March 19 2019

The shape of due diligence

By Dr Squirrel Main

Mar19 Hexagon Tool IPF version diagram

Hexagon tool developed by NIRN and modified by The Ian Potter Foundation to conduct due diligence.

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 ‘Due diligence can help ensure greater alignment between a grantmaker’s mission and grantmaking.’ 

Grantmakers for Effective Organizations (GEO), Due Diligence Done Well: A Guide for Grantmakers

For a grantmaker, the decision to invest is based on a balance of mission fulfilment, evidence of outcomes, and the nonprofit’s health/stability. These last two areas can only be assessed by conducting due diligence.

In their report, Due Diligence Done Well: A Guide for Grantmakers, GEO explain that due diligence also helps a grantmaker ensure it understands and can manage risks associated with various grants. Essentially, the due diligence process answers these important questions:

  • Does the organisation have a successful track record – or if it is a startup, does it have the leadership and capacity to achieve its goals?
  • Does it operate under an appropriate governance structure?
  • Is it financially and operationally sound?

Funding without answering such questions may lead to failure. While due diligence will not prevent the failure of a project (remember risk is an inherent part of philanthropy), it helps the funder ensure a solid understanding of the various strengths and challenges a proposal presents. Below we explain The Ian Potter Foundation’s use of the Hexagon tool to conduct due diligence on grant applicants who approach us with a request to scale a project.

What is the Hexagon tool?

The Foundation has adapted the National Implementation Research Network’s (NIRN) Hexagon Discussion and Analysis Tool [1] to assist our program managers to better understand how a new or existing practice or practices could fit into the grantee’s existing work.

In particular, our program managers need to consider whether a piloted idea has potential to scale (‘scalability indicators’) and whether an applicant organisation is best-placed to implement/scale (‘applicant indicators’) the practice and/or policy. The Hexagon approach is a due diligence system of prompts intended to assist program managers to capture information as they engage with grant applicants over the phone, reviewing applications and while on site visits.

Scalability Indicators

Practice categories are used to assess the strength of the program to be scaled. With some adaptation, it can also apply to assessing the potential of policy/advocacy efforts.

The three practice categories are:

Evidence – How strong is the evidence that this practice/policy improves outcomes?

Supports – What kinds of resources and support are available for implementing the practice/policy?

Usability – How well can the practice be used and/or policy be applied in a real-world setting?

For each of the above categories, program managers will seek to find out more details to more deeply understand the evidence, context and application of a practice/policy. For example:

  1. Are research/evaluation data available to demonstrate the effectiveness of the practice/policy? If yes, note citations or links to publications.
  2. What outcomes are expected when the practice/policy is implemented as intended?
  3. Does the evaluation data provide information about the effectiveness of this practice/policy for a variety of clients/contexts? (e.g., English Language Learners, remote environments).
  1. Is there a qualified ‘expert’ who can help with implementation? Who?
  2. Are there start-up/ongoing costs for implementation of the practice/policy? (e.g., developer fees). If yes, itemise.
  3. Are curricula, training and other resources related to the practice readily available? If so, note publisher or links. What is the cost of these materials?
  4. Is training culturally sensitive? Does it address issues of race equity, cultural responsivity or implicit bias? What is the cost of professional development?
  5. Can the practice be used in the grantee’s coaching system or does it require expert coaching from outside of the organisation? Is it possible to train existing coaches for sustainability? If so, list coaching resources and cost.
  6. Are there sample job descriptions and interviews available for hiring or selecting staff to implement the practice?
  1. Is each core component well defined and operationalised? (e.g., staff know what to do/say, how to prepare, how to carry it out?)
  2. Has the practice/policy been adapted for use within culturally and linguistically specific populations? Is there a recommended process for gathering community input?
  3. What do we know about the key reasons for previous successful/unsuccessful replications of this practice/policy? List names of organisations with histories of implementing the practice/policy. Are they willing to be interviewed or observed?
Applicant Indicators

Applicant indicators are used to assess how the new or existing practice would match the organisation’s context. The three applicant categories are:

Need – What need/policy gap does the applicant want to address?

Fit – How well would this practice/policy fit in the applicant’s existing service(s), advocacy strategy and/or the intended beneficiary community?

Capacity –What kind of capacity does the applicant have to implement this practice/policy?

For each of the above categories, program managers will seek to find out more details to more deeply understand the need, the fit with the applicant’s priorities and capacity. For example:

  1. Who is the identified population (or where is the identified ecological area) and what are the needs of this population/environmental area?
  2. Was data collected to identify specific area(s) of need relevant to the practice? If relevant, was this data disaggregated by race, ethnicity, language, ecological system?
  3. Were community members/stakeholders engaged in identifying this need? How? If so, what do they believe will be helpful?
  1. How does the practice/policy fit with the applicant’s priorities?
  2. How does the practice/policy fit with the commonwealth, state and local government priorities?
  3. How does the practice/policy fit with community priorities in the community where the grantee operates? How does this fit with priorities of culturally and linguistically specific populations?
  4. What other initiatives will intersect with the practice/policy, and how will the practice/policy the proposed initiative fit?
Capacity to implement
  1. Typically, how much does it cost to implement the project/advocacy each year? Are there resources to fund this? If the current budget cannot support this cost, outline a resource development strategy.
  2. What are the staffing requirements for the project/advocacy? (Number and type of staff, credentials, qualifications).
  3. Does the applicant currently employ or have access to staff to meet these requirements? If yes, do the staff have a cultural and linguistic match with the population they serve? Relationships in the community?
  4. Is the Board/Executive management knowledgeable about and supportive of the practice/advocacy? Do leaders have diverse skills and perspectives representative of the community being served?
  5. Does the applicant organisation have:
    • Staff with the capacity to collect record and use data to inform ongoing monitoring and improvement of the practice/policy?
    • Communication strategies facilitate effective internal and external communication with stakeholders?
    • Appropriate physical facilities?
    • Appropriate administrative policies or procedures?
    • Required technology? (e.g., hardware or software, such as a data system)
    • Required transportation system?
In summary

By using the Hexagon tool, the Foundation’s grant management staff can apply a consistent due diligence approach when reviewing grant applications. We hope that by being transparent about this approach, it will assist other Foundations to use similar approaches, thereby strengthening the philanthropic sector’s choices of projects to scale.  Indeed, an improvement in our due diligence ideally leads to wiser choices which result in a greater return on investment and ultimately an increased chance of success for the grantee.

In the end, we believe this leads to a more effective pathway towards a vibrant, fair, healthy and sustainable Australia.

 (1) The Hexagon approach was originally developed by NIRN - University of Carolina at Chapel Hill and modified with funds from Grant #90HC0012-01-00 for the U.S. Department of Health and Human Services, Administration for Children and Families, Office of Head Start, by the National Center on Early Childhood Development, Teaching, and Learning. It has been adapted by The Ian Potter Foundation. This resource may be duplicated for noncommercial uses without permission.