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Dashboards for Nonprofits: Using Data to Create and Communicate Value

By ANN MEANS

For-profit companies use thousands of metrics to measure, analyze, and optimize processes, from the assembly line to management level.  Their goal is to maximize the profit margin by creating customer value.  It’s a straightforward exchange; a company collects revenue based on the value a customer attaches to the product or service.

Nonprofits also create value, but the equation is more complicated.  Entities organized for a charitable purpose exist to deliver one type of value to the beneficiary and another to the funding provider.  According to a 2016 US Trust® study, high net worth donors give primarily because they identify with an organization’s mission (54.1 percent).  The second most frequently cited reason is “the belief that their gift can make a difference” (44.0 percent).  The value they perceive is the change they can affect in partnership with the charitable organization.

Making a difference implies a change in situation or position.  For a nonprofit, being able to communicate the change that it makes possible is key to communicating its value. This article describes how nonprofits can benefit from adopting tools that quantify, communicate and, most importantly, can drive that change.

Creating value in your nonprofit: your Board’s role

To remain viable, your nonprofit must deliver distinctive value to both beneficiaries and funders, and have enough money left over to cover ongoing operations.  Given the restricted designation of most grants, this is a challenging task requiring every resource at your disposal.

Fortunately, your board stands ready to help.  Nonprofit boards bring together some of the most devoted people around, who give generously of their time and money. Along with their passion for your mission, members come with complementary skill sets that are valuable to your organization.  Rarely, however, does a member join with the ability to interpret financial information and act accordingly, both of which are required for your board to provide essential oversight.

The good news is that you do not need to give your board a long course on financial reporting.  Instead, you can and should provide them with a set of tools to monitor your nonprofit’s financial health.  After all, you want board members to be actively involved in strategic decisions, but how will they know which aspects of an organization’s finances, operations, and program delivery are critical for success? Even more important, how can they use the data presented to best implement the organization’s strategic plan?

Maybe you are not yet convinced, so think about a typical meeting of your board of directors.  If there are no questions or discussion after the Treasurer’s report, chances are your board could use some direction on which numbers to watch and why they matter.   This is where Key Performance Indicators (KPIs) can help.

KPIs: Vital signs for your nonprofit

There is a reason why every medical examination begins with taking a patient’s vital signs.  Considered together, heart and respiration rates, body temperature and blood pressure have been found to be highly accurate in assessing a patient’s condition.  They are so predictive, in fact, that doctors use vital signs to determine treatment order in the ER before ever actually seeing the patient!  Just like the human body, your nonprofit has vital signs that allow you to assess the overall condition of your organization quickly and efficiently.  Those vital signs are your nonprofit’s KPIs.

The greatest utility of KPIs to an organization is their ability to be both diagnostic and predictive.  They help your board focus on the overall health and direction of your organization.   Regular reports on KPIs at board meetings make clear the command of detail expected of your board members.  Over time, they will identify trends or anomalies and be better prepared to act if required.  Even the process of identifying KPIs, a necessary step if your organization hasn’t gone through a recent strategic planning process, can itself be an important opportunity to reach consensus about what matters most.

Who on your Board is on board?

Before bringing KPIs to your nonprofit, it is important to know that a successful program requires not only upfront planning, but ongoing commitment to refine and retool.  If performance tracking is new to your organization, make sure there are others who will support the effort.  Is there a board member to champion this program?  Will management back your proposal with time and budget for data collection, analysis and reporting?  Who (besides you) will collect, analyze and present data?  Unless the push to implement comes from outside your organization, like a donor requirement or an impending crisis, you will need to confirm that your board and staff are with you.

First things first:  What are your business drivers?

To implement KPIs requires self-study on the part of an organization.  It’s important not to shortchange this process.  Management guru Peter Drucker is credited with one of the most famous quotes about business metrics, “What gets measured, gets managed.”   Nonprofits are complex organizations with many processes and interdependencies.   Time and resources are always limited; measuring the wrong things could be worse than not measuring at all.  So, what are the right things?

As someone who probably thinks more about your nonprofit’s operations than anyone else, you know what your organization must get right to deliver successful outcomes.  Those processes, resources, and conditions are known as business drivers.  They are aspects of your organization that have the most impact on overall performance.  More than likely, you have already identified them as your biggest ongoing concerns.

For example, let’s say you identify having a diversified funding base as one of your business drivers.  Your organization is nearing the end of a two-year contract and you recently learned that the city is no longer going to fund enrichment programs like yours. That leaves the program dependent on increased foundation support to continue.  You have some time to investigate other funding sources, look at program modifications, and even consider tapping your reserves to a small extent.  Here is a chance to implement KPIs to monitor your progress towards closing the shortfall.

Choosing KPIs to track

Once you have identified the driver on which you want to focus, the next step is to enlist the help of people from your organization who are most involved with everything connected to this driver.  If the driver is financial, your treasurer and finance committee are the obvious people to consult.  If aspects of program delivery are your concern, pull in pertinent staff and managers.  Some drivers may be cross-functional, so invite all who can help.  Invite them to suggest metrics that will measure performance, capacity, engagement, response or anything you wish to improve.

Finally, it is time to specify the time period over which you want to see an improvement.  If you are facing an external deadline, you may have little flexibility.  If you anticipate the shift to require several years, then expect that some KPIs may be less relevant as conditions change.

Putting it all together in a dashboard

In the end, KPIs are a simple concept –a business metric presented with its target (desired) value.  Just a pair of numbers, after all.  Remember, however, that the purpose of bringing KPIs to your nonprofit is nothing less than equipping your board with a high-level understanding to bring to every strategic discussion.  Now you are ready for the step to implement KPIs as part of your reporting discipline.  Board members need all pertinent information in an easy-to-read format, preferably on a single page, in a format known as a dashboard.

Depending on internal resources available to collect, analyze and display your data, dashboards can focus on a single business driver or include KPIs for multiple drivers.   Think about including no more than a couple of drivers and 6-8 related KPIs in your first effort.  The “Signal Light” dashboard below is a simple presentation and an excellent format to start with because it cues the reader on how to respond to the change reported.   This dashboard-style reports current, prior and target values, and provides a color indicator suggesting board follow-up.

 

 

After gathering data from a few reporting periods consider reworking your presentation to include the data in chart format.  Once familiar with the KPIs, your board can begin to interpret historical trends and uncover dependencies that previously lay undiscovered in pages of financial reports.

Below a dashboard taken from NonProfit Quarterly reports KPIs for a community health clinic.  A quick glance shows the Initial Denial Rate for Claims Processing moves with Days in Accounts Receivable.  As lagging indicators, KPIs track the actual performance of an organization.   Sometimes the same metrics can be used to predict future change.   A drop in Days in Accounts Receivable may signal an increase in revenue for the coming quarter, assuming a steady bill rate.  Days in Accounts Receivable, then, could also be thought of as a leading indicator.   As an organization becomes more adept at identifying KPIs it can choose to track those which experience has demonstrated to be leading and, therefore, predictive in nature.

Benchmarking

Every KPI compares a metric to a target value.  To some extent, your organization’s experience will always inform how you select target values for your KPI.  But you could also look at the programmatic successes of peer organizations and identify the results you want to replicate. The process of pegging your KPIs to other externally-sourced target values is called benchmarking.  Adopting KPIs and target numbers that emulate Best-in-Class performance of peer organizations can lift your organization’s performance.  Guidestar.org’s Charting Impact is a valuable source for nonprofits to learn about accomplishments and the performance metrics of peer organizations.

Parting thoughts

Are you ready to give KPIs a try?  Here is some final advice.

  1. If you don’t see anything happening, give it time. Your reporting periods may be too short. Give it some more time.
  2. Do it for the results. KPIs are only useful if they contribute insights towards delivering positive outcomes. Maybe your KPI is a dud and you should try another.
  3. Garbage in, garbage out. Your results will be only as good as your underlying data and the assumptions behind your KPIs.
  4. Dress rehearsals aren’t just for theater. Before presenting your dashboard to the full board it makes sense to try it out on your staff. They have your back.
  5. KPIs have a shelf life. Since when does everything stay the same? If a KPI is no longer helpful, look for another.

 

Ann Means is a Paraprofessional at Klatzkin, where she works with small businesses and nonprofits.

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