Keeping the board informed of the performance of a nonprofit organization is necessary to assist the board members in exercising their responsibilities in governing the organization. This may be easier said than done, given the amount of data and information that is available. Often an effective tool is the use of a document that highlights the goals of the organization and its progress in meeting those goals – a dashboard.
Creating a dashboard begins with an assessment of the operational, programmatic, and financial goals of the nonprofit. These goals are those that will enable the organization to grow and/or maintain its ability to meet its mission. Once these goals are set, the next step is an assessment of the metrics to be used to measure progress in attaining those goals.
An effective dashboard to present to the board will include a listing of the overall goals of the organization, current objectives to achieve those goals, and the units of measurement. Next, a summary of the progress in meeting those objectives, using the metrics, will give the users of the dashboard an understanding of the financial and operational health of the organization.
The dashboard can be tailored in many ways to meet the needs of the organization and board. Some have red, yellow and green “status lights” to quickly identify areas where adjustments in operations may be necessary. Some include narratives to more fully describe important highlights. And some include graphic information to demonstrate trends and other information.
Presenting information the board needs to govern the organization in a way that is easy to understand and act upon will enhance the overall effectiveness of the organization in meeting its mission.
Recently I had a great conversation with a board of directors about the story their financial statements are telling. In my mind, the fact that we were having the discussion and that the board was so engaged is indicative of the good work the board is doing for their organization.
Our review of the metrics that are often calculated for nonprofit organizations landed on the percentage of expenditures that are functionally allocated to program, management and general, and fundraising. While this organization’s allocation seemed reasonable and appropriate, there were a number of questions and comments as to whether the allocation to program should be higher. The thought is that this shows the organization in a better light.
Is that true? I suppose that someone uninformed about an organization and its programs and operations could conclude that a nonprofit with a higher percentage of expenditures allocated to program is “doing a better job” with their resources. But to truly understand how a nonprofit is operating, you need to look behind those numbers. Are they in the middle of a fundraising campaign in order to bring new programs on board, and therefore allocating more resources to fundraising? Are they gearing up for significant growth and wisely putting resources into the infrastructure necessary to create and sustain that growth?
Ultimately, board members need to know what the key metrics are for their organization, what story those metrics are telling, and what the reality is behind the numbers.
Many of a community’s most difficult issues are addressed by nonprofit organizations. To be successful in tackling these issues, strong nonprofits design their approach to be effective and efficient. This is a hallmark of the for-profit business model, and nonprofits are increasingly looking at ways to operate their organizations using for-profit thinking. This does not mean compromising the values of the organization or its passion for mission. It does mean the organization should use sound business principles.
For profit businesses measure outcomes to determine whether they are doing the right things in the right way. Are they making money? Are they providing a return to their owners or shareholders? Are they meeting their customers’ needs? These businesses have methods and metrics in place to determine whether they are doing these things at a level necessary to sustain the financial stability of the operation.
Nonprofit organizations can and should do the same thing. And it should be done in the context of the purpose and mission of the organization. How is this accomplished? The organization will identify the outcomes it wants and how to measure their effectiveness. They will create metrics to measure their progress and success. They quantify the value of the services they are providing to the community. This is done with the input of the stakeholders. It sounds a lot like the way successful for-profit businesses operate.
Is this a quick and easy process? No, it’s not. It will involve the time and energy of many people. But organizations that have invested this time and energy have found the results to be well worth the effort.