Performance Measures for NPOs: How One Organization Developed a Way to Collect Meaningful Information

Abstract

EXECUTIVE SUMMARY * SINCE MOST KEY BUSINESS PERFORMANCE MEASURES don't work for not-for-profit organizations, these groups need to develop specialized measures to help them achieve their goal-driven strategic plans. One approach NPOs use is to measure the amount of resources they spend on providing program services vs. management and general expenses. * THE CHRISTIAN CHILDREN'S FUND DEVELOPED its annual impact monitoring and evaluation system (AIMES) to assess whether its programs were making a positive, measurable difference in the lives of children and their communities around the world. The system allows CCF to be more accountable to its sponsors and give communities a tool to continually assess the organization's impact. * IN DECIDING WHAT TO MEASURE, CCF IDENTIFIED CORE indicators it felt were critical to the success of all projects. It determined the measures should focus on program impact, not activities, gauge the program's effect on children, determine results in terms of broadly defined health and education outcomes and assess only what CCF was able and prepared to track. * CCF's INITIAL RESPONSE TO AIMES HAS BEEN VERY positive. The system is now in place for more than 1,000 projects in 20 countries. As a result, project managers are more focused and better able to concentrate resource allocations on areas that can make a measurable difference in the lives of parents and children. * BY FOLLOWING FOUR BASIC STEPS, OTHER NPOs should be able to develop a performance measurement system similar to the one CCF uses. The result should be better linkage between resource decisions and the outcomes the organization wants to achieve. Many key business performance measures don't work for most not-for-profit organizations. For example, the measurement of profit or loss indicates how effective a business is at achieving its goal of generating profits for the owners. However, generating profits is not a goal for NPOs. These organizations have no owners, often provide goods and services to constituents free of charge and typically seek resources from people and organizations that do not expect economic benefits in return. Thus, the bottom line doesn't work for NPOs. How should NPOs measure their work and its results? This article reports on one organization's experience in developing better performance measures. The Christian Children's Fund (CCF) (see sidebar on page 64) put together what it calls its annual impact monitoring and evaluation system (AIMES). For organizations of this type, accountability is extremely important. CPAs can use outcome measures to help similar organizations achieve their goal-driven strategic plans. HOW DO YOU SPELL SUCCESS? One approach CPAs might use to judge an NPO's performance is to measure the amount of resources the organization spends on providing program services (to carry out its purpose) vs. what it spends on management and general expenses and fundraising. For most organizations, a higher percentage of resources spent on program services than on management and fundraising is considered a positive performance indicator. Tax-exempt organizations are required to file IRS Form 990, Return of Organization Exempt From Income Tax, annually. It includes the amount of resources the organization received and how it spent them. Several watchdog organizations use these data to track and rate NPO performance. Although this type of measure is useful, it doesn't indicate how effectively an organization uses its resources to meet its objectives. For example, an NPO may spend 80% of its resources providing a particular program service, but may be ineffective in reaching the program's goals. Just spending money on a service is not an effective performance measure. FASB recognizes the limitations of traditional financial statements in assessing NPO performance. In Concepts Statement no. …