Why Your Nonprofit Needs to Measure KPIs (and How to Get Started)
When working with nonprofit organizations, I see the same common financial management challenges time and again: lack of visibility, data pulled from too many sources without integration, disparate types of data, and extensive use of manual processes like spreadsheets to analyze, track, and report. Does any of this sound familiar in your organization?
Because of the many manual processes, nonprofits often lack real visibility into their operations—and visibility is vital.
If an organization and its board want to understand if they are meeting their mission, they need to see real-time data. A monthly financial report is not visibility. Real-time data should be based on the Key Performance Indicators (KPIs) that are important to understanding the success of your organization reaching its goals. Some common KPIs nonprofit organizations monitor could be:
- Number of clients served
- Number of volunteers or members
- Number of beds (or meals, or classrooms, etc) in a given time period
Whatever it is you’re tracking, the goal is to have the right KPIs to give insight to managers, senior management, and the board to successfully run the organization. And that data needs to be presented in a format that resonates with funders, managers, and the board—like dashboards.
Recommended KPIs for your Nonprofit
When choosing key performance indicators to track, identify those metrics that align with your organization’s mission and strategic plan. Not only do you need to ensure your efforts (programs or services) meet your goals, but also understand how deviations from these metrics can impact your organization’s financial goals. You want to be sure your efforts meet the following targets:
- Remain financially viable
- Benefit the community or members you are serving
- Contribute to your ability to achieve goals necessary to achieving your overall mission.
Your organization needs to have the right technology in place in order to accurately capture and analyze this data. When you do capture the right information, you can use it to show your board and understand for yourself how to best operate and perform according to what is and isn’t working in your organization. Think of KPIs as the signals for the boons and roadblocks that help or hinder you from reaching your organizational mission.
Visibility into operations includes having a very good understanding of your process. When looking at receivables, it’s important to look at the aging—are they coming when they are supposed to come in? Are the grant dollars coming in every month, on time?
Compare trend lines to actual numbers. Your trend line shows dips and spikes of cash. Can you explain why each spike or dip occurred?
Here are some recommended KPIs for nonprofit financial managers:
- Financial: actual to budget variance
- Consolidated for the organization as a whole.
- For each program and or grant.
- Cash basis summaries (trend graph)
- Cash balances in the bank.
- Cash balances by contract, grant, program, etc.
- Accounts Payable and Accounts Receivable balances
Dashboards: The Visibility Solution for Nonprofits
If the problem is visibility, the solution is dashboards. Dashboards are valuable visual aids for nonprofit financial teams to convey important information to the board.
Here are some qualities of the dashboard your board wants to see:
- Ability to quickly share KPI information specific to the viewer
- Easily maintained and updated
- Shows graphical representation of trends
Your dashboard should always include:
- Financial reports, budget vs. actual
- Both dollars and statistical KPIs side-by-side (not just the monthly financial reports)
- Trend-based charts to identify dips and spikes
It’s important to remember the person reviewing your reports; you want them to actually read the reports, right? Don’t assume they have the same depth of knowledge about your Chart of Accounts as you do. Summarize the data and break it up into meaningful nuggets of information that your viewer can more easily digest.
When you bring to mind the person reviewing your reports, you can maximize the potential for both parties to get something out of them and you can empower that person to make better decisions for your organization.
Want to learn more about KPIs and Dashboards? Contact us.