There are two types of organizations, those that are taxed and those that aren't. Those that aren't taxed are referred to as nonprofits since they are not in business to make a profit. Unlike for-profit organizations it can be difficult to measure performance, which is usually measured in terms of net income, a common key performance indicator, KPI, among for-profit organizations.
Key Performance Indicator, KPIs
It is important to remember that if you can't measure something it is very difficult to improve it. This is where KPIs come in handy. The goal of a key performance indicator is to help find an objective measure of performance. Since most chief executive officers and chief financial officers in an organization are judged based on the performance of earnings and net income, key performance indicators tend to be based on cash flows or profits, such as net income, sales growth or free cash flows. These KPIs are not necessarily helpful for companies which do not earn a profit, such as nonprofits.
KPIs for Donars
Key performance indicators for nonprofits should be easy enough for both management and donors to understand, especially if the organization relies solely on donations to support operations. As a result, nonprofits must focus on their objectives and goals to measure overall performance. They can also focus on operational efficiency, a common issue among nonprofit organizations.
Focus on Goals and Objectives
The first step in developing good KPIs for a nonprofit organization is to determine the goals and objectives of the organization. For instance, if the goal of an organization is to decrease poverty in the world, at least one KPI used should measure world wide poverty. The best KPIs, however, are defined, measurable and specific to the organization. So once you know what to focus on, try to narrow in on the best way to measure the effect of your organization's efforts on its primary goals and objectives.
For instance, using the same poverty example, if an organization works in the southeast and focuses on the reduction of poverty through children and mothers, KPIs must track and measure the reduction of poverty through children and mothers. Consider the programs within the organization that are specifically aimed at reduction. If you run a soup kitchen or a group home, perhaps you can focus on the number of people served at the soup kitchen over time. Another good KPI may be the number of people helped through the group home. You may also want to focus on the number of mothers with a high school diploma. In tandem, donors will be able to understand the impact of your work through the tracking of KPIs over time.