March 19 2019
By Dr Squirrel Main
‘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:
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.
The Foundation has adapted the National Implementation Research Network’s (NIRN) Hexagon Discussion and Analysis Tool  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.
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:
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:
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.