By Mandy Potts, MBA
Accountability and performance measurement have become an important and urgent subject for nonprofit organizations as they encounter increasing competition from other agencies, all competing for scarce funding. The reliance on external funding puts pressure on nonprofits to examine all expenditures and ensure funds are used to support their missions. Performance measurements can act as a check to verify the nonprofit is successful at reinforcing the mission and goals for board members, staff and volunteers.
A performance measurement is a numeric outcome of an analysis that indicates how well an organization is achieving its objectives. These measurements can be used to examine the performance of all aspects of a business, including the accounting, engineering, finance, marketing, materials management, production, research, and sales departments. In this article, we take a deeper look into setting up and tracking accounting performance.
Set a Primary Financial Goal
First, nonprofits need to set a primary goal compared to previous years. Achieving this goal requires implementing strategies and action plans. Key Performance Indicators, or KPIs, are ways to measure progress toward implementation of the strategies – and the success of each strategy. Nonprofit financial strategies can be categorized into two key areas: revenue/donation growth and cost efficiency.
Set Applicable KPI’s
During the annual goal setting process, nonprofits should identify areas of the company’s operations that need improvement and develop strategies to ensure these improvements happen.
For example, if a primary goal for a nonprofit is to increase revenue by 10%, the KPI must be measurable and applicable to that goal. It may include increasing fundraising efforts through a targeted marketing campaign or increasing grant writing efforts and applications to funding opportunities.
If the primary goal is to improve cost savings by 10%, the KPI may include increasing in-kind donations to offset actual costs incurred by the organization, or increasing training to decrease operational errors.
Now determine how to measure whether the intended improvements were realized.
Decide as an organization how often these KPIs should be measured and weighted. Perhaps some should be measured monthly, but reported on a quarterly basis on a three-month average. A summary of these KPIs should be reported to the Management team and the Board. Ideally, the organization measures and reports performance on all functions of the business to give insight to the efficiency of the entire operation. Below are several examples of numeric ways to measure accounting performance goals.
Analyze KPIs and apply what you’ve learned
After monitoring and reporting KPIs, it’s now the responsibility of Management to celebrate the wins and create process improvements for those that fall below the acceptable KPIs.
Again, refer to the improvements identified in the annual goal setting process. Measure as often as possible and reconcile the KPIs against the primary financial goal. Monitor and note the inputs (numbers that make up the KPIs) in relationship to the outcomes. KPIs are meaningless if the valuable information gained is not used to drive decisions and improve operations.
If your organization is interested in assistance with performance tracking, contact Rising Business Consulting today for a free 30-minute consultation.