In previous blog posts and newsletter articles, we have talked about the way in which a performance measurement program can help business owners enhance the profitability and operational efficiency of a for-profit enterprise. This article will discuss how performance measurement can be of benefit to a not-for-profit organization, as well.
A performance measurement process involves the design and implementation of an information feedback system by which management identifies and then monitors its key performance indicators (KPIs). These KPIs give a business owner the ability to measure and, as a result, better manage those activities, behaviors and processes that drive organizational success, sustainability and profit. In a typical performance measurement application, the selected KPIs are incorporated into a balance scorecard framework that allows for the evaluation of business performance in light of strategic goals and objectives across several performance areas such as finances, customer services, internal operations and learning and growth.
Not-for-profit organizations labor under similar kinds of competitive pressures as for-profit businesses, as well as having to deal with a host of other economic, societal, and regulatory conditions and restrictions which are unique to the not-for-profit sector and are the context in which they must evaluate their services and operations. For most organizations, their mission statement generally defines their primary goals and objectives. Consequently, many of the key success factors and the more specific performance indicators that they will need to monitor will be determined, in large part, by the specific goals and objectives, which are contained in, or are implicit in, that mission statement and by the various program activities by which the organization hopes to realize those goals and objectives.
The performance areas of finance and internal operations may still be key, and management will need to track appropriate measures in order to evaluate how well the organization is using its financial resources, delivering its services and managing its relationships with employees, volunteers and other stakeholders. However, if the organization is to evaluate how well it is doing in achieving its mission-driven goals, it will also need to devise ways to measure the overall effectiveness of its programs and services. A good performance measure system would need to address whether these programs and services are having the impact that its mission statement promises.
Performance indicators that not-for-profits will use to measure service effectiveness and accomplishments will typically fall into one of four categories: 1) Input measures which quantify the efforts or resources expended in an activity or program, 2) output measures which quantify the volume or level of services provided or delivered, 3) outcome measures which quantify the actual effect an organization’s efforts have on its objectives and 4) efficiency measures which compare the amount of inputs with output or outcome quantifiers.
Management of not-for profit organizations are generally most familiar with the first two types of measures. They may already keep track, using their accounting and information systems of the financial and nonfinancial resources used in operating a program or providing a specific service. If volunteerism is an important element in their program activities, their records may also capture the statistics on donated hours and efforts. Many organizations are in the habit of tracking output measures, as well, that is, the number of meals provided, people housed, patients served, etc.
Outcome measures present special problems. These measures should gauge how effective an organization is in accomplishing its mission-based goals. For instance, an adult reading program would want to gauge its impact on adult literacy rates in its local area; a program dedicated to providing health services to children might track statistics on childhood disease. Whereas input and output measures can be based on objective data that can be extracted from an organization’s existing accounting and information system with relative ease, outcome measures may involve a high degree of subjective evaluation, may require working with data that is not that readily quantifiable, may need to be obtained from an outside source or may require a special system for tracking.
Efficiency measures which relate inputs to output or outcome measures are particularly useful in enabling management to evaluate how efficient and cost-effective it has been in managing its assets and resources, as well as giving them a common standard of measurement by which they can compare their organizations to others with similar programs. Determining what the average cost, in terms of dollars and time required, to assist an adult in achieving a pre-determined level of reading proficiency, for instance, might be a useful efficiency measurement for our hypothetical adult reading program. In the same manner, determining the cost of fundraising activities for every $100 raised is an easily obtainable measure that gives organization management a sense of whether its fundraising efforts and activities are effectively managed. Fundraising cost per $100 is also a commonly recognized ratio that many not –for-profit watchdog agencies like the American Institute of Philanthropy use as a comparative benchmark in evaluating and grading charities and other not-for-profits.
Performance measures therefore may be as various as the types of organizations that employ them. However, good performance measures should share the following common characteristics. They should be:
- Meaningful in relation to the organization’s goals
- Responsibility linked
- Organizationally acceptable
- Balanced
- Timely
- Credible
- Cost effective to compile and track
- Comparable (i.e., making the organization’s performance comparable with other organizations or with recognized industry benchmarks)
- Simple (the simpler and the more immediately understood, the better)
Moreover, the identified measures or indicators should be incorporated into an overall performance measurement system, one that covers all the key performance areas of the organizations and one that allows for periodic monitoring, reporting and reevaluation.
To be continued with our next post…