Program Benchmarking

Thirty years ago, there was this belief in the nonprofit industry that “you can’t measure charity” or “our work is the work of the heart.” In the last 10 years, this has started to change and nonprofit regulations are beginning to reflect this accordingly.  This was solidified with the most recent Recession. As a result, donors are beginning to ask, “Can you prove you are making a difference with my money?”

All donors have the right to know how their money is being spent. The government, as a donor and regulator, may also inquire about the performance of the organization.  The truth about measuring the return on investment of nonprofit work, however, is that there are some things that can be measured and there are some things that cannot.  The key is to identify what can be measured and establish benchmarks for the organization to meet and report.

In addition to its external benefits, program benchmarking has many internal rewards as it improves performance and acts as the driving force to create a sustainable nonprofit organization.  

This resource outlines the donor’s point of view on charitable contribution, how an organization can measure its performance and report back to the donor in light of this perspective, and how performance measurement can lead to an internally successful organization.

Reflection: Charity from the Donor’s Point of View

The typical nonprofit Executive Director is motivated, driven by their passion for mission, understaffed, and working long-hours for little pay.  Hard measurements are not part of their thinking because if they were, they would probably reflect on their own investment of time, effort, and money and decide to work somewhere else. Or, at the very least, it would dampen their motivation.

Donors, on the other hand, are generally people who have been very successful at making money. Whether it tracking revenue and expenses, financial trending, or monitoring performance against industry standards, measurement is a part of a donor’s life as a businessman or woman.  It is no surprise that they expect their charitable investments to provide them with the same level of data and reporting. If the organization does not perform or satisfy, the donor cannot believe in the organization and the investment is not made.

One additional consideration regarding the donor’s point of view is to understand the primary context in which the average donor reviews an organization’s performance – that is, when making an investment in a company, or buying stock.  It is important to realize that for most donors, their charitable donations are not considered gifts, as much as investments, and they study the potential investment in much the same way.

Measuring Program Success

Measurement and evaluation of the organization’s performance combines two areas: financial performance and the fulfillment of the mission.

Financial Performance

If ever there were a need for rigor and discipline, it is in your financial reporting. Donors not only appreciate thorough financial reporting, more than ever before they are starting to require it. As the IRS is the organization that ensures your tax-exempt status, it is important that documentation abides by their stated guidelines. But pleasing donors and keeping the IRS at bay is not all that proper financial documentation will do. Through proper creation and analysis of financial statements, nonprofit organizations can become more effective with their services, programs and operations – and establish benchmarks to reflect this success accordingly.  

Donors, board members, and anyone with an interest in the organization will typically judge an organization’s efficiency and program success on the allocation of their expenses among these three categories:

• Program: Expenses that specifically and directly advance the mission of the organization. Ex: Food provided at a homeless shelter.
• Fundraising: The costs of raising donations Ex: marketing efforts that request donations. This could also be a joint cost.
• Operations: Expenses that don’t clearly fit under either program or fundraising expenses. Ex: Accounting Fees

These can be reflected in the organization’s Statement of Activities/Income Statement.  Crucial, too, are the organization’s Statement of Financial Position/Balance Sheet and Cash Flow Statement.  The Statement of Financial Position is a snapshot of the organization’s financial condition at a given time. It describes what an organization has and owes, divided into Assets, Liabilities and Fund Balance. The cash flow shows exactly what is evident by its name – where the actual cash goes, over a given period of time.  Refer to the Giersch Group’s resource titled “Staying Competitive with Accurate, Timely Financials”.

In addition to financial statements, an organization can use the following in order to demonstrate program success:

1. Budget and Forecasting.
2. Numbers Served  
3. Efficiency.
4. Expert Recognition.
5. Sustainability.

Budgeting and Forecasting

Forecasting is crucial for any business and most business owners know that the act of forecasting the future goes a long way to creating the future. Therefore, they look for this skill in the nonprofits they support.  The sad fact is that many nonprofits live month-to-month and crisis-to-crisis. If you want happy donors, show them your 3-year plan, make a financial forecast, or even a full-blown financial model. The donors will love you.  Donors want to know where their money is going and what effect it has. They do not expect returns in the form of gains or dividends, but rather a return that involves helping individuals and to the organization’s growth. Creating a budget bridges the gap from vision to success by translating the impact of the program into dollars.

Numbers Served

McDonald’s figured out very early on how impactful it could be to advertise numbers served. While we all want to fall back on quality not quantity, at the end of the day donors are used to being involved in big things. They run big companies with a large staff. If you are running a nonprofit servicing 5 people it is hard to get donors excited. For example, let’s say the nonprofit is a youth performing arts center; a great measurement benchmark is to provide an annual report with the following facts:

• Number of theatrical performances hosted that year.
• Number of sold out performances.
• Size of cast.
• A list of foundations and donors who have supported the mission and the amount contributed.
• A list and description of assets purchased with donations, i.e. a new dance studio, sound equipment, etc.

Each benchmark list is different depending on the organization. If you are a drug rehabilitation center, monitoring the number of people entering the program, the number of graduates, the number of graduates who are employed, etc. is great to include in an annual report.  To defend against the issue of how many are served, benchmark where you are compared to other organizations similar to these.

Another aspect of reviewing the numbers served is to compare your numbers to industry standards.  This is called “benchmarking” in the purest sense, and it can be used in any of these measurement categories, whether you’re talking about financial or program measurement.

Efficiency

This is a serious matter of debate among nonprofits particularly in the faith based field. For example if you are trying to support against malaria or polio, you can simply use the cost of vaccination and say you can save a life for X amount of dollars. But if you goal is to save lives or souls or save lives through drug rehab programs it becomes much harder to quantify when exactly did you save a life and how much did it cost. Yet there are times you have to agree you just cannot put a price on this particular service.

The cost of servicing one individual is exactly the thing a donor is use to looking at. You need to decide whether or not you are in the type of nonprofit industry that allows for this type of measurement. Creating a budget breakdown of costs per individual who enters a drug rehabilitation center is an effective strategy. By showing the donor dollar amounts tied to providing shelter, therapy, food, and medicine during a program stay gives the donor a sense of how many people they are helping based on their contribution. You should make every effort to measure this way but we recognize that you may not be able to.

Technical Expertise

People invest in the best. Therefore, what measurement can you use to show that the nonprofit is the best in its field? This is usual done by years of experience, number and type of degrees, awards and recognition of some kind etc.

Almost all nonprofits have some sort of recognition that should be reported to donors. If the organization is a school, provide successful test score averages and graduation rate. If you provide counseling or programming for an illness or addiction, work towards gaining program recognition or obtaining staff with excellent credentials. This area may take some creativity, but think of all the outstanding accomplishments the organization has achieved and highlight these strengths for donors to see.

Impact needs to be assessed by reaching and satisfying benchmarks. Performance is the driving motivation toward the end agenda. If a nonprofit is successful at portraying their ambitions through benchmark reporting’s, the result can be significant because they satisfy the donor needs.

Sustainability

The reason to measure performance is to motivate performance, which in turn leads to greater success in fulfilling the mission and it stimulates growth. Celebrations are a great strategy for this measurement. The goal is to promote the organization, motivate those involved and recruit support. This does not need to be a huge event. In fact, it may be advantageous to set small goals for the organization and when you reach the designated benchmarks along the way, hold a small event. It makes donors feel a sense of accomplishment because the goals are slowly being obtained and steps are completed.

This type of strategy also draw attention, it may stimulate collaboration with other organizations. Celebrations can also be used as learning and teaching tools. It is beneficial to teach donors and those who attend what the organization has been doing and new success. By holding events on an annual, semi-annual or quarterly basis, it portrays sustainability. As years go by donors expect there to be an event and it keeps the organization on their radar. Repetition shows that a nonprofit is continually succeeding and able to host such events.

Again, it is important to provide annual reports to market and illustrate all areas of success. Nonprofits can use this tactic for informational purposes and as a marketing tool. In the eyes of a donor, if you do not have such a report it may give donors the sense that you are just making the cut, year after year. If you are sustainable you send out structured reports that offer sophisticated and accurate information.

Overall, benchmarking is crucial for nonprofits and their survival. A great way to obtain donations is to present donors with a sophisticated report that shows costs and how their money is going to be spent.

Articles for Further Reading

1. “Benchmarking: How Nonprofits are Adapting a Business Tool for Enhanced Performance.” http://www.tgci.com/magazine/Benchmarking.pdf
2. “Benchmarking 101 for Nonprofits” http://www.fieldstonealliance.org/client/tools_you_can_use/04-26-05_Benchmarking.cfm
3. “Performance Metrics for Nonprofits: Do They Exist?” http://mcgladrey.com/Muse/Performance-Metrics-for-Nonprofits-Do-They-Exist

For more information, please visit the Giersch Group at www.gierschgroup.com or contact us at prosper@gierschgroup.com.