KPIs Challenge Nonprofits to Do Better
By Rebeka Mazzone, CPA
A key performance indicator (KPI) measures performance. KPIs frequently help to value difficult-to-measure activities such as the benefits of leadership development, engagement, service, and satisfaction. At bottom, KPIs enable each organization to evaluate its progress toward its vision and long-term goals.
KPIs are not a single figure; they trend over time. There should also be a variance analysis of each KPI, showing actual versus planned figures. Benchmarking KPIs are useful when comparing your organization to other organizations with similar missions and programs.
Ensuring Effective Performance Measures
To ensure effective performance measures, your KPIs should focus on measures that link money to mission. For example, revenues increasing over time do not necessarily indicate success if the revenue-per-person-served does not increase. Conversely, the cost-per-person-served is a more effective measure of success than just how many people you serve. If your cost-per-person-decreases over time, it shows grantors and donors that you are becoming more efficient and, hopefully, more effective.
If your revenue-per-person-served decreases faster than your expense-per-person-served, that could be an indication of trouble in future years. This is a more useful measure to help direct the future of the organization than total revenue and expenses. To take it one step further, more revenue-per-person-served does not indicate success unless you have a program success or quality indicator such as a consumer satisfaction survey, graduation rate, or job placement rate. If success or quality factors are holding steady or increasing while cost-per-person-served is decreasing, this truly shows funders the value in making an investment in your organization.
Many organizations will create a scorecard, which reflects all KPIs which are key to the success of the organization. These scorecards are usually different for the board, management, and program staff, as all have a different, but important focus on the organization. .
When setting up your scorecard and KPIs:
Keep in mind that all ratios should not be positive. If all ratios only show positive information, you are probably not setting your goals high enough. Truly well designed scorecards should call the organization to improve over time, rather than stay the same.
Measuring Your Measures
Every ratio and every KPI needs a purpose. Too many measures can be as ineffective as too few. Select your measures carefully. Make sure the measures tell a story. If they do not, replace them.
Ask yourself: Are the KPIs being presented effectively? Are the KPIs increasing managements and boards understanding of the organization and how it is being run? Do the KPIs allow them to make more informed decisions? Do the KPIs result in strategic level discussions? If the answers to any of these questions is no, re-examine your scorecard.
Finally, KPIs should result in action and drive your organization to achieve better results. In fact, you should measure what you do well less frequently than the activities you dont do as well. KPIs should challenge you to do better.
Rebeka Mazzone is Director of Business Development and Client Services for Rhode Island at Accounting Management Solutions, Inc. Call her at 401-374-3222 or email email@example.com.