By Tyler Dawson
“You can’t improve what you can’t measure.” This maxim, often applied in business, is becoming widely adopted by non-profits as well. There are always a larger number of things to monitor and improve. The challenge is to determine which to measure.
There is a proven approach that establishes a small set of meaningful metrics within for-profit organizations. This approach defines a “dashboard” of metrics that link the strategy of the business to a few key metrics (typically nine to twelve) organized into three categories. The critical foundational process metrics drive the operational performance metrics, enabling positive measurable financial results. These three categories are logically related; improving the core processes enhances the performance of the operation, which in turn, improves profits and cash.
For nonprofit organizations (NPOs), there is a growing demand for a similar “dashboard” of meaningful metrics. Here is a parallel approach to establishing key metrics, adapted to meet the needs of the NPO.
Identifying Key Metrics
Avoiding the conundrum of metrics – too few or too many – is just as challenging in the nonprofit environment as it is everywhere else. The key is to assure the metrics align with the organizational strategy – no matter how well or poorly articulated the strategy might be. Answering three questions, capturing the leadership’s strategic vision for the NPO, can identify the truly important things to be measured.
Structuring the Key Metrics
The answers to the above questions constitute the three categories of metrics, with a row dedicated to each category. The top row best measures the progress made toward targeted outcomes. The middle row measures the breadth and depth of the services provided needed to achieve the targeted outcomes. The bottom row measures the number and types of resources acquired by the organization to provide the services needed. (Figure 1)
This approach differs from the Balanced Scorecard approach that has been well documented and fairly widely applied within many large nonprofits. Implementing a Balance Scorecard can be an overwhelming task for a smaller NPO resulting in a confusing set of metrics that are never fully implemented, understood or utilized. In one NPO, 42 metrics had been included in the recommended metric set, to be developed, managed and maintained by an organization of less than three full-time personnel. A year after the metrics were recommended, none were being measured or reported.
Depending on the breadth and complexity of outcomes and services, the metric set should be no more than twelve total measurements and probably fewer. Given limited resources to capture and report the data, combined with the scarcity of available data in the nonprofit environment, the minimum set of metrics that can quantify and communicate progress made in each of the three categories is best.
Outcomes (above) can be difficult to measure and often show progress over more extended time frames than the other metric categories. In an NPO dedicated to improving a declining neighborhood, outcomes such as school academic rankings were only measured annually and took years to show sustained improvement. In other nonprofits with even broader targeted outcomes such as reducing poverty or improving quality of life of the recipients, progress could be more difficult to measure and require quite long time frames. In fact, in some cases progress can only be approximated by identifying indicators that closely relate to improved outcomes.
The services provided (above) can be measured more directly over shorter time frames (usually monthly or quarterly). But again – capturing the data can be a challenge. For example the number of people in attendance at a free community event promoting neighborhood improvement can be difficult to count accurately. In other situations data privacy concerns of the service recipients can inhibit access to the needed data.
The resources needed and acquired (above) can be measured directly, but again some of the data may be difficult to capture. Funds received from various sources and grants are easy to measure and quantify. Number of volunteer hours served, typically a critical resource, can be hard to capture accurately. Benefits received from other supporting partner organizations can also be difficult to measure, but the number of support organizations engaged should be easy to quantify.
Linking Strategy, Actions and Metrics
While developing the metric set can be challenging, much of the strategic value is gained just by selecting the appropriate metrics. Answering the three questions leads the organization to identify what to measure. It logically links what resources are needed . . . to provide what services . . . to achieve what targeted outcomes. This logical cause-effect structure provides an ongoing guide for evaluating the organization’s priorities and activities which can be just as valuable as the metrics themselves.
Closing the Loop
As outcomes show positive trends, there is an opportunity to utilize the metrics to further strengthen the organization. Communicating and publicizing the improved outcomes can assist in recruiting and obtaining additional resources available to the NPO. This potentially builds a self-sustaining loop of linkages where positive outcomes increase the resources available, which enhances the services provided, which can provide even greater positive outcomes.
Meaningful Metrics as a Strategic Guide
While a parallel approach has been proven successful in a myriad of for-profit organizations, experience has been limited to a small number of NPOs. However, the concept has been well received because it provides an approach to developing a simplistic nonprofit “dashboard” measuring the things most closely linked to the strategy and objectives of the NPO. As the emphasis on nonprofit measurements continues, organizations that are beginning the quest for metrics should start by answering the three questions above, which will suggest the needed metric set. Even if all of the data is not readily available and resources to collect the data are limited, clearly identifying the strategically important outcomes, supporting services and required resources is a valuable first step.
Tyler Dawson is a Dallas-based independent consultant who also works in partnership with a number of consulting firms specializing in strategy-based business process and operations performance improvements. He can be contacted at firstname.lastname@example.org.
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