Key performance indicators (KPIs) are vital tools for any organization aiming to stay relevant and effective in fulfilling its mission. For nonprofits, this process is even more critical, given the unique challenges they face in achieving their mission while managing limited resources.
Every nonprofit must undergo the important process of setting clear business objectives and determining how to track progress toward achieving them. This is where KPIs come into play. They serve as essential metrics that not only measure progress but also ensure that strategic decisions align with the organization’s mission and goals.
In this article, we’ll delve into how to effectively develop and implement KPIs within a nonprofit organization, ensuring that your efforts remain focused, measurable, and impactful.
Setting Business Objectives for Your Mission Driven Nonprofit
Before we can develop useful KPI’s, we have to define the business objectives and goals to which they are tied. Business objectives help steer an organization toward their hoped-for destination (the business goal); whereas KPI’s are the tool for measuring the progress in achieving the objectives. In a nonprofit organization, the mission drives the overall goal development.
Objectives help the organization to understand if they are on the right track in reaching their goals. They also help to ensure alignment with what is important to your stakeholders. Additionally, clear objectives help you monitor your strategic plan to make sure it is still relevant though the context may change.
Examples of Nonprofit Business Objectives
Business objectives are broad action statements. In a nonprofit organization, objectives often fall into one of four primary goal categories: financial sustainability, mission impact, stakeholder engagement, and operational efficiency.
Financial sustainability
Objectives centered around ensuring the organization’s financial health, sustainability, and resource management.
Improve donor retention by 15%
Diversify funding sources, aiming for 20% of revenue from new grants
Reduce operational costs by 10% through efficiency improvements
Mission Impact
Objectives that directly relate to the organization’s mission and impact it seeks to create within the community or specific population it serves.
Increase the number of clients served by 15%
Improve program outcomes by 20% through enhanced service delivery
Expand the reach of educational initiatives to underserved areas
Stakeholder Engagement
Objectives that involve engaging and maintaining relationships with keys stakeholders, including donors, volunteers, board members, and the community.
Increase community awareness and engagement by 25% through targeted outreach campaigns.
Improve board effectiveness by 15% through governance training and strategic planning sessions.
Enhance volunteer engagement and satisfaction, aiming for a 20% increase in volunteer hours.
Operational Efficiency
Objectives aimed at improving the internal operations, processes, and overall efficiency of the organization.
Streamline volunteer management processes to increase retention by 20%
Implement new technology to improve data management and reduce manual tasks by 30%
Enhance staff training programs to improve service delivery efficiency.
Collecting Metrics and Developing Nonprofit KPIs
The data and metrics that are collected by an organization should be driven by the objectives. The Business Analysis Book of Knowledge (BABOK) defines a metric as “a quantifiable level of an indicator” and a key performance indicator (KPI) as “one that measures progress towards a strategic goal or objective” (BABOK 10.28). While general performance metrics may be of interest to the overall organizational health, KPI’s focus solely on tracking the progress being made toward a defined objective.
To be effective, Key Performance Indictors should be stated as SMART goals. SMART goals were introduced into the business world in 1981 by Doran, Miller, & Cunningham. SMART stands for specific, measurable, attainable, relevant, and time bound.
Let’s look at an example of the following KPI for a financial stability goal where the business objective is to improve the donor retention by 15%
KPI: Increase the donor retention rate from 60% to 75% within the next fiscal year.
We can evaluate the KPI to ensure that it meets the SMART criteria.
S Specific Is the KPI Specific?
Yes. The KPI focuses on increasing the donor retention rate which is a clearly defined and specific area of focus.
M Measurable Can the KPI be measured?
A Attainable Is the KPI goal realistic?
R Relevant Is the KPI relevant to the organization?
T Time Bound Is the KPI time bound?
Linking KPIs to Organizational Goals and Your Strategic Plan
KPI’s play a critical role in strategic plan development. Your KPIs link your strategic decisions with larger organizational business goals. The data-driven strategy to achieve your business objectives can manifest itself in a variety of initiatives by which the metric can be made to move.
For example, your strategic plan may include implementing targeted donor engagement strategies such as personalized communication and regular updates on the impact of their contributions. These initiatives take an allocation of staff and financial resources to make happen. By monitoring movement on the KPI, the impact of the initiatives can be tracked, and decisions made to continue, expand, or dissolve the strategic initiative.
Use a visual hierarchy diagram to communicate the alignment of programs, initiatives, and campaigns. Include four tiers of linkages starting with the business goal, then a business objective, followed by corresponding KPIs and the strategic initiatives by which to achieve it.
Summary
KPIs are crucial for driving nonprofit success by aligning the organization’s mission with the strategies it undertakes to achieve its goals. For KPIs to be effective, they must be closely tied to business objectives, realistic, and well-focused. Regularly revisiting KPIs is essential to maintaining stakeholder buy-in and ensuring their continued relevance.
Start small by identifying a few key KPIs, and gradually build a comprehensive system for tracking and reporting performance. When effectively developed and routinely monitored, KPIs can significantly enhance how nonprofits allocate resources, make decisions, and ultimately achieve their mission.
Roseanna Galindo is Principal at Periscope Business Process Analysis, specializing in organizational learning and development. She is dedicated to advancing data literacy, enhancing healthcare experiences, and empowering volunteer leaders. Explore Roseanna’s expertise and insights on her blog, The Periscope Insighter, starting with the opening post, "Venn the Time is Right."
Roseanna offers a range of professional development services, including training workshops, keynote speaking, and executive coaching.
Visit PeriscopeBPA.com for more information or click on the button below to schedule a time to talk.
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