measuring performance: linking money to mission
DESCRIPTION
In the mission-oriented nonprofit world, it can sometimes be difficult to get your team to focus on the relationship between money coming in and the organization’s ability to effectively deliver programs and services to its constituents. While top-line measures are exciting they can also be distracting and counterproductive if they are not properly accounted for and effectively presented. Peeling back the covers on your finance organization can help your team, executive director, staff and board members truly understand your financial situation and see how finances directly impact programs. Financial operations reviews deliver insight. Reviews help organizations move beyond budgets and expenses into staffing, policies and processes. You will learn…• The 5 “must ask” questions• The 3 reports you should study• The secrets of financial management• How to determine financial viability of new programs and link money with missionTRANSCRIPT
Measuring Performance: Linking Money to Mission Rebeka Mazzone, CPA
Accounting Management Solutions, Inc. www.amsolutions.net
June 23, 2010
Use Twitter Hashtag #npweb
Special Thanks To Our Sponsors
A Proud Sponsor of NonprofitWebinars.com
Helping ordinary people raise extraordinary amounts for nonprofits is all we do, and we love it.
Measuring Performance: Linking Money to Mission Rebeka Mazzone
Accounting Management Solutions, Inc. June 30, 2010
About Us
• For more than a decade, Accounting Management Solutions, (AMS) has provided accounting support and financial management leadership at the consulting CFO, controller and accounting manager level to dynamic companies throughout the Northeast.
Objectives
• Discuss why scorecards are important
• Learn how scorecards are used as a form of measure
• Understand the differences between scorecards, KPIs, dashboards, benchmarks
• Getting started
Characteristics of Effective Financial Reporting
• No surprises for management – paralyzed by indecision
• Link to strategic plan • Plan linked to budget
• Measures: Key Performance Indicators (KPI) based on strategy
• Easy to understand
• Meaningful information
What do reports tell us?
• Strategic plan – Where do we want to go?
• Budget – How do we plan to get there?
• Statement of Activity – How did we do?
• Statement of Position – Where are we now?
• Statement of Cash Flow – How did we use our money?
• Cash Flow Projection – Do we have enough to get us there?
Understanding the Financial Condition
• Reports should be designed for the audience.
• There are 4 levels of reporting:
1. Transaction Detail – Finance Department/Department Managers
2. Detailed Financial – Finance Department/Department Managers
3. Management Financial Summary – Exec. Director/Finance Committee
4. Board Financial Summary – Full Board
Too much detail prevents users from focusing on the risks and opportunities.
Benefits of Scorecards
• Power to capture relationship between financial and non-financial data
• Ability to predict and manage future outcomes • Effectively present financial data to non-financial
people
• Drive strategic objectives throughout organization down to individuals
• Align business activities
Example: Revenue and Expense
Example: Revenue and Expense Per Student
Example: Revenue and Expense Per Student
Example: Revenue and Expense Per Student
EXAMPLE: Organizational Scorecard
Key Performance Measures: Non Programs
Going to School on Performance
• Balanced Scorecards = Grade Point Average
• Dashboards = Report card
• KPIs = Class grade
• Benchmarks = Class rank
Inputs & Outcomes
GETTING STARTED
Getting Started
Create a Cross-functional Team
• Project Champion • Clear leadership to drive vision
• Core Leadership Group • Assess core processes
and programs
• Limit team size
• Team orientation
• Requires long term commitment
Understand Your Audience
• Who will be using the scorecards?
• What impact do scorecards have on resource allocation and program decisions?
• What is the key information they need to understand to make strategic decisions?
Achieving strategic goals is the priority
Create Buy-in and Ownership
• Top leadership support
• Cross functional / representative teams
• Keep an open dialogue during planning stage
• Keep the process transparent
Enterprise Performance Management System (EPMS)
Board & Executive Director
Executive Director & Departments
Departments & Individuals
360 Review
Departmental Scorecards
VISION / MISSION
Organizational Scorecard
Starting Point
1. Examine mission and strategic plan
2. Set goals tied to your mission
• Short-term
• Long-term
3. Remember: Change takes time
What is the Goal?
• Organization-wide scorecard • Used to drive strategic plan objectives
• Departmental scorecards • Informed by Organization-wide scorecard
• Is generally division-specific (e.g. responsibilities and measures are unique to each department)
• Individual Performance Reviews • Align individual performance to organizational goals
“Measures start with a top down approach, but ultimately some will rise up from individual plans”
Strategic Goals & Objectives
Deciding What to Measure
• Mission and program effectiveness
• Anticipated growth • Benchmarking / peer
comparison
• Major financial statement line items and ratios
• Consider the relationship between money and people
Deciding What to Measure: External Drivers
• Legal & compliance
• Public perception • Going green/sustainability
• Safety
• IT
• Competition
• Facilities • Remaining life • Capacity
• Square foot per student
• Consumer satisfaction • Cost per square foot
(maintenance, utilities)
Deciding What to Measure: Four Pillars
• Financial measures – create value
• Profitability by program • Ability to meet obligations • Budget success
• Human Capital • Staff/Consumer Ratio • Staff cost per individual
served • Quality of programs/
education • Diversity ratios
• Operational Capacity • % time building /
classrooms occupied
• Consumer satisfaction (Individuals/donors/ grantors)
• Retention
• Completion Rates • Cost of success rates (link
$ to outcomes)
List and Prioritize – Critical
LOW HIGH
HIGH
Value to Institution & Mission
Value to Customers
No Value to Mission or Customers
Strategic Objectives: Example
Mission:
To assist low-income adults in realizing their full potential through literacy, employment, advocacy and community involvement.
Strategic Objectives: • Enhance the delivery of services by building on
the diversity of student strengths. • Expand the scope and array of our
educational services.
• Expand the base of our advocacy in the state and community for adult basic education.
Strategic Drivers: Example
• Increase service area by 10% over the next 3 years
• Enhance the Organization's admissions and marketing efforts
• Expand the “family service” continuum to better support parents.
• Establish operating reserves
• Determine the effectiveness of our programs and services through evaluations and outcomes studies.
Organizational Scorecard
Key Performance Measures: Programs
Individual Programs
Quantity
Quality
Organizational Scorecard
Key Performance Measures: Non Programs
Four Pillars
Goals: linked to budget
Operating Income (loss) by department
Change in Revenue per Student
Change in Expense per Student
Avg. # Students per FTE
360 Leadership Assessment
360 Performance Review
What should measures look like?
Key Performance Indicators (KPIs)
Scorecard Example
Exceed Goal
Goal
Moderate
Risk
Key Performance Indicators
• KPIs can be both quantitative and qualitative
• Cannot simply be the money
• Programmatic outcomes are the mission
• Finance is the backbone
• Need to trend over time
Key Performance Indicators (cont’d)
• KPI Review Cycle • Annual scorecard
• Quarterly scorecard
• K.I.S.S. • Simple to operate
• Simple to understand
• Simple call to action
Review Data For…
• Reliability
• Accessibility / availability
• Accuracy
• Timeliness – past is used to set future goals
• Communicability – Does your audience understand it?
Challenges
• Year One: • Benchmark year
• Lots of information not available
• Goal – prioritize and focus
• Year Two: • Measurement tools in place
• Review measures
• Ongoing: Reassessment
Some measures might not be available each year
Keys to Success
• A strategic plan and leadership support
• Clearly defined goals & organizational priorities
• Transparency across the organization
Do You See Any Benefits?
• Easier to understand – 1 hour Board meeting • People outside of finance can now understand • Ties money to outcomes to measure effectiveness • Ability to monitor outcomes over time • Monitor opportunities for
improvement • Better ability to
communicate value
Benefits
Cautions!
• Visions must be aligned • Independent of any one
department • Sustained effort • Start small • Project manager vs. project
champion • Consistent measures/valid
data
Next Steps
• Measure key executive performance
• Each department/division to implement
• Share this with staff; help drive goals and measures
• Data warehouse – move from Excel to database
For More Information
• Rebeka J. Mazzone CPA, Director Rhode Island Region Accounting Management Solutions, Inc. [email protected]
To keep current on this and other topics, register for our free newsletter at:
Find the listings for our current season of webinars and register at
NonprofitWebinars.com
Chris Dumas [email protected]
707-812-1234
Special Thanks To Our Sponsors