Scorecards – Identifying What Drives Impact

We are a society driven by numbers. We keep track of statistics for our favorite sports teams; we measure the growth and learning milestones of our children based on averages; we track our business success based on sales from quarter to quarter. When we were kids, our status in the group was often measured by how fast we could run, how long we could jump rope or how high we could jump.

So why aren’t we better at quantifying what really drives impact in our organizations?

The fact is that it takes work. But it’s work that is worth doing. Because when you know what really drives impact, you can begin to focus on what’s important. It helps prioritize activities and align your organization around what helps you accomplish your goals. And the downside is that if there are no clearly identified key metrics, others will define them for you.

In the private sector, the solution became the Balanced Scorecard – a unique set of metrics that helps organizations monitor performance and measure execution. This concept was introduced in 1993 by Robert Kaplan and David Norton in a Harvard Business Review article, and it has become widely accepted in the private sector as a way to measure performance.

While many acknowledge its application for the nonprofit sector, it’s never been fully embraced – or perhaps forced. But without an alternative system of measurement, the result has been a nearly obsessive focus on administrative overhead costs as a percent of overall budget.  Nobody will argue that efficiency is not important, but a sole focus on this statistic limits an organization’s ability to expand its impact through programmatic or capital investments.  Why is it, for example, that we can admire a private sector company for taking calculated, strategic risks while we prevent the same in the nonprofit sector?

This focus on overhead efficiency has constrained the sector, but it wasn’t really until Guidestar teamed up with Charity Navigator and the Better Business Bureau’s Wise Giving Alliance in June 2013 that the topic gained momentum in the nonprofit sector.  Since that time, the Overhead Myth, as it’s called, has gained more attention.

So at least now some people are talking openly about the elephant in the room.  But few organizations have really seized the opportunity to identify an alternative.  The trouble is that without an alternative, the default will always be the ratio of overhead to operating budget.

For organizations that want to get out from under the default metric, here are some questions that can identify other metrics to use:

1. What is the desired impact for your organization?
   • The answer varies according to the services you provide
     • Arts organizations may focus on ticket sales and membership while health and human services organizations may focus on families served, some measurement of health and wellness or some other element that defines their success.
2. What specific activities are required to meet your mission?
3. How do you know when you are doing a good job or meeting the needs of the population served?
4. What are the early indicators that demonstrate success or identify that something is wrong?

These are only some of the questions to ask, and the specific questions will vary by mission.  But with these questions answered, you can begin to consider specific metrics that will help you identify what is really driving impact.

Here are some other considerations:

1. Don’t focus on too many things – we recommend somewhere between 3 and 6 key metrics.  Fewer make the model too simplistic.  More make it too hard to remember.
2. Choose measurements that you will want to use for the foreseeable future.  Don’t select metrics related to a short term strategic project.For an organizational scorecard, you should focus on metrics that will be relevant into the future.
3. Be flexible.  When developing the scorecard, you may need to test what really drives impact.  Sometimes what you think is a key metric doesn’t turn out to be as important as something else.
4. Communicate your objective.  The more people understand why you’re focused on identifying key metrics, the easier it is for everyone to understand how they support the priorities.  And once you have identified the elements of your scorecard, use this as a chance to educate and engage your community.  That way, they’ll be more likely to understand why an investment may be required for a new program or facility.

The concept is relatively simple.  Identifying the right metrics and figuring out how to measure some of the less tangible elements takes time and commitment.  But remember, if you don’t define what’s important, others will define it for you.

And you will be back at defending overhead.