posted August 16, 2015
Using Metrics to Measure the Impact of Your Non-Profit
by Michael Paul Rohr, CPA, Senior Associate
It is common for non-profit organizations to use metrics designed to help the entity operate in an efficient and effective manner. However, are these metrics designed to evaluate how well the entity is carrying out its impact? Entities looking to create a social impact should create measurements that can be communicated to donors on how well the entity carries out its mission. There are a number of metrics an organization can use to not only ensure the entity is operating effectively, but also help measure social impact.
- Current Ratio – Measures the financial health of the organization. A ratio of greater than one represents the ability to meet short-term obligations.
- Debt Ratio – Measures the proportion of assets to debt.
- Income Reliance Ratio – Measures proportion of certain income streams to total income. For example, an NPO can analyze what percentage of total income is generated by grants.
- Program Service Expenses – Measures the relationship of program expenses to all expenses. The percentage can vary depending on the size of the organization and the type of services provided.
- Fundraising Efficiency – Calculates how much the organization spends to generate $1 in charitable contributions.
The above metrics can be helpful for management to determine if an NPO is resourceful and though stakeholders require certain accounting measurements to be met, metrics should provide a more meaningful output to show what works and doesn’t in carrying out the stated mission. There can be a number of other ways management can measure and communicate their efficiency, effectiveness and social impact.
- Benchmark – By definition, benchmarking is “a standard for measuring or judging other things of the same type” (Cambridge Dictionary). When looking at it from an organizational standpoint it is comparing entity processes against industry competitors to help the NPO measure its impact. It can be beneficial for an organization to use their accounting metrics to compare with other entities. By benchmarking the non-profit organization can communicate and reflect on the trends within the organization.
- Qualitative Analysis – The entity should also consider evaluating subjective data based on nonquantifiable information, such as the beneficiary’s feelings about the services provided, event descriptions, and program descriptions. Supplementing analytical information with qualitative analysis increases the insight into the non-profit organization.
- Return on Investment (ROI) – NPO market is extremely competitive and donors are looking for an organization that will make their dollar go furthest. Organizations must be able to show and communicate their program, output, outcome and value, because prospective donors want to know what is being accomplished with their money.
- Unique Value Proposition – A value proposition for an NPO is a “positioning statement that explains what benefit you provide for who and how you do it uniquely well” ("4 Steps To Building A Compelling Value Proposition"by Michael Skok). Specifically, focusing on how aligning with your organization will be beneficial for your prospective donor and the community.
As a result of a competitive market numerous sites have been created to make it easier for stakeholders to compare different non-profit organizations. It is essential an entity is familiar with the standards used by these sites and meet the minimum requirements. Two of the more popular sites are BBB Wise Giving Alliance and Charity Navigator:
- Better Business BureauWise Giving Alliance - Assign findings for 20 standards covering governance, effectiveness, finances, and fund raising.
- Charity Navigator – Analyzes financial, accountability and transparency metrics of America’s largest charities.
Many of the metrics analyzed on these sites are effective at measuring how well an organization is operating, but once again it is lacking major metrics that measure social impact. IRIS metrics, a set of “generally-accepted performance metrics that can be used to understand an organization’s social, environmental, and financial performance,”have been implemented for profit motive companies to measure their social impact and many believe a similar set of metrics should be implemented for NPO’s as well (https://iris.thegiin.org/).
If similar metrics were implemented for non-profit organizations, it would allow donors and NPOs to measure impact in a common way. As mentioned by Jana Svedova, Co-Founder of Synergy Social Ventures, in the article "Non-profits & Measuring Impact," these metrics “will of course always be subjective, because even if you are using common metrics, it will be a funder’s decision whether they choose to support a clean water initiative or employment creation, for example. But if we can at least have some common metrics, as a sector we can begin to benchmark and have an idea of what social return is possible within a given sector.”
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