Boards must change how they measure success

Businessmen talking in conference room Not-for-profit organizations have long struggled to measure whether they’ve been successful. There is much long-term evidence of success — stories of the impact on individuals and social problems, continued certification and positive peer reports, enthusiastic and committed volunteers and the willingness of government, foundations, and individual donors to provide financial support. Useful indicators all, but they take a good deal of time to develop, are lagging versus leading indicators (in that they are more historical than predictive in terms of gauging organizational success), and give no immediate guidance to boards and administrators for planning the next five to 10 years. Organizations continue to grapple with how best to create concrete planning objectives and effect midcourse corrections based on measures that gauge success.

For the most part, organizations rely on data that is presented to them by individual departments, primarily financial information from finance, utilization data from program managers, and fundraising reports from development. Boards also receive updates from the CEO about specific programmatic and service-related achievements. All of this information is important but is a presentation of what’s available, sometimes selectively chosen, rather than a response to finely honed strategic questions.

Rarely are boards given consistent, systematic reports on external trends that are likely to impact their organization, with context from management regarding questions such as how other organizations are adapting their business models, how peer organizations are getting more or less effective and how those developments are impacting the organization’s strategy.

Chart: Boards needs reports

Boards need to know the extent of overall fiscal health issues, such as adequacy of reserves, contingencies or other financial assets not immediately committed to operations, which for many not-for-profit organizations are often poorly tracked. Too many boards get simplistic answers to questions that are essential to their fiduciary role. Few boards receive regular and consistent reports regarding long-term fiscal health, or even credible explanations as to why they don’t.

Except for organizations with large financial resources, cash is important to track on a regular basis and is often obscured in traditional reporting to boards. Low cash balances, with borrowing from endowment or from banks, can be an early indicator of financial trouble. Cash is indeed reported in the audited financial statements, but, because that’s once per year, a low cash balance is often explained as “timing” when it might mask a more serious issue.

Additionally, often organizational activities (and their associated annual budgets) are planned and executed independently from consideration of whether activities directly support implementation of the strategic plan, so budget information isn’t necessarily helpful in assessing strategy.

Traditionally, dashboards measure volume of activity and utilization of programs, fundraising and finance based on data generated internally and sometimes on comparative/benchmarking data. Organizations too often choose to focus on the wrong measures and omit tracking of critical categories of success.

Chart: Organizational performance

Board members and other stakeholders are becoming increasingly insistent about obtaining more strategic and comprehensive answers from management. Board members want to better understand the effectiveness of mission achievement; government, the public and service recipients are asking if programs are worth the cost; accreditors and licensers are placing greater emphasis on assessment; and donors — particularly younger ones — are demanding more immediate evidence of results.

Every organization is a system, with each stakeholder having a role, but with strong interdependence among the parts. Following is guidance on developing measures in that multiparty context.

First, decide what to measure The first, but also ongoing, question is “Are we measuring the right things?” To answer this question, determine the factors that are essential to your organization’s success:

Mission and standards are primary. Confirm the validity of your mission, vision and values and, assuming they still resonate, that overall direction adheres to mission and avoids mission creep. Make sure that the organization remains true to culture and behavioral standards. If the times require modification, do so purposefully rather than by accretion.

Budgets are often just a reflection of past objectives, with slight modifications, rather than an embodiment of current strategy.
Strategy follows. Review strategic objectives, then ensure budget and related plans are consistent with the strategy as a whole. Budgets are often just a reflection of past objectives, with slight modifications, rather than an embodiment of current strategy .

Implementation of strategy is next. Are incentives in line with mission, culture and standards? Do they align with strategy? Are there productive connections with key stakeholders?

Operations is the final component. Are administrative functions being run efficiently? Do they provide good customer service?

Strategic planning methodologies that incorporate measurement techniques include balanced scorecard (see “Balanced scorecard,” Wikipedia), performance prism (see “Summary of the Performance Prism,” Value Based Management.Net) or six forces model (see “Six forces model,” Wikipedia).

Chart: Decide what to mesure

Next, decide how to measure Don’t let the question of whether you can measure an item keep you from seeking information. Everything can be measured in some fashion. Boards should look to management to consider these four meaningful ways to measure:

  • Hard data, the most typical way. Financial and utilization data are first and foremost among the key areas that can be quantified. They are important areas, but unlikely to be the only ones important to your organization.
  • Surveys and structured face-to-face conversations, such as focus groups.
  • Asking groups to assess a particular topic on a scale, such as 1 to 5. Responding to “We are making progress in making our culture more inclusive” is one such example.
  • A special assessment committee charged to answer “How are we doing?” An advantage of such a group is that it can be used when hard data is insufficient to address qualitative issues that are not readily measured. Base committee membership on knowledge and expertise.

The board has to be satisfied that a rich array of data analytics is used and participants are informed about what is being measured and how that information will inform decision-making.

Chart: ways to measure

Then, use the measurements The most important role of measurement is to identify trends over time and to use those trends to inform decisions and take action going forward, e.g., is a situation getting better or worse, or is a program/function moving in the right direction. Such actions can just as much center on doing more of what is working as they can on remediating what is not. Historical metrics can also form the baseline for projections into the future.

A high-level summary of key measures might be all the board requires. Measurement appropriate to board and C-suite attention must be kept focused, e.g., fewer than 10 items, and directed toward critical issues. Refer constantly to the questions of what success looks like for your organization — kinds of growth, changes in constituent profile, financial results?

What might success look like? Among the possibilities are the following qualitative and quantitative assessments. In each of the two surveys, and as noted earlier, what matters isn’t the absolute results, but rather trends over time.
  • Twice-yearly survey of program/service recipients — reported to and discussed on a timely basis by the board — on key factors where the organization wants to succeed. Examples of topics could be constituent satisfaction with availability of programs or services, accessibility of facilities and/or perceived cost of services relative to value.
  • A similar survey of staff that might focus on elements of the organization’s strategy and how they fit into it, awareness of sexual abuse policies and procedures, satisfaction with office conditions or whether staff are provided with the tools or training to do their job.
  • Presentation of key financial results or indicators that looks back over five years (or more), rather than the usual two years, with comparisons of those results to specific, predetermined targets.

Chart: Organizational performance

Your board should consider some structural changes that will make measurement more strategic:

  • A dashboard with columns that show the core strategic objectives of the organization, followed by the metrics to measure those objectives, with the measures consistently defined and trackable over a five-year time horizon.
  • The structured incorporation of performance (as it relates to strategy) at every board meeting, as opposed to reports, with limited discussion, of activities. (One national organization concerned with governance has even recommended that board committee structures be revised to parallel strategy rather than function, as they typically do.)
  • Reliance on both quantitative measures and “softer” measures like surveys and focus groups.

Be watchful in assessments
  • Avoid embracing the illusion of certainty; there are always flaws in data. For example, a specific point in time result can be misleading because that point might be just before significant upward or downward movement. A form of moving average can hide sharp deviations that may not be meaningful.
  • A matter could have several different measures, none of which is perfect, but when taken together give a sense of how you are doing. If you are a religious organization, for example, the combination of membership and actual attendance at services provides more perspective than either would on its own.
  • Stay on guard for unintended consequences of measurements. If you are a museum that uses discounts to improve attendance, just focusing on attendance doesn’t tell you the full financial impact of attendance statistics. By solely focusing on headcount, you might plan more special events that end up actually losing money because of the cost of those events relative to the discounts offered to achieve yield. Rather, attention should be placed on finding the right “price point,” i.e., at which level of discount people decide to attend or attend more frequently.

Chart: Fundational elements

Keep the process simple, focused and continuous “Simple and focused” sounds easy, but there will be a strong temptation to satisfy everyone with influence, each of whom will have his or her own ideas and want to put a fingerprint on the process. For example, individual donors may want measures that reflect their personal priorities but don’t reflect on the highest organizational imperatives or improperly represent performance. For instance, they might want to measure impact on a low-priority constituency to which they belong that would not adequately reflect impact on a broader constituency. Organizations need to be disciplined and resist the entreaties of constituents to track issues they advocate, and rather choose those measures that are most indicative of current and future organizational success.

There will also be the temptation to get overly complex. Nuance is important, but soon you can’t see the forest for the trees. You want to only highlight key issues, not to have a deep dive on them. You don’t want the board to spend so much time on the nuances that they have less time to focus on the larger issues themselves. For board-level purposes, you’ll want to synthesize departmental and programmatic details into a few broad categories and measures. A foundation, for example, may want to report grant activity by impact objectives, but not necessarily by each specific program.

The board must avoid micromanagement of staff. The board’s role must be kept at a high level — asking questions; understanding general procedures that will obtain the answers; and ensuring the administration is making responsible decisions, not second-guessing. While good information improves the ability for the board to fulfill its oversight duty, it also creates a temptation to dig too deeply. By receiving information in aggregated form, as suggested earlier, the board can ask good questions without specifically having a long conversation on specific programs, which isn’t really board work.

Be explicit about who is responsible for each item measured. Create a chart of assessments and follow-up plans, accessible to key stakeholders, with regular review and discussion of what the chart indicates.

Organizations often fall into a pattern of annual evaluations and planning/budget exercises, but success depends on creating a continual process of assessing whether your organization is doing the right things and doing them well.
Organizations often fall into a pattern of annual evaluations and planning/budget exercises, but success depends on creating a continual process of assessing whether your organization is doing the right things and doing them well. When a goal is established, simultaneously determine how you will assess it. As progress is made toward that goal or key milestones are reached, assess accomplishments against planned metrics and chart a future course based on that assessment.

Contacts Larry Ladd
Director, National Industry Specialist, Not-for-Profit and Higher Education Practices
T +1 617 848 4801