NonprofitPlanning

8 Steps To Measuring
The Impact And
Financial Performance
Of Nonprofits

TRANSFORM YOUR NONPROFIT

INTO A HIGH-PERFORMING
ORGANIZATION BY ANSWERING
THE WHY, WHAT, HOW AND
HOW WELL QUESTIONS.

A publication by:

NonprofitPlanning
Budgeting and Planning for Nonprofit Organizations
Impact Management

STRATEGY TO OPERATIONS
Mission Outcome
Being accomplished Being attained

Results
Results Strategies Impact
Being executed Being felt

Outputs
Being derived

Funding
Funding
Funding From Donors
& Stakeholders

OPEX & CAPEX

Budgeting
Budgeting
Initiatives Departments / Programs / Activities
by by
Strategic Plan Strategic Budget + Operational Budget = Final Budget

How does a nonprofit organization measure the impact of its mission on

the recipients of its services; its employees, donors and other stakeholders?
The answer should not just be subjective and anecdotal, but objective
and measurable.
We call this process Impact Management and it comprises an array of stra-
tegic, functional and operational processes supported by technology, which
enable mission-driven organizations to define strategic goals within the
context of a stated mission and then measure and manage performance
against those goals.
Audience For This Book
This eBook is written for senior nonprofit executives responsible for strate-
gic planning & management, financial management and operational per-
formance. It is targeted at Executive Directors, CEOs, Board Members,
Chief Financial Officers, Strategic Planning Executives, Financial Con-
trollers; in fact anyone at a nonprofit with an interest in turning the organi-
zation into a high-performing vehicle that enables the optimal attainment
of its mission.

Ebook Structure
To easily explain the concepts in this eBook, a fictitious NGO, End World
Poverty will be used as an example. After every major concept is discussed,
it will be further explained by translating it in the context of End World
Poverty like below.

Below is how this End World Poverty defines it strategic plan, measures it
objectives, budgets by initiatives and ascertain its outcomes relative to its
mission.

[Please note that examples used in this eBook are highly simplified and are used just to
demonstrate concepts]

Share this eBook

VIDEO OVERVIEW

www.nonprofitplanning.net
8 Steps

01. VALIDATING THE MISSION

02. SETTING OBJECTIVES

03. ESTABLISHING MEASURES

04. AGREEING STRATEGIC INITIATIVES

05. RESOURCE PRIORITISATION

06. PERFORMANCE EVALUATION

07. MEASURING IMPACT

08. THE ROLE OF TECHNOLOGY

Introduction
The idea of impact management as defined above is not a new one and has
been espoused in various forms over the years. There exists prominently
today, concepts like The Logic Model, The Baldrige Method, The Bal-
anced Scorecard etc. In fact Impact Management is based on the Balanced
Scorecard, a methodology conceived by Robert Kaplan and David Norton.
The challenge however, has always been the ability to execute these kinds of
solutions effectively and within a reasonable timeframe, so that the results
can be felt within the organization relatively quickly.
For nonprofit organizations, there needs to be a seamless linkage between
strategic planning and performance evaluation. From a strategic planning
perspective, this involves the ability to disseminate the mission into strate-
gic goals, measurements and accompanying initiatives. From the perfor-
mance evaluation perspective, it is the ability to undertake activities that
will have an impact and produce the desired outcomes. Underpinning these
two pillars are the resources of people, money and effort, as well as the tech-
nology platform.
Thankfully in the last few years the technology has caught up with the theo-
ries; and importantly, in some cases the theories have been simplified and
evolved to be more practical. Todays performance management software
enables the creation of a consistent, unified platform that facilitates that
linkage between strategy and operations from within the same software. In
practical terms it means one can budget both by strategic initiatives and op-
erational entities; as well as manage the strategy execution process within
the same software tool. This is the essence of Impact Management.
Step 01: Validating The Mission
VALIDATING THE MISSION WHY WE DO WHAT WE DO?

While in most organizations, the mission would already have been defined,
there isnt always a structured and objective way to validate, communicate
and measure the mission statement. This is absolutely crucial to the perfor-
mance of a nonprofit organization.

THE NGO EXAMPLE

The mission statement for the fictitious End World Poverty is: Empower
the poorest of the world to lift themselves from poverty. The management
team of this NGO over a week came up with this new mission statement
and ensured that it was measurable. They had some ideas of how they could
define and measure "poorest in the world"; concrete ways for empowering
them; as well as a clear definition for themselves of what poverty meant
(people earning under $1 a day).
Step 02: Setting Objectives
 SETTING OBJECTIVES HOW WE DO WHAT WE DO?

How do we make sure everyone is on the same bus, headed towards the
same direction?

Having a formal framework is the key. Using such a framework an organi-

zation is able to breakdown its mission and vision into clearly defined stra-
tegic goals from the perspective of the various stakeholders. Metrics for
measuring these goals could be defined and the appropriate initiatives to
support these measures and goals agreed upon. Field activities need to be
accurately evaluated and linked to programs whose outcomes can be cor-
rectly measured.

Multi-dimensional = Multi-dimensionnel
Multi-currency = Multi-monnaies

Consolidation = Consolidation et tats Financiers

Business Intelligence = Informatique dcisionnelle
Budgeting = Budgtisation et Prvision
Planning & Forecasting = Management Stratgique
Finance Users = Utilisateurs du Dpartement Finance
Regional Managers = Directeurs Rgionau
Executive Board = Directeurs Pays

Replace all the Web-enabled stuff with just Diffus

Processes = Processus Financiers

Central Database = Base de Donnes Centralise

Finance Users = Utilisateurs du Dpartement Finance
Regional Managers = Directeurs Rgionaux
Dept. Managers = Chefs de Dpartement
Executive Board = Directeurs Pays

Replace all the Web-enabled stuff with just Diffusion d information

Processes = Processus Financiers

If an organization is going to
spend the time and effort to
Multi-dimensional = Multi-dimensionnel Central Database = Base de Donnes Centralise
Multi-currency = Multi-monnaies
Multi-dimensional = Multi-dimensionnel
Multi-dimensional = Multi-dimensionnel Consolidation = Consolidation et tats Financiers Multi-currency = Multi-monnaies
Multi-currency = Multi-monnaies Business Intelligence = Informatique dcisionnelle
Budgeting = Budgtisation et Prvision Consolidation = Consolidation et tats Financiers
Consolidation = Consolidation et tats Financiers Planning & Forecasting = Management Stratgique Business Intelligence = Informatique dcisionnelle
Business Intelligence = Informatique dcisionnelle Budgeting = Budgtisation et Prvision
Budgeting = Budgtisation et Prvision Planning & Forecasting = Management Stratgique
Planning & Forecasting = Management Stratgique

come up with a clear mission,

Multi-dimensional = Multi-dimensionnel
Multi-currency = Multi-monnaies

Consolidation = Consolidation et tats Financiers

Business Intelligence = Informatique dcisionnelle
Budgeting = Budgtisation et Prvision
Planning & Forecasting = Management Stratgique
Multi-dimensional = Multi-dimensionnel
Multi-currency = Multi-monnaies

Consolidation = Consolidation et tats Financiers

Business Intelligence = Informatique dcisionnelle
Budgeting = Budgtisation et Prvision
Planning & Forecasting = Management Stratgique

then it follows that the strate-

Multi-dimensional = Multi-dimensionnel
Multi-currency = Multi-monnaies

Consolidation = Consolidation et tats Financiers

Business Intelligence = Informatique dcisionnelle
Budgeting = Budgtisation et Prvision
Planning & Forecasting = Management Stratgique

gies it employs within the orga-

nization are aligned with that
mission.

Action step: unpack the mission statement into a set of strategic objectives
that span the important pillars of the organization: organizational capacity,
internal processes, financial and constituents (the poor in the NGO
example).
THE NGO EXAMPLE

END WORLD POVERTY CAME UP WITH A LIST OF OBJECTIVES,

SOME OF THEM ARE:

Capacity: (1a) - Enhance recruitment of qualified talent

Capacity: (1b) - Improve training of field staff

Processes: (2a) - Augment recruitment of local influencers

Processes: (2b) - Increase impact-based fundraising

Financial: (3a) - Optimize cost efficiency

Financial: (3b) - Grow revenue base

Constituents: (4a) - Increase entrepreneurship

Constituents: (4b) - Increase average incomes

So the NGO could then describe their strategy in the following terms:
If we build capacity by recruiting the best people and training them to the
highest standard...they would be able to facilitate our fundraising
efforts...thereby growing our revenue base...which would provide us with
the funds to better serve our constituents by raising the incomes in the local
community through entrepreneurship, and thus empowering them to lift
themselves out of poverty.
Step 03: Establishing Measures
HOW DO WE MEASURE OURSELVES?

50
If you can't measure it,
you can't manage it.
100

- Peter Drucker
0

88%

Impact management dictates that the organization measures its perfor-

mance within the context of its mission and vision. Consequently, a set of
measures need to be determined that would be used to ascertain the impact
of the strategic objectives that are in turn linked to programs whose out-
comes can be accurately measured.
THE NGO EXAMPLE

END WORLD POVERTY CAME UP WITH A LIST OF MEASURES, SOME

OF WHICH ARE:

Capacity: (1a) - % increase of qualified recruits

[Objective: Enhance recruitment of qualified talent]

Capacity: (1b) - # of training days/employee

[Objective: Improve training of field staff]

Processes: (2a) - % increase of influencers signed up

[Objective: Augment recruitment of local influencers]

Processes: (2b) - % of impact-based funds raised

[Objective: Increase impact-based fundraising]

Financial: (3a) - Ratio of admin costs/revenues

[Objective: Optimize cost efficiency]

Financial: (3b) - % of funds from new sources

[Objective: Grow revenue base]

Constituents: (4a) - % increase in # of entrepreneurs

[Objective: Increase entrepreneurship]

Constituents: (4b) - % of average income of constituents/average

for country
[Objective: Increase average incomes]
Step 04: Agreeing Strategic
Initiatives
AGREEING STRATEGIC INITIATIVES

Evidently, an organization has

finite resources of people, money
time etc. So part of strategic planning
is deciding how best to allocate
these resources optimally. This step
is about coming up with an opti-
mum list of initiatives that if
completed would drive the success
of the strategic objectives.

THE NGO EXAMPLE

END WORLD POVERTY WENT THROUGH A RANKING PROCESS AND

CAME UP WITH THE FOLLOWING:

Capacity: Undertake field training program

Capacity: Create a new recruitment process

Processes: Engage government in signing up influencers

Processes: Implement impact management system

Financial: Provide access to overseas markets

Financial: Recruit prospects from women's groups

Constituents: Launch micro-finance program

Constituents: Promote business training

Step 05: Resource Prioritisation
RESOURCE PRIORITIZATION WHAT IS THE BEST WAY TO DO THIS?

As any organization only has finite resources, it is necessary to ensure that

the right amounts of resources are allocated appropriately to the initiatives
and activities that would produce the desired outcomes.

Dept.
Managers

I have all these great things

that I need to do but not
Country
Managers enough resources to accom-
plish them. How can I optimize
the prioritization of my
Finance
Users

resources?

Regional
Managers

If the organization is clear about the initiatives that they need in order to
drive success and which are linked to the strategies and mission of the orga-
nization, how about undertaking a budgeting & planning process that is
driven by initiatives? That way one can clearly identify where and how
scarce resources of people, money, time and systems are being allocated.
Those costs that cannot be tied to an initiative will form part of the opera-
tional budget.
THE NGO EXAMPLE

End World Poverty developed short, medium and long term strategic bud-
gets that are based around the initiatives defined in the previous section.
People, costs, system resources and potential revenues are planned for.
About 40% of the costs could not be tied to Initiatives and therefore
became part of the operational budget. Both of these budgets form the total
budgeting universe.
Step 06: Performance Evaluation
PERFORMANCE EVALUATION

I M PACT MAN AGEMENT

Strategic Planning Performance Evaluation

Outco
me
Impac
t

ies
on

Activ
ssi

itie
g

es s
Mi

ate

tiv
Str

anagem ent

Out
tia

eM S
nc

Imp
Ini

come
of

Acti
a

People
tw
re Perform

act
are Perform

Resources vities
atives
tegies

Money Effort
twa
Initi
sion

of

nc
Stra

S
Ac

eM
anagement
Mis

tiv

iti
Im

s es
tive
pa

Ou

Initia
c

t
tco
m

s e
gie
Strate
n
Missio

Step 05 completed the strategic planning aspect of the Impact Manage-

ment concept. While Strategic Planning ensures that one can measure the
strategy and mission; as well as the fact that the initiatives that were em-
barked upon were aligned with the strategy; Performance Evaluation en-
sures that one can measure the activities, outputs (impact) and ultimately
the outcomes of the nonprofits mission.
THE NGO EXAMPLE

End World Poverty has separated the initiatives (things that can be clearly
aligned to the strategic objectives) from programs and activities that are op-
erational in nature. For example:

USAID education program

Local government influencing program

Media outreach

Private partnership program

PERFORMANCE EVALUATION - IMPACT (OUTPUTS)

What is the impact or outputs of the activities being undertaken? Some

organizations group key activities by program and then measure the impact
of that program by the outputs they produce.

THE NGO EXAMPLE - OUTPUTS

END WORLD POVERTY IS ABLE TO ASCERTAIN THE FOLLOWING

OUTPUTS:

1000 key constituents that were reached through the

media outreach

100 education centers that where built through the

USAID program

$100M raised locally through private partnerships

5 key regulations passed by government to foster

micro-finance.
PERFORMANCE EVALUATION - OUTCOMES

Ultimately one wants to determine if the outcomes that were sought to be

accomplished at the beginning were indeed attained. For complex out-
comes it might be necessary to have intermediate outcomes. So for
example, eradicating HIV/AIDS cannot be done in a short time frame.
Therefore there needs to be intermediate outcomes that walk the organiza-
tion in steps towards the ultimate outcome.

THE NGO EXAMPLE - OUTCOMES

END WORLD POVERTY HAS DECIDED TO BREAK DOWN THEIR OUT-

COMES INTO: SHORT, MEDIUM AND LONG TERM OUTCOMES AS PER
THE FOLLOWING EXAMPLES:

Short-term: Key constituents identified

Short-term: Increased entrepreneurship taught in schools
Short-term: More favorable regulation
Medium-term: Reduction of poverty
Medium-term: Increased entrepreneurship
Medium-term: Acceptance of micro-business as a poverty-reduction
solution
Long-term: Eradication of poverty
Long-term: Increased average income of constituents
Long-term: SME business-friendly regulatory environment.

[Note: all of these outcomes can be measured using the type of

metrics described above, and therefore progress towards attain-
ing them carefully monitored]
PERFORMANCE EVALUATION - MEASUREMENT

So how do you measure and validate the activities, outputs & outcomes? By
using SMART (Specific, Measurable, Aggressive, Realistic, Timely) mea-
sures; coupled with rigorous statistically sound measurement techniques.

THE NGO EXAMPLE - MEASURES

END WORLD POVERTY USES THE FOLLOWING TYPE OF MEASURES:

Outputs: # of constituents reached

Outputs: Funds raised from local businesses
Outputs: # of schools teaching business fundamentals
Outputs: # of small business friendly regulations passed
Outcomes: # of new businesses started by constituents
Outcomes: Official ranking for easiest country to do business in
Outcomes: Average income per capita for constituents

[Note: these measures must be viewed within the axes of time

(e.g. monthly, quarterly; comparison) (e.g. against comparable
organizations); and targets.]
Step 07: Measuring Impact
MEASURING IMPACT HOW WELL ARE WE DOING

In todays climate of scarce, but highly sought after funding, it is vital to dem-
onstrate fiscally responsible, results-orientated performance. The most success-
ful nonprofits will be those that can show that they are the most impactful.

50

[(Ctrl) Click on image to launch

the application in a web browser,
100
0

then move hand on dial to see impact

of funding]
65%

So how can impact be measured in an objective way and in a consistent

manner? The process outlined so far has shown how the metrics for
measurement can be derived.

However, the problem that a lot of organizations face is that these mea-
surements are then tracked and managed in Excel or Word documents.
While Excel is a great analytical tool with a lot of strengths, its major
weakness is its reporting capability. Especially when the key requirement
called for is complex and sophisticated reporting.

In order to ascertain how well the organization is performing across its

different perspectives (constituents, finance, processes, organizational
capacity etc.) it needs the reporting capability to analyze its metrics from
different viewpoints: frequently, accurately, reliably and in a timely manner.

The organization needs to make the right information available to the

right people, at the right time, and in the right format; so they can take
corrective action if necessary in an opportune manner.
Measuring the impact of an organization effectively in todays world
requires linking the framework outlined in this document with a robust
Performance Management technology platform. If this is done correctly
an organization should be able to answer the following types of questions
definitively and objectively:

Are we attaining our mission in a measurable way

What is our impact as an organization?
Whats our overall performance as a nonprofit
Whats our performance by countries, regions, programs,
objectives etc.
How are we performing against our stated objectives
compared to our targets for last month/quarter/year
Whats our best performing program and why
How effective are we at optimizing the funds at our disposal
Who are our most productive employees
What is the true cost of the activities carried out in the field
Is everyone in the organization working in alignment with
our mission.
THE NGO EXAMPLE

End World Poverty implemented an integrated performance management

system as one of its initiatives under organizational capacity.

This enabled them to measure their strategic objectives, do strategic and

operational planning and develop an executive scorecard that measured
their outputs and outcomes; all from the same platform.

They are now truly able to answer the question...how are we doing? They
now take a more impact-based approach to fundraising.

Using scenario analysis they can demonstrate to their donors that a

donation of $X is likely to increase outcomes by Y%
Step 08: The Role Of Technology
WHAT ROLE DOES TECHNOLOGY PLAY?

"I am pessimistic about systems, and optimistic about individuals"

- James Cameron

No matter how great the technology, if people within the organization are
not in congruence about its value; if the critical success factors are not
clearly and effectively communicated; if they do not see the clear benefits of
how it will change their day-to-day lives for the better; its deployment will
not be truly successful.
So what role does technology play? Quite simply, it offers the opportunity
to automate and simplify complex processes; and it removes the manual
intervention required with homegrown systems like Excel. Below are the
5 key benefits from adopting technology:

1. The ability to easily align the mission of the organization to its

programs, departments and people, creating a clear line of sight that
illustrates how peoples daily activities are linked to the mission of the
organization.

2. Easily evaluate globally, the performance of the organization

3. Automate individual manual processes like strategic planning,

operational planning, performance evaluation, complex reporting etc.
within a single platform.

4. Sophisticated reporting: get instant access to information that helps the

organization run its operations; and take corrective action in a timely
manner where appropriate.

5. Devote more time to analyzing the data as opposed to gathering and

verifying it.
CHOOSING A TECHNOLOGY PROVIDER

There are a plethora of vendors and systems out there that offer a dazzling
array of solutions. Navigating the marketplace can be sometimes daunting:
so how does one choose the right provider to partner with? Below are the six
key questions to ask when choosing a provider and before embarking on a
project of this magnitude:

1. Does the nonprofit have a clear mission and vision; and a distinct
performance management strategy

2. What are the critical success factors; what would success look like

3. Is the nonprofit able to commit to assembling an internal

project team with a senior, internal champion

4. Does the provider have experience working within the nonprofit

industry and do they understand the theory behind the technology

5. Is the providers offering easy to implement and of relatively

modest cost

6. Can the provider proffer reference clients within the nonprofit

industry.
Want To Find Out
More About
Impact Management?

CONTACT US:
Tel: +1.302.351.2448
Email: info@nonprofitplanning.net

NonprofitPlanning
Budgeting and Planning for Nonprofit Organizations