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Providing a Long-Term ‘Map’ for Organizational

Effectiveness

January 2004

S:\Grantmaking\CarnegieBooklets

First Nations Development Institute was founded in 1980 with the mission to help American Indian tribes and Native communities rebuild their economies through asset-based community economic development. Our programs and strategies focus on assisting tribes and Native communities to control, create, leverage, utilize and retain their assets. FNDI programs and departments include:

• Grantmaking and Intermediary Services - provides both financial support and technical assistance to Native asset-based development projects.

• First Nations Oweesta Corporation - a subsidiary of FNDI, provides both financial and technical support to Native community-based financial institutions.

• Native Assets Research Center - our research and policy center undertakes research, analysis and advocacy on Native asset-based community economic development.

• First Peoples Worldwide - our international program, advocates for the rights of indigenous people around the world.

• Strengthening Native American Philanthropy Initiative - seeks to increase Native American and tribal participation in private philanthropy, both as funders and grant recipients.

• Communications - provides for the dissemination of information to various audiences and constituencies.

To learn more about our programs, please visit our website at www.firstnations.org

Copyright 2004 First Nations Development Institute 10707 Spotsylvania Avenue, Suite 201 Fredericksburg, Virginia 22408 540.371.5615 (tel) www.firstnations.org Permission to copy, disseminate, or otherwise use information from this booklet is granted as long as appropriate acknowledgement is given. Acknowledgement: This booklet is one of a series of six nonprofit capacity building booklets that were made possible with the generous support of the Carnegie Corporation of New York.

First Nations Development Institute was founded in 1980 with the mission to assist Indigenous peoples to control and develop their assets and, through that control, build the capacity to direct their economic futures in ways that fit their cultures. Our programs and strategies focus on assisting tribes and Native communities so they control, create, leverage, utilize and retain their assets.

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• The organization has a strategic plan completed, accompanied by a SWOT analysis.

Sustainable Phase • The organization has a live/active strategic planning document. • The strategic plan undergoes periodic (a timeframe of one year or

less) review, and an update/revision. • The strategic plan provides guidance to redirect and/or correct the

organization’s program focus in order to accomplish the organization’s mission.

MAPPING THE FUTURE

Once an organization has taken the time to go through this self-evaluation, it can identify opportunities for organizational improvement and growth that will dovetail nicely into the organization’s overall strategic planning process.

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TABLE OF CONTENTS

PREFACE ......................................................................... 5 INTRODUCTION ............................................................. 5 PROVIDING AN ORGANIZATIONAL EFFECTIVENESS ‘GIS’ SYSTEM FOR ORGANIZATIONS ..................... 7 ORGANIZATIONAL EFFECTIVENESS— A DEFITNITION .............................................................. 7 FINANCIAL MANAGEMENT ..................................... 11

Accounting Systems .................................................... 11 Budgeting Process ....................................................... 12 Financial Controls ....................................................... 12 Financial Staff and Board Capacity............................. 13

RESOURCE GENERATION ........................................ 16 Fundraising.................................................................. 16 Non-Fundraising Revenue Generation ........................ 17 For-Profit Business Revenue Generation .................... 18

HUMAN CAPACITY ..................................................... 19

Board of Directors ....................................................... 19 Executive Director....................................................... 20 Program and Administrative Staff............................... 21 Volunteers, Partnerships, and Collaborations ............. 21

GOVERNANCE .............................................................. 22 EVALUATION AND MEASUREMENT ..................... 23

Achieving Its Mission and Serving Its Constituents ... 23 Measure Its Program Effectiveness: Goals and Objectives ............................................................. 24

Strategic Planning ....................................................... 25

MAPPING THE FUTURE............................................. 26

monitors outcomes only. Secondary Phase • Evaluation methodologies are set up at the onset of program

planning and development. • Evaluation data is collected throughout the program

implementation. • The organization has quantitative and qualitative measurements

of its objectives, and/or an external evaluation process. • The programs have an active evaluation and review and results

are used for fundraising. Sustainable Phase • The programs effect systematic change based on evaluation

results. • The organization utilizes evaluation and measurement

information for program development. • The organization affects organizational and/or community change

based on program evaluation results. STRATEGIC PLANNING

Idea Phase • The organization doesn’t have formal strategic plan. Seed Phase • The organization has a founder or Executive Director driven work

plan. Start Up Phase • The Executive Director and the Board of Directors drive the

organization’s one-year work plan. Secondary Phase • The Board of Directors, and the program and administrative staff

are involved in the development of a 1-5 year strategic plan.

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• The organization monitors its progress towards its stated program objectives.

Start Up Phase • The organization has formed a rudimentary evaluation

methodology with quantitative measures. (Numeric scoring of outcomes.)

• The organization has a clear mission statement. Secondary Phase • The organization has an active evaluation and review of the

organization and its strategic direction. • The organization has quantitative and qualitative measurements of

its objectives, and/or an external evaluation process. • The organization periodically evaluates its programs in accordance

with its mission statement. Sustainable Phase • The organization effects systematic change based on evaluation

results. • An outside review of the organization’s ability to serve its

constituents is conducted periodically. • The organization identifies its core competencies and reflects/

begins to understand the organization’s limitations.

MEASURE ITS PROGRAM EFFECTIVENESS: GOALS AND OBJECTIVES Idea Phase • The organization doesn’t have a formal program evaluation

mechanism. Seed Phase • Programs are monitored on a cost-based budget methodology. Start Up Phase • Programs have a rudimentary evaluation methodology, which

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PREFACE Two of the over arching goals of First Nations’ work have been to: • Increase the number of initiatives to develop human and financial

capital for culturally appropriate, Sustainable Phase development in Indian Country.

• Enhance capacity of reservation or rural Native communities to accumulate, control, manage, and leverage local assets and tribal resources through community-driven, Sustainable Phase development initiatives.

First Nations is also well aware that building community assets and affecting positive community change requires strong and diverse community institutions that can fulfill the needs of the community, employ community assets effectively, and promote expression of creativity, hope, and vision. First Nations’ emphasis, therefore, is not simply on the economic project, but on building and strengthening institutional capacity. Furthermore, First Nations believes that by supporting projects most in need of improving their organizational capacity, that the projects will have a higher rate of success in improving the well being of the community as a whole, will reflect the traditional values and culture of the community, and more importantly, will be Sustainable Phase.

INTRODUCTION

Every few years, usually accompanying a poor economy, there is a movement afoot to make business people out of nonprofit managers and directors. These same managers and directors should heed much of what is being advised, especially the counsel to create business discipline for these same organizations. One common aim of the movement, however, is wrought with danger for the nonprofit organization – the desire for the nonprofit to diversify its revenue base by creating a for-profit arm or subsidiary of the organization. Many nonprofits that attempt this are not fully

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prepared to face the challenges that arise in integrating entrepreneurial activity into their culture. Nonprofits have varied capacities to develop and implement business ideas. In fact, it has been First Nations’ experience in working with nonprofits who are attempting to start and operate for-profit businesses, that most of these organizations underestimate the demands inherent in developing and operating a business enterprise. It is important to remember, however, that these are all intended to be tools for investigation, not for justification. Should the results of any of these lead the organization’s decision makers to believe that the business is not feasible, or that the market is too small or crowded with competition, or that the financing for the business is not readily available, this is a good thing. In the end, it is equally, if not more, important to discover the reasons for NOT starting a for-profit business. Doing so early in the investigation and planning period will save the organization a great deal of heartache and financial resources. Furthermore, an enterprising nonprofit enterprise should adhere to the following:

• Enterprise initiatives need to be consistent with the organization’s mission, values, and goals. • A nonprofit looking to open a profit enterprise must ensure board and staff commitment and involvement. • The organization needs to dedicate staff responsible to and for the business enterprise. • The organization’s board, or at least the for-profit subsidiary’s board or committee should include people with business experience. • The organization should strive for continuity throughout the business planning and implementation process. • The organization should not shy away from utilizing external resources (e.g. business advisors and other non profits). • Expect the organization’s culture to change and support this transition.

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• The Board reviews the organization’s financial status at regular meetings.

• Board approves organizational budgets. • Board hires and fires the Executive Director. Secondary Phase • The organization has clear separation of staff and Board of

Directors’ functions. • The Board of Directors oversees the policies, programs, and

organizational operations including, review of achievements of strategic goals, financing status and Executive Director’s performance.

• Board is active in the development of strategic and business plans for the organization.

• The Board evaluates the Executive Director’s performance on an annual basis.

Sustainable Phase • The organization has transparency: disclosure of relevant

financial and operational information, internal processes of management oversight, and enforceability of the rights and interests of all stakeholders.

• The organization’s directors are capable of independently approving the organization’s strategy and major business plans and decisions, as well as independently hiring and firing the Executive Director and monitoring his/her performance and integrity.

EVALUATION AND MEASUREMENT

ACHIEVING ITS MISSION AND SERVING ITS CONSTITUENTS Idea Phase • The organization doesn’t have a formal evaluation mechanism. Seed Phase

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Seed Phase • The organization has some volunteer-sourced clerical and some

volunteer staff functions. Start Up Phase • The organization utilizes volunteers to outsource functional

responsibilities, e.g. bookkeeping and/or fundraising. • The organization has formal volunteer and/or community

advisory committees. • The Board is all volunteer Secondary Phase • The organization has formalized collaborations with other

businesses or organizations. • The organization has a volunteer appreciation program. Sustainable Phase • The organization has contractual relationships and or written

understandings with outsource providers and/or collaborators. • The organization has formal internship programs.

GOVERNANCE

Idea Phase • The organization doesn’t have formal articles of incorporation or

bylaws. Seed Phase • The organization has articles of incorporation and bylaws. • Charitable status, (501 (c)(3), may be pending. Start Up Phase • The organization has a Board of Directors Policies and

Procedures document. • The organization makes available Board of Directors meetings

minutes in a timely fashion. • The organization has an enacted Conflict of Interest Policy, e.g.

nepotism, relatives on Board, etc.

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PROVIDING AN ORGANIZATIONAL EFFECTIVENESS ‘GIS’ SYSTEM FOR ORGANIZATIONS

In layman's terms a Geographic Information System (GIS) is essentially some form of digital mapping linked to a relational database documenting descriptive qualities of the features represented on the map. The advantage of a GIS compared to the conventional hardcopy map sheets is that the information on the map is dynamic and can be analyzed for spatial relationships. This ability enables a better understanding of how things work on the earth's surface, which lends itself to making informed management decisions across a broad base of applications (environmental, transportation, utilities, etc.) This booklet attempts to give reservation-based nonprofit organizations a ‘GIS for organizational effectiveness,’ maybe better termed and OEIS – Organizational Effectiveness Information System. Essentially this is a way of tracking the organization’s strengths and weaknesses in a dynamic manner – allowing the organization to both understand where it is at any given point in time with regard to organizational effectiveness, as well as providing a long-term ‘map’ for the organization to follow as it begins to develop and enhance its operating systems.

ORGANIZATIONAL EFFECTIVENESS – A DEFINITION First Nations subscribes to the simple definition of organization effectiveness effectively stated by Barbara Kibbe, Director, Organizational Effectiveness and Philanthropy Program, David and Lucile Packard Foundation when she defined organizational effectiveness

“as the ability of an organization to fulfill its mission through a balance of sound management, strong governance, and a persistent

rededication to achieving results.” This booklet examines two distinctive subsets of organizational effectiveness, Achieving Mission vs. Organizational Survival.

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Achieving Mission is more commonly stated as an organization’s ‘raison detre’, or the reason for its existence. The characteristics of Achieving Mission include:

• Goal Attainment. • Productivity. • Quality of Work. • Constituency Satisfaction.

Organizational Survival, in contrast, is more closely associated with the management practices that ensure an organization’s overall health and longevity. Characteristics of Organizational Survival Include:

• Quality of Staffing. • Productivity. • Adaptability. • Acquisition of Resources. • Staff Morale. • Succession Planning. • Volunteer Participation.

Many circumstances provide important opportunities for organizations to clarify their mission, improve their internal communications, and develop relationships among their staff and boards. Included among those circumstances are management transitions, significant board turnover, or changes in funding sources. For the most part, an organization’s organizational effectiveness efforts focus on projects that fall into four keys areas that encompass the above two subsets of organizational effectiveness: 1. Leadership: The need to revitalize efforts to ensure stability of board, director, staff, and volunteer leadership within of reservation or rural Native communities. These projects may include:

• Board Development and Governance.

• Leadership Succession Planning.

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• The E.D. has influence with outside constituents and has the ability to promote the mission of the organization at the community and larger community levels.

PROGRAM AND ADMINISTRATIVE STAFF Idea Phase • The organization does not have staff beyond the E.D. Seed Phase • A majority of the staff /volunteers consist of individuals who

would be considered ‘generalists.’ Start Up Phase • The organization has specific job descriptions and interview

process. • The organization has administrative managers/staff. • The organization has formalized staff orientation and training

and/or continuing education. Secondary Phase • The staff are specialized, e.g. accountant, drug and alcohol

counselor, environmental technician, biologist. • The program and administrative staff have sufficient skills to

move the organization forward. • Personnel policies and procedures are in place • A formalized internship program is in place. Sustainable Phase • The organization has a CFO, COO, and/or program heads, with

appropriate responsibilities and oversight, along with the accompanying authority and resources.

VOLUNTEERS, PARTNERSHIPS, AND COLLABORATIONS Idea Phase • The organization doesn’t have outside volunteers or formal

partnerships.

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effectiveness in achieving the organization’s mission. • The Board has the appropriate sub-committees to review specific

organizational functions, e.g. finance/auditing, development, etc. • The Board members bring additional financial resources to the

organization.

EXECUTIVE DIRECTOR (E.D) Idea Phase • The organization’s E.D. is a volunteer or unpaid professional. Seed Phase • The E.D. is part-time or non- or low-paid (one step above

volunteer). Start Up Phase • The E.D. has some track record or history of success. • The E.D. has proven fundraising expertise. Secondary Phase • The E.D. has the ability to recognize and acknowledge the

limitations of the organization’s program and administrative staff. • The E.D. possesses strong outside partnerships and networks, e.g.

fundraising contacts, professional networks, etc. • The E.D. has a long-term vision on the direction of the

organization. • The E. D. works well with the Board of Directors in the

implementation of policies and achieving mission. Sustainable Phase • The E.D. has strong professional, e.g. 5+ years of organizational

leadership, excellent analytical, organizational, interpersonal, and communications skills.

• The E.D. has strong writing skills, advocacy experience, and a proven ability to fundraise.

• The E.D. has strong personal skills, e.g. strong values and dedication to the vision, a consensus builder eager to build personal trust, as well as negotiate policy, etc.

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2. Message: The increased attention needed on crafting messages to resonate with the public and staff, as well as the delivery of effective messages. These projects may include:

• Utilization of Technology.

• Community Outreach and Constituency Service.

3. Resources: The need to increase and diversify the resource base while, at the same time, developing strategies to use current resources more effectively. This includes not only money, but human resources as well, including active volunteers. These projects may include:

• Financial Planning and Management of financial and accounting systems.

• Human Resources, including staff training and development, volunteer support, and personnel systems development.

• Organizational Restructuring.

4. Vision: The need to better articulate the ultimate goals and what the future will look like if successful. These projects may include:

• Program Evaluation and Measurement Tools.

• Long-term Strategic Planning.

The assessment tool that follows, is intended to assist reservation nonprofit organizations assess their organizational effectiveness ‘position.’ That is to say, it is intended to help them understand exactly where their systems are in the organizational development cycle. Within this assessment tool are listed five phases of organizational development: idea phase, seed phase, start up phase, secondary phase, and sustainable phase. • Idea Phase is just as it sounds; the organization is more a

‘sparkle’ in an individual or group’s eye than an organization. This may the result of a community meeting, etc.

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• Seed Phase is represented by organizations that are just starting out. Volunteer management may be forming, applications for 501(c)(3) nonprofit status are being sought, fundraising ideas are beginning to be generated.

• Start Up Phase is usually represented when the organization gets its first funding from an outside source, usually in the form of a grant. The organization is beginning to implement bookkeeping, set policies, and procedures for board development, etc.

• Secondary Phase is accompanied by the systemization of an organization. The organization has become adept at raising, and accounting for, money, and more than likely is beginning to find that its staff is becoming more and more specialized. Procedures are either already in place or in process of being developed for most functions of the organization.

• Sustainable Phase is the ‘self actualized’ organization. This is an organization that has a clear sense of its history, as well as its plans going forward. It has a clear sense of who its constituency is and how well it’s serving them. Needless to say, an organization in this phase has most of its systems designed and implemented, with periodic review.

It is important to note, however, that organizations evolve in a much more ‘messy’ manner than the above definitions suggest. It is not uncommon for an organization to have characteristics of two or three of the above phases at any given point in time. It is for that very reason that this booklet was created. The intent is to assist organizations in understanding the systems they have in place for each of five primary areas: financial management, resource generation, human capacity, governance, and evaluation and measurement. The following will allow organizations to find where they are at present on the organizational effectiveness continuum, as well as provide a map to where they might like to be in the future, in each of the five primary areas.

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Sustainable Phase • The organization has a profitable for profit business, e.g. the

margins cover all of the direct costs of operation, as well as the indirect costs incurred by the business.

HUMAN CAPACITY

BOARD OF DIRECTORS Idea Phase • The organization doesn’t have a formal Board of Directors, only

an advisory committee. Seed Phase • The Board is made up of the organization’s officers only, e.g.

president, executive director, etc. – no outside directors. • The Board is made up of staff or the organization’s

administrators.

Start Up Phase • 51% or more of the Board is made up of outside directors not

related to the Executive Director or staff. • The Board receives (or has received) some training or continuing

education about its roles and responsibilities.

Secondary Phase • The Board reserves budget approval authority. • The Board members have functional expertise, e.g. accounting or

finance, fundraising, public relations, etc. • Board members bring additional networks to the organization. • The Board completes ongoing review and evaluation of the

Executive Director.

Sustainable Phase • The Board has clearly defined expectations, responsibilities,

authority, etc. by which to measure the Executive Director’s

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Seed Phase • The organization doesn’t generate revenue outside of fundraising. Start Up Phase • The organization has begun looking at generating revenue aside

from fundraising activities, e.g. has done a feasibility study or business plan to explore ideas.

Secondary Phase • The organization has some non-related (not necessarily related to

the organization’s mission) revenue, e.g. the organization gets paid for training or counseling.

Sustainable Phase • The organization has a sophisticated non-business related income-

generating source – one that produces 25% or more of the organization’s annual operating budget, e.g. conferences or workshops, etc.

FOR-PROFIT BUSINESS REVENUE GENERATION Idea Phase • The organization doesn’t have any means for generating revenue,

e.g. a for-profit subsidiary.

Seed Phase • The organization generates some revenue from a for-profit

subsidiary but uses the revenue for program or administrative costs solely.

Start Up Phase • The organization’s for-profit business is healthy enough that the

business’ margins cover some of the direct costs of operation.

Secondary Phase • The organization’s for-profit business is healthy enough that the

business’ margins cover the direct costs of operation, and even some of the indirect costs incurred by the business.

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FINANCIAL MANAGEMENT ACCOUNTING SYSTEMS

Idea Phase • The organization doesn’t have financial reporting. Seed Phase • The organization receives and reconciles monthly bank statements • The organization tracks cash by a simple “Cash in - Cash out”

methodology. • Reports financial status to the Board of Directors periodically. Start Up Phase • The organization has a preliminary understanding of accrual and/

or fund accounting. • The organization tracks cash flow on an annual basis. • Internal financial controls are in place. • The accounting functions are separated between 2 or more people. Secondary Phase • The organization uses fund accounting principles. • The organization allocates indirect costs or overhead expenses. • The organization frequently uses cash flow tracking, e.g.

quarterly, or monthly. • The organization has a methodology for tracking anticipated

revenue and fundraising receipts. • The organization has an annual compiled audit and in compliance

with GAPP principles. Sustainable Phase • The organization is proficient in its use of fund accounting.

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• The organization has a highly developed use of cash flow management.

• The organization’s financial committee reviews the financial statements on a periodic basis and reports to the Board.

• The organization has an annual financial audit. • The financials are in compliance with GAPP and Board policies. BUDGETING PROCESS Idea Phase • The organization doesn’t have a formal budgeting process. Seed Phase • The organization has a cost-based organizational budget, e.g. the

budget is what it costs the organization to run. Start Up Phase • The organization has budgets for individual programs or each

initiative and it allocates overhead and/or indirect costs. Secondary Phase • The organization has a budgeting process that is driven/controlled

by the organization’s program staff, i.e. decentralized program budgeting.

• The organization’s budget includes a separate department budget for administrative functions.

• Board of Directors approves organization’s budget. Sustainable Phase • The organization, both at the Executive Director, the operating

officer, or the finance officer levels, conducts frequent budget variance analysis and reports to the Board of Directors.

FINANCIAL CONTROLS Idea Phase • The organization doesn’t have formal financial controls in place.

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• The Executive Director drives the organization’s fundraising. • The organization has little or no fundraising history. Start Up Phase • The Executive Director as well as the Board of Directors drive

fundraising. • The organization has multiple (more than two) discrete funding

sources. • The organization has some fundraising history. Secondary Phase • The organization has partially dedicated fundraising staff. • The organization has some program driven funding sources, e.g.

funding directed for specific projects, etc. • The organization has a reasonably successful funding history, e.g.

2 to 4 years of increasing fundraising accomplishments. • Various types of funding support are apparent in the organization

e.g. foundation, government, donations, fundraising events, investment income, revenue generation.

• Systems are in place to track funding deliverables and report submission time lines.

Sustainable Phase • The organization has a dedicated fundraising staff. • The organization has a highly developed fundraising strategy tied

to the organization’s programs and strategic plan. • The organization has access to discretionary (not tied directly to a

specific program or initiative) money. • The organization systematically solicits from and tracks

individual donors for support.

NON-FUNDRAISING REVENUE GENERATION Idea Phase • The organization has some local fundraising events, e.g. raffles,

bake sales, etc.

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record keeping. Start Up Phase • The organization has in-house staff with the ability to differentiate

between capitalization and expenditures, e.g. can determine if a purchase should be placed on the balance sheet or the income statement.

• The financial staff maintains all financial records and prepares Board reports as necessary.

• Board has some level of expertise to understand the Financial Statements in accordance with fund accounting principles.

Secondary Phase • The organization has administrative staff person who manages the

organization budget and proactively makes decisions based on cash flow monitoring, etc.

• Program staff oversees their department budgets. • The Board participants in the development of the budget and

formally approves all budgets of the organization. Sustainable Phase • The organization has a finance officer with appropriate skills and

experience. • The organization makes decisions driven by and/or reacting to

budget variance analysis, as well as performs contingency budgeting based on changes in anticipated revenue scenarios.

RESOURCE GENERATION FUNDRAISING Idea Phase • The organization doesn’t have a formal fundraising process. Seed Phase • The organization has a singular funding source.

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Seed Phase • The organization has a simple checkbook ledger that is reconciled

periodically (e.g. monthly). • One person manages checking account and payment of expenses. • Checks do not require two signatures. Start Up Phase • The organization has a formal chart of accounts. • The Executive Director and a Board member sign checks. • Internal controls are in place, e.g. personnel program time

allocations, purchase order, and invoice systems, personnel file folders, etc.

Secondary Phase • The organization has a formal system for financial records

management and maintenance. • The organization has a Financial Policy Manual. • The organization has a formal process by which the Board of

Directors approves the organization’s financial reports. Sustainable Phase • The organization has a formal annual financial audit. • The organization’s board of directors has a formal audit

committee that reviews audits, large expenditures, long-term leases, etc.

FINANCIAL STAFF AND BOARD CAPACITY Idea Phase • The organization doesn’t have staff or Board members with

formal financial or accounting training. Seed Phase • The organization has a bookkeeper or out sources its financial

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