KPI's in a not-for-profit environment

I was asked by one of our readers to elaborate a bit on the use of Key Performance Indicators (KPI's) in not-for-profit organizations. The specific question was how to define sensible KPI's for a social enterprise which aims to conserve the nature around Mount Kaliandra Arjuna in East Java, Indonesia. (in my opinion a very good initiative you can check out at www.kaliandrasejati.org). Generalized this is what I answered.

In principle I don't think KPI's for not-for-profit organizations (NPO's) should be that different from those for commercial organizations. What I explained in my earlier blogs is that too often KPI's are based on more or less tangible details derived from the mechanics of individual, mostly technical, processes. What I advocated for commercial are business process based KPI's like e.g. the cost of a business transaction from acquisition to after sales. In a not-for-profit environment you could apply the same if you describe the KPI's in terms of the things the NPO wants to achieve without making a profit perse.

For KPI purposes I would divide NPO's in 2 categories:

1. Private institutions (communities, aid-groups, foundations, etc.)
2. Public institutions (cities, boroughs, provinces, departments, etc.)

Private institutions normally have very clear Mission and Vision statements. These should form the foundation for the KPI's. Some examples:

• Contribution to Purpose
  Set a benchmark of the net percentage of received money that is actually applied to the chosen activities. In this why you can manage the overhead and spillage of money involved with admin, non/productive staff.
• Return on Community
  Set a benchmark to measure the result you want to see from the money that is invested. This sounds difficult to measure but depending on the topic underlying elements could things like:
  • percentage of an-alphabetism in the target community
  • percentage of children that will complete primary or secondary education
  • percentage of operational support (e.g. food) vs structural support (e.g. a tractor)
• Richness of Diversity
  Set a benchmark to measure the variety of species in an area as a result of conservation activities.

Public institutions surprisingly have less clear statements. Although the Mission-part can be found in the legislation or (political) charter that has led to the creation of the institution, the vision element is often blurred or even not questioned. For instance: do you know what the vision is for the town or city you live in? Let alone if and how is the success measured? Personally I'm often very annoyed with the level of service I get from the governments civil servants but quickly I am realizing that they probably are not managed and measured for services quality since the organization has not identified the underlying mission and vision properly. Still I could come up with a few KPI's which are useful, some curiously comparable to the ones for Private institutions:

• Contribution to Purpose
  Set a benchmark of the net percentage of received/withhold money that is actually applied for the citizens. In this why you can manage the overhead and spillage of money involved with admin, non/productive civil servants. Especially important for subsidy/allowance giving organizations.
• Return on Community
  Set a benchmark to measure the result you want to see from the money that is invested. This sounds difficult to measure but depending on the topic underlying elements could things like:
  • percentage of community that is using the given service or facilities
  • percentage of children that complete a offered education
  • satisfaction number given by citizens for speed and quality of contacts with organization
• Return on Legislation
  Set a benchmark on the success of an implemented law or provision. Sounds too obvious but hardly ever done properly other than setting quantitative budgets. As an example the net return of a tax-measure after involved labor and systems, cost of marketing, cost of public acceptance like tax evasion measures, cost of negative side effects, etc. in relation to the planned theoretical revenue or social effect.

The last one is especially for the politicians who will love and hate this, depending on if they were the legislator or the opposition. I advocate that even in politics KPI's can be a useful and objective measure. Maybe it keeps the politicians a bit away from just positioning their "truth".

In general my advice would be to define the KPI's on a logical and aggregated level: a big poster on the wall showing the overall KPI for a NPO in the form of a thermometer with a red and green area shows all involved what the status and trend is and can be used for a large group of people. If at other levels in the organization KPI's are necessary to measure individuals, make sure these KPI's are clearly derived from the overall ones so there is no ambiguity on that everybody works towards the same. My firm believe is that less but shared KPI's are far better than many individualized ones.

As always, your comments are welcomed.

Hans.van.nes@results2match.com