The Wrong KPIs for Nonprofits Could be Hiding Under-Performance
Today’s nonprofits need to track the outputs and outcomes of their efforts to fuel their storytelling to donors and investors. Quantifying the actual impact of their mission in action helps to build and maintain confidence from their donors. However, it’s critically important not to be misled by the wrong KPIs for nonprofits that may be obfuscating under-performance.
Outcomes – The Measure of Impact
Let’s debunk a common myth: Most nonprofits understand their performance already. Most organizations try to understand performance but come up shorter than they realize. Nonprofits, from charities, to colleges, to clubs, to churches, have always made some effort to measure their performance, whether in dollars raised or people served. But that’s not enough anymore.
In my last blog post, “Boost Your Storytelling by Measuring and Reporting Your Nonprofit Outcomes,” I detailed how the new standard for nonprofits calls for a focus on outputs and outcomes. Distinct from the performance metrics of the past, this focus examines the impact of the organization and asks the fundamental question, is the mission working? Nonprofits will need to demonstrate, in the most clear and quantifiable terms possible, that the answer is yes. Otherwise, funding will divert to more effective organizations.
Trust in nonprofits has been declining for years, faster and farther than in other industries. We can debate the causes, but we can’t deny the consequences: People demand results from nonprofits. Outputs and outcomes will define an organization, for better or for worse, and determine whether funders at all levels trust it enough to keep giving.
As the pulse of performance, it’s time for nonprofits to start treating outputs and outcomes like vital signs.
Overlooking Under-Performance in KPIs for Nonprofits
For a church, it makes sense to measure performance based on weekly attendance or donation levels. But churches have more meaningful ambitions than filling seats or raising money. Just because a church packs the pews on a Sunday doesn’t mean they are changing lives in a meaningful way. Other nonprofits have the same issue: the appearance of success obscures the actual performance.
How does this happen? The way we analyze information is open to our human bias. We claim to interpret the facts objectively and consistently – especially when it comes to identifying and quantifying our own success...or lack thereof.
Reaching the Wrong Conclusions
When nonprofits overlook their shortcomings or overestimate their success, it’s usually because of three common causes. Do these look familiar?
- Obsessing over Increases – Increasing numbers doesn’t automatically mean that things are improving. The impact of the nonprofit needs to be increasing proportionately with the increase in donations. It’s easy to get excited about increases while misunderstanding what they mean for the organization. Getting the full picture takes better information around the outputs and outcomes.
- Confusing Progress with Success – Staying busy isn’t the same thing as advancing the mission. It’s easier to measure progress than success, but only the latter really matters. Nonprofits often have plenty of metrics tracking what they’ve done and far fewer tracking whether those projects had the intended results.
- Sounding the Alarm Over Anomalies – When the data deviates from the norm, there’s an instinct to interpret it as a problem. Instead, these anomalies could be a positive indicator or a chance for innovation. Differentiating between an outlier and an opportunity depends on having a good understanding of nonprofit outcomes.
The Honest Truth
It’s time to replace assumptions about nonprofit performance with hard data. Only once a nonprofit knows what its impact really looks like can it set about expanding and improving on things. How will your nonprofit demonstrate the positive impact it makes? What metrics help your storytelling about your delivery on mission? How will you get the data you need for tracking? These are all important questions to be answered.
If you’re ready to take a closer look at how to automate and monitor your nonprofit KPIs, download our AcctTwo eBook, "How Measuring the Right KPIs for Nonprofits Increases Donations."
AcctTwo is focused on delivering the future of finance and accounting to our customers with three main solutions – Cloud-based Accounting Software, Finance-as-a-Service, and Sage Intacct Customization, all built around Sage Intacct’s best-in-class financial applications. Our dedicated team of over 100 people has helped more than 1,000 organizations optimize finance and accounting through software implementations, accounting outsourcing, and consulting specializing in the SaaS, Nonprofit, and Energy Industries. AcctTwo has been recognized by Sage Intacct as its Partner of the Year seven years running, from 2014 – 2020, and by our customers as a leader in overall satisfaction and popularity through their reviews on G2.
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