Impact-Based Philanthropy: Reporting Project Impact to Help Raise Dollars

According to The Christian Science Monitor, the number of U.S. nonprofits has tripled over the last two decades. And with the government scaling back amidst harsh economic times and our nation’s current financial crisis, charities are expected to do more of society’s heavy lifting — by raising money for social services, education, health care and more.

Plus, as a new generation of philanthropists eyes places to put its wealth, the demands on nonprofit fundraisers are increasing to continue raising dollars amidst a tough fiscal climate.

This timely challenge (and the ongoing task of raising funds) can be addressed by the way development staff communicates with current and potential grantors. As today’s donors treat their charitable contributions like any other investments by bringing a business-oriented perspective to philanthropy, they expect nonprofit transparency, regular updates on the outcomes of their funding, and visible “returns” on their investments. Such expectations can only be met by reporting project-level impact — which is what donors, foundations, wealth advisors and government granting entities care about most.

When fundraisers focus on and communicate impact, a contraction will naturally occur that brings out the “best of the best” in the industry — casting no doubt to nonprofit executives, development folks and donors which projects are worthwhile and worth dollars. Consequently, successful nonprofit programs that flourish will receive more well-earned money for their hard work.

Seven steps to impact achievement
A nonprofit on the road to communicating impact must first start with the right processes on the inside, and then report the results of those processes to stakeholders on the outside. As nonprofits prepare for the journey toward impact-based philanthropy, they can ensure they’re heading in the right direction (and donors can hold them accountable) by following these seven steps:

Define the long-term impact
1. Vision: During this preliminary step, a nonprofit lays the foundation for a specific project by asking: What is the problem our organization is trying to solve, and why does it exist? At the same time, donors take note of whether the nonprofit has clearly addressed the problem.

2. Mission: As part of this secondary step, a nonprofit asks: How are we going to solve the problem at hand? The donor validates that the nonprofit has clearly stated a proposed solution that directly addresses the problem.

3. Case statement: The purpose of this step is for nonprofits to identify why their solution is relevant, and how it adds value to current efforts under way. The nonprofit asks: What is our competitive advantage as compared to others that are also addressing this cause? What makes us different? The donor makes sure that the nonprofit’s solution is truly significant in the identified area of need.

Create a project plan
4. Impact-based analysis: A nonprofit defines its project plan using impact-based analysis (a process based on the widely used Logic Model). The donor verifies that key milestones are monitored and evaluated along the way.

Develop a capacity plan
5. Financial responsibility: Attaining financial responsibility requires the nonprofit to outline a capacity plan for the right budgets, systems, resources, people and guiding principles. The donor must realize that where a nonprofit spends its funds is not nearly as telling as analyzing how it spends its funds and, most importantly, to what end.

Demonstrate accountability
6. Workflow: To hold itself accountable, a nonprofit must employ workflow (with checks and balances) to help ensure people adhere to the project and capacity plans. Internal workflow also creates a form of nonprofit self-governance; when well executed, such governance aides in uncovering what projects and processes are working and which are unsuccessful. During this step, the donor can validate that the correct processes are in place for reviewing/approving project information and metrics.

Communicate outcomes and distribute reports
7. Report: As an overarching component of the previous steps, the nonprofit must communicate progress and outcomes throughout the project’s lifetime. Donors should receive frequent, honest reports about their supported projects — helping to keep them engaged and informed about the program’s mission and successes.

Upon implementation, ongoing review and completion of steps one through seven, the nonprofit will reach the ultimate goal of impact. But with the industry-wide emphasis on “impact” achievement, we must first take a step back and define what it is we’re trying to achieve.

All eyes and ears on impact
Impact. It’s become a buzzword in the philanthropy industry, at the core of nonprofit goals and mission statements, essential to fundraising and donor communication, and key to project monitoring and evaluation — but what exactly does it mean?

Some within the marketplace classify philanthropic impact as “the process by which a philanthropist makes the biggest difference possible, given the amount of capital invested.” Other people boil down the definition to “getting the most bang for your philanthropic buck.” Others stand by the notion of impact representing the “fundamental measure of any philanthropic investment, assessed by social change and cost” — also often referred to as the “social return on investment” (SRI).

And yet with the pool of descriptions and muddied interpretations of impact-based philanthropy, one all-encompassing definition exists: Philanthropic impact is a long-term, significant, discernible difference in the condition of people, society or environment as a result of charitable work.

If this seems like a robust, complex definition, it’s because it is. Improving lives is complicated work and needs to be approached, measured and supported as such. But it is only by defining impact that nonprofits can figure out how to achieve it, and donors and foundations can figure out which organizations are best suited for their support.

With the advent of this information-driven, impact-based philanthropy, the fundraising world will become a much more efficient and successful space. Nonprofits will communicate the outcomes and information that donors care about most, leading to satisfied grantors providing more money and resources, and ultimately resulting in the most significant impact for the causes and people who need it most.

Troy Stremler is the CEO of Newdea, which provides online tools for nonprofits to manage programs and report impact to donors.