to three. Nonprofits and foundations alike are feeling the pressure of these changes, and interest in organizational effectiveness is growing.

These events can leave some organizations feeling unsure about the future. How can nonprofits truly be dedicated to improving effectiveness if their spending practices are raising eyebrows across the nation? Are funders really committed to having an impact when they are cutting funding and eliminating programs?

In trying times, it may seem counterintuitive to invest in infrastructure or evaluation. In reality, building effective organizations becomes even more important. The organizations that are strong and sustainable are those that can do more with less and weather difficult times.

The events of 2002 have taught the sector several important lessons. With these lessons in mind, here are some New Year's resolutions for everyone to consider for 2003.

1. Embrace Collaboration. Even in prosperous times, the nonprofit sector can work smarter and more efficiently when organizations work together. Unfortunately, too many wait to learn this lesson until necessity dictates collaboration or merger.

Nonprofits are generally lean organizations with limited resources. Nonprofit stakeholders have a variety of complex needs, and the demand to meet them is great. By working together, combining assets, resources and energy, nonprofits can achieve greater results than working alone.

Effective collaboration can come in much simpler forms. One group of organizations serving women and girls in Grand Rapids, Mich., saved a considerable amount of money by doing something easy -- shopping together. These organizations pooled their purchasing power through a technology initiative led by the Nokomis Foundation and were able to buy computer hardware at discount rates.

2. Diversify Funding. If the events of the past 18 months have taught anything, it is the importance of a diverse funding base and adequate reserves. In addition to developing earned income strategies to make them less dependent on outside funding, organizations should strive to have six months of operating expenses in reserve funds to help them weather hard times in the future.

Creating a diverse and stable financial base is often one of the most challenging tasks nonprofits face. Fortunately there are a number of organizations that support nonprofits in their efforts to manage financial resources effectively. Two examples:

* Social Enterprise Alliance, the newly formed organization that resulted from the merger between SeaChange and the National Gathering for Social Entrepreneurs, works to build sustainable organizations through earned income strategies.

Members of the Social Enterprise Alliance are practitioners, grantmakers, academics, technical consultants and for-profit businesses. Social Enterprise Alliance members can learn the nuts and bolts of starting and running a social enterprise, as well as more advanced guidelines and knowledge from seasoned practitioners. For more information, visit

* The National Center on Nonprofit Enterprise (NCNE) helps managers and leaders of nonprofit organizations make wise economic decisions to improve their organizations' sustainability. Members of NCNE have access to information on issues including pricing of services, investments, staff compensation, fund-raising and starting business ventures. For more information, visit

Funders can play an important role in helping nonprofits diversify funding. Rather than giving only program-related grants, funders can provide general operating support or fund earned-income ventures to help improve sustainability in their nonprofit partners.

3. Focus On Results And Continuous Improvement. When working to solve complex social problems, it can be easy for nonprofits and foundations to focus only on the specific problems we are trying to solve. However, to have the greatest impact, time must be spent looking internally at how operations are functioning and how problems are being solved. Looking critically within can help to find ways to trim the fat, improve operations or expand impact.

When the Roberts Enterprise Development Fund (REDF) wanted to measure the social outcomes of its investments in nonprofits that employ homeless and low-income individuals, it created a complex, customized, social management information system within portfolio organizations. The project, Ongoing Assessment of Social ImpactS (OASIS), required REDF to work closely with its nonprofit partners.

The plan was to create a system that was practical for the nonprofit to implement into its daily operations, provided nonprofits with outcomes information that could help inform decision-making and planning, and gave REDF information to help staff evaluate the impact of their investments in affecting social change.

One of REDF's nonprofit partners reported several changes as a result of the outcomes measurement. The organization streamlined all of its processes to reduce paperwork by 300 percent. By running outcomes reports on all its programs, it was able to proactively identify and respond to challenging areas before they became problems.

Staff said their jobs became easier with outcomes measurement because they could more easily find information about clients and more quickly prepare reports for funders.

Creating a theory of change is another way organizations can discover new strategies for achieving the results. A theory of change requires an organization look critically at assumptions made, the problem it is working to solve, as well as any external factors that influence decision-making. This process of evaluation can help nonprofits anticipate external challenges before they arise, to better equip them to remain focused on results in a constantly changing environment.

4. Communicate Openly With The Public And Funders. The nonprofit sector is facing a public relations problem. The public's confidence in the sector dropped this year after several charities came under fire for not giving all contributions to September 11 relief funds directly to victims and their families.

We all know the truth: Nonprofits must spend money on operations to provide programs and services. Not every penny raised can go directly into programs, but this is not what the public understands. Nonprofit leaders play an important role in shaping public perception. Let it be known that the sector is under tremendous pressure to achieve great results with lean infrastructures and minimal expenses. Although mission is the first priority to do the job effectively, organizations must have strong, sustainable infrastructures.

Funders and nonprofits need to develop closer relationships with one another. Time and again, when funders describe successful investments, they talk about having open and honest relationships with their nonprofit partners. Nonprofits should not be afraid to let funders know what they need. Funders are concerned about their own effectiveness. If a funded project did not succeed, they deserve to know what happened and why so they can make appropriate changes to their grantmaking approach.

Admitting failure to funders is, of course, easier said then done. There is an inherent power imbalance between nonprofits and funders. Nonprofits often change programs and plans according to the whims of grantmakers. Nonprofits need to speak up and tell funders what kind of support would be most effective.

Understandably, many nonprofits fear admitting failure or that refusing to implement a grantmaker's idea could cause a loss in funding. Funders can help alleviate these fears by listening to the needs of their nonprofit partners and making every effort to level the playing field.

Often, New Year's resolutions revolve around personal growth and development -- lose weight, eat right, read more, stop smoking. But usually, external pressures intervene and resolutions end up going by the wayside. Nonprofits can no longer afford to waver in the resolve to strengthen their infrastructure and leadership. In the coming year, the challenge is to focus within so that the sector is strong, healthy and better equipped to affect sustainable change.

Kathleen Enright is executive director, Grantmakers for Effective Organizations in Washington, D.C.
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Title Annotation:review of trends in 2001 in nonprofit sector
Author:Enright, Kathleen
Publication:The Non-profit Times
Geographic Code:1USA
Date:Dec 15, 2002
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