Read the manuscript all the way through, noting only the places where the story raises questions in your mind. Are you surprised by something a character said or did? Is the plot not progressing as you expected? Does there seem to be an inconsistency? Does something need to be explained? Having questions may mean the story needs more work, but it may be what the writer intended. Either way, the writer needs to know at what points you asked questions and whether you learned the answers by the end of the story.
Read the story again. Look for grammar problems, but do not correct them. If the writer seems to have trouble knowing where to place a comma or has a habit of misplacing modifiers, say so, but leave it up to the writer to find and correct these problems. Noting each error makes the writer feel as if his or her manuscript was graded by a teacher, not critiqued by a colleague.
Note places where the writer's words stood out-good or bad. Note the metaphors that failed as well as the ones that worked well, the dialogue that you could almost hear as well as dialogue that was unrealistic. Point out the descriptions that let you form a vivid picture in your mind as well as the ones that didn't or that described such commonplace items that no description was needed.
Consider story elements such as voice, tone, style, characterization, point of view, dialogue, setting, plot, structure, tension, conflict, pacing and theme. First ask yourself if these elements were present in the story, then if they were appropriate.
Go over the comments you've written on the manuscript to make sure they're clear and appropriate.
Prepare a separate document to discuss the elements of storytelling. How you format this document is up to you and depends partly on the length and type of manuscript you are critiquing. However, be sure to include praise as well as criticism, stick to a discussion of the story itself and use the word "I" instead of "you." For instance, write "I was confused by..." instead of "You weren't clear when...."
Edit and proofread your critique. If your comments are full of grammatical errors, one long paragraph or have no cohesive structure, the writer won't be inclined to think you know what you are talking about. You want your critique to be taken seriously, so spend some time making sure it's correct and reads well.
Start by giving the writer some encouragement.
Critique the manuscript, not the writer. It is your job to provide feedback to help the writer improve. Do not criticize the writer's choice of genre, suggest that he or she should give up writing, offer to rewrite the manuscript "the right way" or talk about the long odds of getting published. Remember that it took courage for the writer to show you his or her work. Be honest, but be kind.
Thank the writer for the opportunity to read the manuscript and offer your thoughts about it.
Let it go. After you have delivered your critique, hand it to the writer and forget about it. Don't be offended if the writer chooses to ignore some or all of your suggestions when revising. If you have given the best critique you can, you've done your job; what the writer does with your critique is not your business.