A charity board will usually monitor finances. But just measuring finances is a bit like just measuring the pulse and heart rate of an athlete: its important, but its only one of a range of ways of ways of knowing whether an athlete is healthy, and certainly a great heart rate in an athlete doesn’t tell if they will win any races.
So in charities what else should trustees (or senior managers) measure apart from money? And how should they measure the money stuff? Here are some ideas about things that every charity can measure based on my experience in different boards. I have yet to see any organisation who measures all of these areas perfectly, and each board will need to develop its own approach. This article is to try and help organisations move in the direct of better performance measurement in order to make sure the board is on top of the demands and success of the organisation.
Aside from the specifics of what is measured there are some other key points:
· Some trends are often more informative than the absolute number of any performance measure.
· Big changes, up or down, are a cause for further investigation. It’s great if performance is better than expected, but why has it happened? It’s not just poor performance that matters, since great performance can be learned from too.
· The actual performances for each charity will be different. Some may be very similar to those suggested here, but others particularly in the area of beneficiaries and mission delivery, are likely to be highly individual to the charity.
Where is the money going?
Levels of cash flow. For small charities (and companies) cash is critical. If there is no cash to pay the bills then disaster strikes very quickly. So how much cash is available to fund the operations of a charity? Three to six months is a typical norm. More than six months cash is too much (in my view – money is there to deliver the mission). At nfpSynergy we were pleased if we have a month’s income in our deposit account, but we have never had an overdraft (and we are a company).
Amount of funds committed to going out. Alongside the levels of cash are the demands on cash going out. For small charities, understanding what expenditure is in the pipeline may be key to organisational survival. For any charities with two years’ reserves in the bank, you probably don’t really care that much about tightly managing cash flow, but for the rest of the world: know your cash in and out.
Size of forecast deficit/surplus vs budgeted deficit/surplus. I watched an AGM the other day where the narrative was all about how the deficit was smaller than the year before. That was true, but the budget for the year in question had forecast a surplus not a deficit. Any trustee should be keen to know whether the deficit or surplus is larger or smaller than the budget predicts and how it compares with previous years.
Major deviances from the budget or last year’s figures. Beneath the headline figures for any financial performance lie the detail and usually these tell a useful story. Being below budget on ‘salaries’ may be the impact of high staff turnover. Being above budget on consultants may indicate other problems. Any significant deviance from the budget or the previous years’ figures should be treated as a clue in a crime, and understood for what it is and what it might mean.
What money is coming in?
Percentage of budget secured at beginning of the financial year. A simple measure, particularly for those organisations with grant income, is to measure how much of their income for a financial year is secured when the year begins. This can be made more sophisticated by giving a % likelihood to different income sources. So an agreed grant would be 100%, direct debit donors might be 90%, legators might be 80% and events income could be 20%. My rule of thumb would be any organisation which doesn’t have 50% of its income secured at the beginning of a year is going to need to work hard to make budget (unless its like that every year)
No of donors giving every month or year. The total number of donors who give to a charity each year is a pretty important measure. Measuring can be harder than it might seem (what about people who give twice in a year? Or those who give and then stop giving?) The important thing is to set out how it’s measured and stick to it.
No of new donors recruited in the last year. Any charity recruiting individual donors could measure how many were recruited in the last year. Let’s say an organisation has 10,000 donors or members and 500 were recruited in the last year. That suggests it would take 20 years to recruit the donor base, and so the organisation is probably not recruiting enough donors to replace any who move or stop giving (see the next measure). The number of new donors divided by the total donor base each year would produce an addition rate for a data base (in the example above of 5%).
Attrition/ renewal rate for members/donor. The loss of donors or members is a haemorrhaging of previous investment in donor or member recruitment. So understanding how many donors or members stop giving (and whether it’s because they move or they actively or passively say ‘no’) is critical. The loss in donors or members each year divided by the donor base is known as the attrition rate. If the attrition rate exceeds the addition rate, the donor base would be shrinking and vice versa.
No of legacies and legacy prospects. It’s tempting to imagine that legacies are acts of God. However that is no reason not to measure the number that come in and the type of legacy they are: a fixed amount of money or a share of an estate and whether the person is known to the organisation.
How many funders/donors give half your income. This could be called a vulnerability index. What is the smallest number of donors or funders who give half of your income? So if a charity earns £120k a year and the three largest funders give £20k each, then three donors give half the income. The point is that if it only takes three donors to change their mind for an organisation to lose half its income, then that leaves an organisation pretty vulnerable.
Staff & volunteers
No of staff leaving in last 12 months. Trustees should be keeping an eye on staff turnover. Some staff turnover is natural and inevitable (and even desirable if the organisation has financial problems), but each staff member that has to be replaced costs the organisation time and money, and almost certainly a loss of expertise and impetus. So trustees need to keep an eye on staff turnover – if more than 25% of an organisation leaves in a year it is probably worth the trustees asking why. It is definitely worth trustees (or an independent person) doing ‘exit interviews’ with each departing (senior) staff member to get a sense of how things are from their point of view (a trustee would definitely be better than a staff member from a ‘neutrality’ point of view).
Average duration of staff members leaving/remaining. A subsidiary metric of the previous issue is how long staff stay on average. The shorter the period, the more cause for concern. Do new staff stay for short periods of time, while the older staff never leave?
Staff satisfaction. High staff morale is the precursor of great achievement, and low morale is a precursor to staff departures. After a number of people leaving in one year at nfpSynergy (many after five years or more) we trialled a ‘staff satisfaction’ barometer so that we could try and understand problems before they result in departures. A regular health check can provide insights early and identify key departments or type of staff who may have high or low morale. In a post-Covid age, its also worth seeing if those who are based at home are more or less satisfied, and whether their length of time on the staff is more or less than those based in an office.
No of staff that every trustee can recognise by sight. There is a school of American governance literature that says trustees should only know the CEO. Nothing could be further from healthy in my book. Trustees should have a clutch of people who they know well enough to have a confidential coffee with (the same is true of senior management team members too). Official channels of communications can often provide a one-dimensional view of the world. So if trustees have no contact with people other than the CEO and senior directors, the board is probably poorer and less effective for it.
How many beneficiaries are there?
No of people benefitting from services. Measuring the number of beneficiaries a charity has is not easy, particularly in the age of the internet where people may benefit without even being known to the charity. In addition it’s often difficult to decide between outputs (the numbers of people) and outcomes (the difference that is made). My advice is to start measuring something easy like outputs, and over time improve the system. So the following are all suggestions of measures that might be useful:
· Number of people coming to events
· Number of people using the helpline
· Number of people downloading publications
· Number of people using service directly
· Number of people using service indirectly
Nowhere is that old adage ‘perfection is the enemy of action’ more applicable than in the area of measuring how many people a charity helps. There will always be ways that measuring can be improved. The solution is not to wait until the system is perfect, but to launch something imperfect and then see how it can be improved.
Are communications working?
Website hits/unique visitors/page views. A simple way to measure charity communications activity is to measure website usage. While different charities will pick different specific ways of measuring activity, it is really the change over time that matters. At nfpSynergy we get a monthly report from Rob our fantastic marketing man (and we are happy to share it if you’d like to see what we do)
Twitter followers. Twitter followers is another simple way to track the interest and engagement with a charity’s activities. The more sophisticated people can also track retweets, conversations and much more. Twitter, as with most social media, is a great leveller. The organisations that start great conversations tend to be able to punch above their weight, while those sit there like beached whales believing their brands will do the work tend to be ignored.
Facebook likes. As with twitter followers, these are another good way to measure the buzz of activity that an organisation creates, and the real issue is how they change over time.
Media mentions and Google search results. Google is a good place to start with both media mentions using Google alerts. There are more sophisticated tools such as Meltwater, but they cost money. How many mentions are there on a Google search of your organisation’s name (this is easier if you aren’t called ‘scope’ or ‘crisis’)?
Awareness among key stakeholders. There are lots of ways to measure awareness and lots of audiences with whom to measure it. And alongside awareness is the need to measure understanding, as people may know who you are but not what you do. Awareness can be measured by using a self-done online free survey package like surveymonkey, or using a professional research company. The choice is for each charity, but if you pay peanuts you get (survey)monkeys!
Of course each charity needs to decide its own performance measures, particularly in the beneficiary area, and there is no shortage of other potential things a charity can measure. Indeed many charities may want to develop their own performance measures, and I hope they do. Indeed it is probably best to see the ideas set out in this article as a starting point for continuous development, rather than anything definitive. Whatever the specifics I would argue that every charity should be monitoring their work under the areas of:
· Our money
· Our people
· Our mission
· Our reach and reputation
There is no single definitive way to measure a charity’s performance. However measuring more than just money is a key part of any robust performance framework. All these possible measures are not set in stone, they are all for development and continuous improvement. It’s the job of trustees to hold their staff to account in all these areas. Ask them when things are going well or badly, and why. Trustees should always make sure they praise staff when they do well, and asking for their corrective plans when things go wrong. Great performance measurement is a journey and never a destination.
This report was originally written in 2013 and updated in 2022
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