Core Concepts in Measuring Performance in Nonprofit and Government Agencies

The diagram below summarizes concepts that have been useful to me in working with organizations on measuring performance and managing performance. There are many approaches to measuring performance proposed by different experts and consultants. There is value in many of them but it can get confusing and complicated when you go to implement. Here I boil things down to a few core concepts.

Measuring the performance of nonprofit organizations and government agencies is a challenge. First, where do you start? The private sector has it easier because profit and loss provides an obvious starting point. They have that basic measure of success or failure to build their performance measurement system around. Nonprofits and government agencies lack that. Consequently it is easy for performance measurement efforts to lack focus, get off track, and have little impact on the organization.

1. Start with the desired results and the processes which created it.

Nonprofit organizations exist to deliver results and create value. Value is the benefit a nonprofit or government organization delivers to its owners which is often the community or the society at large. It is the reason the organization exists. Value is created and results are delivered through processes. To affect value creation, processes need to be understood, measured, and managed. To do this begin with defining and measuring the outcome or end result the organization desires to achieve. This can take some work since it may not be immediately obvious. But if you can’t describe the outcome to be achieved, then all other measurements will be of limited value. With the outcome determined you then work backwards to seek the causal relationship between the antecedent inputs, processes and activities, outputs.  This is a standard process view of an organization.  It is sometimes referred to as a logic model. It is best to start at the highest level and then work down. The benefit of taking this approach at the beginning is that it help create a logical, causal relationship between the work and resources of the organization and the results you want to achieve. It helps create a conceptual model about what is important to measure.

2. Measure performance from several perspectives.

Here is where the balanced scorecard approach is useful. The process view or logic model is complex. It helps to consider the four perspectives of the balanced scorecard.  These are customer, financial, process, and organizational capacity. Not all categories will always apply, but it is a good check to make sure you are taking a comprehensive view of performance. The books by Norton and Kaplan on balanced scorecards are helpful in understanding this perspective on measuring performance.

3. Align performance measures within the organization.

Alignment is what we strive for in organizations. We want everyone working together. It is easier said than done. The idea is to have a set of cascading performance scorecards that start at the top of the organization and descends to the bottom of the organization, ideally to the individual. The process view from step one helps create the logical connection between the work that is done in the various parts of the organization. Now the task is to group the performance measures from an organizational structure standpoint. This is important because accountability is most commonly assigned along organizational lines.

4. Link performance to people and strategies.

The last step is to make sure performance measures are actually used to manage — to change behavior and make decisions. Too often organizations stop when they have measures. Perhaps they talk about them once in a while and speculate about why the measures are going up or down. But they aren’t focusing the organization’s attention on managing what is being measured. To get that focus people need to feel accountable for getting results and they should know how their performance affects achieving the organization’s primary goals.  They also should know how what they do relates to the organization’s strategies. There are many questions to answer in this last step:  what measures should be assigned to whom; should financial incentives be used; should goals be assigned to individuals or group; where to set goals; and whether to focus on short term vs long term goals. Regardless of how it gets done the key is getting each person to feel accountable for getting results and providing them the data and measures to show how they are doing.