Finding the right NFP performance indicators

Many not-for-profit directors believe their organisations are struggling to measure performance effectively, various Australian Institute of Company Directors (AICD) studies have shown.

But it can be a complicated business, says Phil Butler, AICD’s NFP Sector Leader. “Obviously organisations need to have a solid financial setting, so financial performance indicators are necessary,” he says. “But there’s no point in running an organisation well if it’s not actually meeting its mission.”

And that’s where some NFP organisations struggle to measure their effectiveness, he says.

“It’ll be easier for some than others. For example, an arts organisations may determine that the number of seats sold for concerts is an important measure, along with evaluations from attendees.

“But an organisation tasked with solving health-related or social issues might be looking at results five, 10 or 20 years down the track.”

Apart from ensuring good governance, finding appropriate performance indicators are also important when it comes to chasing funding, says Butler.

Perpetual’s National Manager Philanthropy Caitriona Fay agrees. In evaluating projects for funding, Perpetual looks for focus on outcomes rather than outputs, or "widget counting", she told AICD in a recent interview.

Last year, Perpetual’s philanthropic services division distributed $83 million to not-for-profit organisations on behalf of its clients. It reviews some 1500 funding applications each year.

"The outcomes approach is really important for us. The measurement doesn’t need to be a detailed longitudinal university study or such, it can be simply touching base over a longer period of time with the people who’ve been through your program to check how they’re doing," Fay said.

As Joe Shannon, leader of Moore Stephens Australia, writes in the ebook, Not-for-profit Insights: 16 Australian NFP Insiders Share Their Wisdom and Experience, NFPs need to be able to measure the intangible value of the organisation in an economic context otherwise they can fail to attract stakeholder support.

“The measurement of economic value and consequences/impacts for an NFP organisation go to the heart of sustainability,” writes Shannon.

Horses for courses

Just don’t go overboard, cautions Butler.

“There’s no one-size-fits-all approach to performance indicators. For example, if you’re an arts organisation with turnover of less than $1 million, it doesn’t make sense to spend too much of it in collecting and analysing data.

“It’s true you need good information and measures for good governance and to secure funding, but not so good that you’re wasting valuable funds,” Butler says.

Some examples and further discussion on appropriate performance indicators can be found in the Good Governance Principles and Guidance for NFP Organisations.