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Financial
May 15, 2014

Measuring Success In A Nonprofit

Sponsored Content provided by Steve Spain - Executive Director, Cape Fear Habitat For Humanity

A friend of mine who works in the corporate world once admitted to me that he envied my nonprofit position. “You’re free from the tyranny of the bottom line and only get judged by the stuff that matters.” I smiled smugly and didn’t contradict him. After all, the occasional smug smile is a fairly large component of the nonprofit compensation package. Wages and benefits are generally on the low end of the scale, but the pay packet is stuffed with intangibles.

The truth is that many of us in the nonprofit world envy that tyranny of the bottom line. It seems so simple, easily measured, and universally accepted: if you take in more money than you spend, you are successful. How successful is simply a function of how high that margin is. Of course, it’s not really that simple. There are times when profits today lead to losses tomorrow, and vice versa. Still, the grass does look greener on the corporate side of the fence, where there is such a clear yardstick for measuring success.   

In recent years there has been a lot of cross-fertilization over that fence. Just about every member of the Fortune 500 has adopted a “mission statement,” a concept traditionally associated with charities. And nonprofits are emulating long-held business standards of financial accountability and quantification of results. There is an element of window-dressing in this values exchange, of course.  Some corporate mission statements are more accurate when the phrase, “To make tons of money by …” is inserted at the beginning.  And some nonprofits still operate their finances on an “it’s okay as long as we are doing good works” basis and present anecdotes as data. 

One reason it can be so difficult for the two industries to emulate each other’s best practices is the tricky question of success measures. If shareholders are ultimately going to judge a corporation solely by the amount of profit generated, an expansive mission statement focused on value, customer satisfaction, and product quality is more about marketing strategy than core values. And if donors and other stakeholders are going to judge nonprofits solely on anecdotes and their “warm and fuzzy” quotient, then accountability and data collection are bound to suffer.    

I will leave to someone wiser than I the question of how successful corporations reconcile the lofty goals of their mission statements with their shareholders’ expectations for profits. I will, however, offer a few suggestions for how nonprofits can address the challenge of measuring success in a mission-oriented environment. 

Match your measuring tools to your mission. You can’t measure for curtains with a barometer, and you can’t measure social change with money. While it might be possible to place a dollar value on teaching someone to read – or feeding a hungry child, or exposing school children to the arts, or helping a family to achieve the dream of home ownership – it isn’t very meaningful. The important measurement is the impact of these activities on the community. When Habitat for Humanity helps a family attain stable housing through home ownership, it has a positive affect on the health, education, and employment outcomes for members of the family. These are the measures we focus on when reporting to stakeholders. 

Compare apples to apples. One of the measures that stakeholders focus on is the percentage of expenses that go to administrative and fundraising – the lower the better. Make sure you are aware of the common accounting practices of nonprofits similar to your own. Do they consider case workers as “program” expenses, because most of their time is spent with clients, while you classify them as “administrative,” because of the nature of their work (maintaining case files, making appointments, etc.)? If so, their ratio of program-to-administrative expenses is going to look better than yours. Does another nonprofit work with the same kind of clients as you but offer far fewer services? Make sure your stakeholders don’t compare their cost/client to yours. 

Measure what matters, no matter the measure. Know what matters to your stakeholders and measure it, even if it isn’t easily measured. Here at Habitat, it is easy to report on how many linear feet of lumber and siding we use in a month, how many volunteer hours went into a house’s construction, and what the daily gross was at our two ReStores.  Those things are all vitally important to accomplishing our mission, and as executive director, I need to know them. Our stakeholders, however, are much more interested in the positive, long-term impacts on the community that are created by our homeownership programs. Some of those things are easy to quantify, like how many people received credit counseling or attended homeownership classes, or how much in property taxes Habitat homeowners pay each year. Others are much harder to count, like how many kids in Habitat houses completed high school and went on to college, and how many heads of family were able to get a promotion or a better job. So, we do the best we can to measure them, even if we have to depend on anecdotes in addition to data.     

For nonprofits, the bottom line is … not always the bottom line. It is important that income equals or exceeds expenses, since your organization won’t have much of a future if you’re constantly running a deficit. But it is even more important that you are effective in achieving your mission. When donors provide you with funds, it’s an investment in the wider community. They are less interested in how you spend the money – heck, they could spend it just fine themselves – than they are in how you’re making the world a better place. So it’s not enough to provide them with accurate financial statements. You need to demonstrate your mission effectiveness. And to do that, you need to identify and refine your success measures.  

Steve Spain is the Executive Director of Cape Fear Habitat for Humanity.  Over the last 25 years, CFHFH has provided first-time homeownership opportunities to over 150 families and currently builds a dozen new houses a year. To explore volunteer or sponsorship opportunities or to learn more about Cape Fear Habitat for Humanity’s programs, visit www.capefearhabitat.org. Contact Mr. Spain at [email protected]. Like CFHFH on Facebook: www.facebook.com/capefearhabitat.

 

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