All nonprofit organizations have a mission. But how do you know if your organization is on the right track for success or where you stand among your peers? And how do you demonstrate your progress to your donors and stakeholders? Unless you’re developing and monitoring meaningful data metrics and utilizing benchmark-based reporting, answering these questions can be challenging for nonprofits.
Nonprofits can use performance metrics to measure whether the organization’s key activities are producing successful outcomes. The performance metrics that prove most meaningful to your organization will be defined by your industry and your programs. In general, there are metrics that measure:
- Input – the amount of resources used to deliver a product, service, or activity;
- Output – how much was produced or provided; and
- Efficiency – the relationship between volume produced and resources used.
For example, if providing school lunches is one of your organization’s activities, possible input metrics are the time, money, facilities, methods, staff, and expertise your nonprofit commits to making this happen. Possible output metrics include the number of lunches produced for delivery and the number of people served. And efficiency metrics help you manage your program resources more effectively and can even help you understand the social return on your investment.
Data Metrics & Compliance
Nonprofits need to track and evaluate certain metrics for compliance purposes. For example, Accounting Standards Update (ASU) 2016-14 introduced the liquidity disclosure requirement. So nonprofits must be able to track and monitor net assets with donor restrictions and net assets without donor restrictions, and other liquidity metrics internally on a regular basis to comply with the ASU’s reporting and enhanced quantitative and qualitative disclosure requirements.
Data Metrics & Accountability
When donors, government entities, corporate sponsors, and others make contributions, give grants, or sponsor a nonprofit, they are counting on the organization to hold to that mission and use those funds wisely. The following data metrics often help nonprofits not only understand where they stand but also demonstrate their progress to those invested in their cause.
- Program Expense Ratio
- Measures the percentage of your organization’s total expenses that go toward the core mission
- Calculated as (Program Expenses / Total Expenses) x 100
- Administrative Expense Ratio
- Measures the percentage of your organization’s total expenses that go toward administrative costs
- Calculated as (Administrative Expenses / Total Expenses) x 100
Nonprofit organizations benefit greatly from both internal and external benchmark data for comparison. When you monitor any metrics you develop in-house on a continuous basis, you can gauge your organization’s performance overtime. And if you compile data on a pool of relevant peers, you can monitor market impact and performance. Sources of external data can include:
- peer organizations’ annual reports and websites;
- federal and state nonprofit or trade associations, such as the National Council of Nonprofits or the Maine Association of Nonprofits; and
- online databases like Guidestar and Charity Navigator.
Data Integrity & Quality
- Reliable data is critical in measuring mission effectiveness. To be reliable, data should be governed by a system of internal controls that ensures the information is:
- Accurate – Subject to checks and balances to prevent and detect human error and fraud;
- Complete – Retrieved from a single source, without duplicates and discrepancies;
- Consistent – Entered based on uniform data entry protocols;
- Accessible – Easy to find in timely fashion;
- Relevant – The latest data available; and
- Secure – Safeguarded by access controls and other IT practices and procedures.
Ultimately, maximizing the benefits you yield from analyzing meaningful data metrics comes down to the integrity and quality of your organization’s data. And that’s one of the ways ARB can help.
ARB’s Nonprofit Advisory Services Team helps nonprofit organizations develop and monitor meaningful data metrics and benchmarks that are suited for their organization’s industry and specific circumstances. I also work with my nonprofit clients to strengthen their internal controls, including controls over data governance. If you’re ready to learn more, contact me today.
Alyssa Hemingway joined ARB in 2016 and is a Senior Manager. She provides accounting, auditing, and advisory services primarily for nonprofit organizations. Alyssa specializes in compliance audits in accordance with Uniform Guidance and MAAP. Her career concentration has been in non-profit organizations, including education, conservation, healthcare, community, and welfare services. She advises our clients on internal control systems, accounting standards, gift acceptance, and organizational matters.