Nonprofits today are operating under growing pressure to be accountable and transparent. In order to secure funding, an organization must demonstrate a high degree of efficiency and sustainability in achieving their mission.
Most nonprofits are happy to oblige, of course, but there are two key issues: first, how can you ensure that your nonprofit’s performance is meeting high enough standards? Second, what parameters best show the state of your organization, and how can those be displayed in a friendly, understandable format?
These issues are relevant to any type of nonprofit, but for the sake of this blog, let’s use the example of an environment-based nonprofit that helps kids experience the outdoors. This means that on average, the employees, volunteers, and donors probably all like working with children and being out in nature. The job of the CFO is to help everyone else understand how factors such as finances and performance goals translate into more kids spending more time outside. Unfortunately, whenever the CFO starts talking to the employees about spreadsheets and financial goals, those people’s eyes glaze over and they start daydreaming about something that looks like this:
Meanwhile, the CFO is trying to help them understand the large amount of (nicely organized) information contained in something like this:
Does this scenario seem familiar at all? This basic problem of employee disinterest in finances has surely been experienced by nonprofit finance teams since the very first nonprofit was created. In addition, most nonprofits these days are being called to demonstrate higher financial and performance standards by increasingly engaged funders and by nonprofit rating organizations such as Charity Navigator. As an organization that assesses charitable efficacy, Charity Navigator rates nonprofits based on a variety of performance indicators to show that they are putting their money to good use. For example, nonprofits are rated based on accountability and transparency, which the organization defines as follows:
Transparency is an obligation or willingness by a charity to publish and make available critical data about the organization. (www.charitynavigator.org)
In response to these increasing pressures on nonprofits, a white paper called “Outcome Metrics: Measuring What Matters in the Nonprofit World,” published by Intacct in 2015, establishes the concept of outcome metrics as a way to help nonprofits reach goals and clearly demonstrate achievements to others.
Outcome metrics are one way a nonprofit can help turn complex spreadsheets into pictures that are interesting enough to capture the attention of those daydreaming outdoor enthusiasts, yet detailed enough to satisfy the questions of the most engaged, financially-savvy funders and evaluators. Here’s how Intacct’s white paper defines outcome metrics:
In other words, outcome metrics are a way for everyone involved in a nonprofit to understand what’s going on and how to make the best decisions to help the organization meet its future goals.
Intacct’s white paper explains that nonprofits should focus on a variety of factors to form the big picture. This includes finances but also goes beyond to include important results that might not be measured in terms of money:
As the white paper makes clear, these parameters go far beyond traditional quantitative measures such as fundraising and spending. By defining how the metrics affect your organization’s mission, you can ensure that these indicators are worth paying attention to in the first place. In addition, it will be easier for the managers of the organization to understand and use this information for quick decision-making.
This is the part where an organization takes raw information and makes pretty pictures to engage the attention of employees and funders. Traditionally, metrics can be manually tracked and manually configured into spreadsheets, charts, or graphs outside of an organization’s ERP software solution. This is a method that is used by many nonprofits, but it has distinct drawbacks such as forcing your finance team to spend more hours configuring data.
A lot of modern ERP solutions and accounting software add-ons allow you to automate this process. For example, with an add-on like BI360 or a financial software solution such as Intacct, you can customize what variables you are tracking, and automatically update various tables and graphs so users have access to real-time data. Features such as data warehouses allow the system to track data from ledgers and subledgers as well as automatically import non-financial data such as membership or HR information. These software options also feature the ability to create a dashboard, which is a great way to show up-to-date outcome metrics in a readable format and involve everyone in your organization in creating and meeting performance goals.
In summary, choosing to track and clearly display your organization’s most important outcome metrics can increase your transparency and accountability to the general public, and it will help the employees and volunteers within your organization work more effectively to achieve your mission. During your next finance meeting, give your employees something nice to look at, like this:
(Source: Intacct, “Outcome Metrics,” p. 6)
With outcome metrics, that environmental-awareness nonprofit from the introductory example can help their funders and workers stop daydreaming and start working on real goals to help more kids get out and experience beautiful places.
To learn more about the benefit of using outcome metrics to create understandable results, contact The Resource Group.