Excerpts from:

Basic Overview of Nonprofit Organizations

Copyright Carter McNamara, MBA, PhD, Authenticity Consulting, LLC.
Adapted from the Field Guide to Leadership and Supervision.

Key Roles
(by Carter McNamara)
Clients - Everything in a nonprofit is ultimately directed to serving
clients. Clients are the "consumers" or "customers" of the nonprofit's
services. Note that services can be in the form of tangible or intangible
products.
Board - The board is comprised of individuals from the community and,
ideally, is representative of the organizations clients. Law and theory
dictate that the board is in charge, and directly accountable for the overall
direction and policies of the organization. Powers are given to the board by
the Articles of Incorporation (or other governing document, for example,
Articles of Association, Constitution, etc.). The board can configure the
nonprofit in whatever structure it prefers to meet the organization's
mission and usually does so via specifications in bylaws. Members of
nonprofit boards are generally motivated by a desire to serve the
community and the personal satisfaction of volunteering. Nonprofit board
members may not receive monetary compensation for serving on the
board. See the library topic Boards for description of the overall
responsibilities of a board, key board roles, how meetings are carried out,
etc.
Board Chair - A board chair's role is central to coordinating the work of
the board, executive director and committees. The chair's role may have
appointive power for committees, depending on what is specified about this
role in the bylaws. The power of the board chair is usually through
persuasion and general leadership. See the topic Board Chair for an
overview of the board chair role.
Committees - Typically, the board chooses to carry out its operations
using a variety of board committees. The topic Description of Typical
Committees for a description of typical board committees.

 Executive Director - The board typically chooses to have this one

person who is ultimately responsible to carry out the wishes of the board.
The executive director is directly accountable for the work of the staff and
supports the work of the board committees. For more information, see the
library topic Chief Executive Role.
Staff - Staff report to the executive director and may support the work of
the committees.
Volunteers - Volunteers are unpaid personnel who assist staff, serve on
committees and generally work under the direction of the executive
director. See the topic Volunteer Programs for an understanding of the role
of volunteers.

Three Major Aspects of Nonprofit Structure

(by Carter McNamara)
Typically, the nonprofit operations are organized into major functions.
These functions usually include central administration and programs.
Governance - The governance function of a nonprofit is responsible to
provide overall strategic direction, guidance and controls. Often the term
"governance" refers to board matters. However, many people are coming
to consider governance as a function carried out by the board and top
management. Effective of governance depends to a great extent on the
working relationship between board and top management.
Programs - Typically, nonprofits work from their overall mission, or
purpose, to identify a few basic service goals which must be reached to
accomplish their mission. Resources are organized into programs to reach
each goal. It often helps to think of programs in terms of inputs, process,
outputs and outcomes. Inputs are the various resources needed to run the
program, e.g., money, facilities, clients, program staff, etc. The process is
how the program is carried out, e.g., clients are counseled, children are
cared for, art is created, association members are supported, etc. The
outputs are the units of service, e.g., number of clients counseled, children
cared for, artistic pieces produced, or members in the association.
Outcomes are the impacts on the clients receiving services, e.g., increased
mental health, safe and secure development, richer artistic appreciation
and perspectives in life, increased effectiveness among members, etc.

 Central administration - Central administration is the staff and facilities

that are common to running all programs. This usually includes at least the
executive director and office personnel. Nonprofits usually strive to keep
costs of central administration low in proportion to costs to run programs.

Management Skills Generally Unique to Nonprofits

The following link provides a wide list of areas of knowledge and skills
needed in management activities. The link also lists skills that are
somewhat unique to nonprofit management. The nonprofit-unique skills are
also listed below.

Areas of Knowledge and Skills that are Generally

Unique to Nonprofits
Fundraising and Grantwriting
Governance (Volunteer Board of Directors)
Nonprofit Budgeting and Accounting
Program Development and Evaluation
Public Policy
Volunteer Programs

Current Major Challenge: Devolution

(by Keri Poeppe)
"Devolution" is a word used a great deal these days among nonprofit
funders and leaders. Essentially devolution is the short-hand word for a
strong trend of cutbacks in federal funding to nonprofits (especially for
programs such as welfare (AFDC and certain SSI programs) and the
resulting changes in responsibility for administering such programs.
Legislation passed by the Congress reduces (and in some cases) eliminates
a federal commitment to automatically provide assistance to the poor.

Instead, blocks of funds (usually in reduced levels) will be passed through

to states, allowing them to decide who will receive aid and who will not.
Thus, devolution is associated with the end of what is often called
entitlements to services previously guaranteed by the federal
government.
While devolution provides opportunity for more local control and possibly
less bureaucratic waste, human services programs will be at great risk due
to reduced federal (and therefore state) funding. Nonprofits (which, on
average, receive approximately 30 percent of their revenues from federal
sources) will suffer significant loss of funds which may be very difficult to
replace. Meanwhile, public demand for human services continues to
increase.
Devolution brings many challenges to nonprofit leaders. They must operate
more effectively in the face of reduced funding. They must consider
substantial changes in the way they have operated. Concepts such as
strategic alliances and restructuring will become commonplace.

Revenue: Fees and Fundraising

(by Keri Poeppe)

Fees
Fees may be associated with these services and billed to either the person
receiving the service (e.g. the parent with a child in daycare) or to a third
party such as a government agency that supports such services. Unlike the
private sector where the price of a product or service must cover all costs,
nonprofit agencies rarely meet all their costs based upon sales and fees.
Instead nonprofits must engage in fundraising and seek additional revenue
sources.
It is important to note that while many nonprofits provide services that are
valuable to our community, it is often difficult to measure the actual results
of their services. Changes in an individual's or a community's behavior may
take years to be realized. Nonetheless, nonprofits are challenged to
demonstrate results as donors become more savvy and funding sources
become increasingly limited.

Fundraising
As noted above, nonprofit managers (and the board of directors) must
engage in fundraising in order to meet the fiscal needs of their
organization. Generally, fundraising is not one of an executive director's
favorite tasks. It can be an all-consuming activity, tapping an executive
director's creative and social energy. Executive directors are constantly
challenged to strike a balance between the time they devote to fundraising
and program management. Too little attention to one area can leave an
organization bereft of cash or quality services.
There are several basic sources of funding in the nonprofit sector. The first
is a grant. Grants may be given by government agencies, foundations or
corporations, usually to operate a specific program. As noted earlier,
agencies receiving government grants to operate human service programs
base their reimbursement on fees for the services. Grants from foundations
or corporations are generally provided up front and require a report on
program activities and expenditures at the end of the grant period.
Nonprofit organizations will solicit individuals for funds, also. Individual
donations may come from an organization's membership or constituents
(e.g. viewers of public television or residents of a neighborhood
community). These are generally small donations, ideally from a large
number of people. Sizable gifts may come from individuals who are
referred to as major donors. Cultivating relationships with major donors
requires the energy and resourcefulness of the board and director. Many
nonprofits will hold special events to raise dollars. These vary from bake
sales to major events.
Fundraising can be a full-time job (or a full-time obsession) for nonprofit
executive directors. Executive Directors are challenged to balance their
time between raising money and program management. If too much time
is spent on fundraising, programs and staff may not get the direction and
coaching they need. On the other hand, if fundraising takes a back seat to
program management, the organization's cash flow will suffer.
Two factors will enhance fundraising efforts. One is good programs.
Programs that are meeting important community needs and demonstrating
results will sell themselves. A board that is committed to its fundraising
responsibilities will also be an asset to the organization. Board members
who take their role in fundraising very seriously will promote the
organization and help bring resources to it.

It is important to note, however, how the political climate can affect an

organization's fundraising. Foundations and corporations may choose
specific issues or causes for priority in grantmaking. In the 1980's
organizations working with the elderly received major support from
foundations and the government. These same organizations saw their
support decrease as youth issues became a major focus in the 1990's.

Unique Nature and Struggles of Traditional

Small Nonprofits
(by Sandra Larson)

The Heart of the Matter: Leadership and Management

At the heart of any successful nonprofit is an effective chief executive and
board of directors. These leaders must work as a team with vision, skill,
and sufficient resources to accomplish the organization's mission. While
leadership is shared, critical management skills must rest with the chief
executive. However, the board must be sufficiently skilled in management
to assess the work of this director and assist in strategic decision making.

Values as the Bottom Line

Values are the driving force in a nonprofit. The bottom line is the realization
of a social mission, not profits. This poses complex problems for the
leadership team. How are programs agreed upon, progress monitored, and
success measured? How are priorities set and consensus reached? How are
staff rewarded and what control systems are applicable? Skilled consultants
may be needed from time to time to assist the team in answering these
qualitative, value-laden questions and focus on appropriate management
systems.

Nonprofit Personnel are Often Highly Diverse

Diversity is reflected, not only by different races and ethnic groups, but
ultimately by different values and perspectives. This strong diversity is a
major benefit to the nonprofit because input from a wide variety of
perspectives usually ensures complete consideration of situations and new
ideas. However, nonprofit personnel must ensure they cultivate and remain
open to the various values and perspectives.

Problems are Especially Complex for the Small Nonprofit

The majority of nonprofits have small staffs and small budgets, e.g., less
than $500,000, which compounds the leadership and management
problems they face, especially given their charters and the magnitude of
community needs with which they deal. Those new to nonprofits may react
that, because nonprofits tend to be small in size, issues in nonprofits
should be simple in nature. On the contrary, the vast majority of
organizations (regardless of size) experience similar issues, e.g., challenges
in planning, organizing, motivating and guiding. However, when these
issues are focused in a small organization, the nature of the organization
becomes very dynamic and complex.

Sufficient Resources to Pay Leadership May Be Lacking

With lack of sufficient moneys, attracting and retaining paid management
also can be problematic. Hard work with little career development
opportunity encourages turnover of chief executives and staff. This can stall
the organization's work. Expertise that is brought in to advise the
management may be lost once that leadership leaves.

Lack of Managerial Training is Problematic for the Small

Nonprofit
Many nonprofit managers have been promoted primarily out of nonmanagement disciplines and do not have the managerial skills that are
needed to run a nonprofit organization. Training and consultation can do
much to help these new leaders/managers gain the skills they seek and
help them up a myriad of learning curves that rainbow out in front of them.

Chief Executives Wear Too Many Hats

A nonprofit chief executive has to be a current expert in planning,

marketing, information management, telecommunications, property
management, personnel, finance, systems design, fundraising and program
evaluation. Obviously this is not possible, regardless of size. A larger
organization may be able to hire some internal experts, but this is certainly
not the case for the smaller organization. Furthermore, the technology of
management progresses today too rapidly for the non-specialist to keep
abreast of new thinking and expertise, whatever the size. Outside expertise
therefore is often a must for both the large and small organization.

Too Small to Justify or Pay for Expensive Outside Advice

Most nonprofits, even larger ones, often hesitate to spend money on
administrative "overhead" such as consultants or other outside experts
because this is seen as diverting valuable dollars from direct service. Of
course, most nonprofits have no choice. They don't have enough money to
even consider hiring consultants at for-profit rates. Low-cost, volunteerbased assistance often is an appropriate solution.

One-shot Assistance Often is Not Enough

While most consultant organizations want to teach managers "how to fish"

rather than give them a "fish," "fishing" (management skills) is not
something that often can be learned in one consultation. Especially in more
technical arenas such as computerization, learning comes while grappling
with an issue or management problem over a period of time. Building
internal management capacity takes more time than a one-shot
consultation. Repeat help therefore is not a sign of failure but of growth -a new need to know has surfaced.

Networks are Lacking

Everyone outside the nonprofit sector observes, "Why don't those chief
executives get together more, share more ideas, undertake cooperative
ventures?" There are many reasons. First of all, running a successful
organization (delivering the quality service that fulfills the organization's
mission) isn't enough. Most nonprofit directors run a second business -raising money to support the first. Both are complex and very timeconsuming activities, especially when the director wears all the
management hats. Second, developing networks or researching joint
ventures is time-consuming, expensive and risky.

Nonprofits Usually Have Little Time and Money

Funders do not seem to think research and development activity justifies

new expenditures; at least many are hesitant to fund what might not
succeed. While nonprofits may be more entrepreneurial than funders, they
have little capital to risk. Collaborative planning will be enhanced by
computerization and telecommunications, but these investments also are
difficult to fund. In some ways, affordable consultants can substitute for
expensive, up-front research and development costs, at least at the
feasibility level. In many cases, they can carry an organization through the
needed planning to actually develop a new system of collaboration, merger,
or automation.

Nonprofits Need Low-Cost Management and Technical

Assistance

Nonprofits are valuable community assets that must be effectively

managed. The need to provide affordable, accessible management and
technical assistance to nonprofit organizations is clear for all the reasons
stated above: the complexity of the task, the lack of board and internal
expertise, the lack of time and money, changing needs, the learning curve,
and, finally the importance of the results to the community. What is well
done is based on what is well run.

Typical Nature of Planning in Nonprofits

For most nonprofits, they don't have a lot of time, money, or resources for
sophisticated, comprehensive strategic planning. The focus is usually on
the major issues facing the nonprofit and quickly addressing them. Typical
major challenges for the facilitator are basic training of personnel about
planning concepts and process, helping the nonprofit to focus and sustain
its limited resources on planning, ensuring strategies are really strategic
rather than operational/efficiency measures, and helping design small and
focused planning meetings that produce realistic plans that become
implemented.

Additional Perspectives on Nonprofit Organizations

In addition, see the Nonprofit Resource Center for general information
about, e.g., whether a nonprofit can be a business, who can benefit from
nonprofits, how charities are regulated in the U.S., history of nonprofits,
and the difference between "nonprofit" and "for-profit".
For more information on these topics: