Nearly every nonprofit organization in existence can confidently state that their board of directors reviews and approves financial reports (generally the statement of financial position, statement of activities, and often a cash flow statement) at each meeting. However, many boards are missing out on a valuable opportunity in gathering important information to assist with their fiduciary responsibilities: utilizing performance-based metrics. With the amount of data readily available in today’s Digital Age, incorporating the use of performance metrics into the decision-making process is relatively simple and can provide significant value to the organization.
First, let’s begin with a few examples of standard performance metrics:
- Number of individuals served
- Ratio of program expenses to total expenses
- Average donation size
- Pledge fulfillment percentage
- Social media engagement/reach
Performance metrics essentially measure a value provided in some form. Overall, a primary goal in using performance-based metrics is to derive the parameters that will best support the board of directors in providing oversight and insight into achieving the organization’s mission. With hundreds of metrics out there to measure, the challenge becomes identifying and focusing on the metrics most important.
Additional items to keep in mind and best practices:
- Not every organization is the same. Organizations that share similar characteristics will have some overlap in key metrics. However, there are also a few metrics that will be unique to each organization.
- Hold a brainstorming session. A discussion involving management and the board of directors to identify which metrics are most important to the organization is a great idea.
- Designate an individual or small group to track the identified metrics. Clearly stating which individual or group is responsible for the ongoing tracking is essential. Along with this, the increment of time for each metric should be determined. Yearly measurement will generally not be often enough to allow decision-makers to react timely. On the other hand, monthly measurement may be too short of a time period to draw conclusions. The measurement period will vary across metrics.
- Use your identified metrics to assist in the decision-making process. Performance metrics are only valuable if used in making decisions, either now or in the future.
Begin your discussion on the metrics most pertinent to your organization today. Need more guidance on determining the best metrics for your organization? TDT is available to assist you in determining the most valuable key performance metrics for your organization and developing a plan of action to obtain those metrics. Be on the lookout for future articles regarding performance metric related topics!
Chad McCarty, CPA, and Senior Assurance Associate at TDT CPAs and Advisors discusses considerations on developing performance metrics for nonprofit organizations. With three years of experience, Chad specializes in audits of nonprofits, small businesses, and employee benefit plans. Chad is a member of the American Institute of Certified Public Accountants and the Iowa Society of CPAs and serves clients across all nine TDT office locations.