Practical steps for nonprofit boards to successfully measure what is important and strengthen board governance.
In this final article, we explain three types of results nonprofit boards should consider monitoring: impact, activities and effectiveness. Monitoring results can be one of the most challenging aspect of board governance. We will take you through the three types of metrics to monitor and practical approaches to do this successfully.
A nonprofit board of directors has four key responsibilities: guide the mission, approve policy, apply governing structures and monitor results. So far, we covered how a nonprofit board is responsible for keeping the organization on mission and approving policies that form the basis for governance through formal structures like board meetings and committees. But strong board governance not only communicates and assigns expectations. It also checks to see if expectations are being met. This “check” is the nonprofit board responsibility to monitor results.
Impact monitoring
Impact results measure the nonprofit organization’s progress toward achieving its mission. They measure whether the nonprofit is making a difference. These are the “metrics” or measurements typically included in donor reports. For example, if your organization delivers meals to home-bound seniors, your impact measures are how many seniors you served, and with how many meals. These metrics are not just relevant to your donors. Impact metrics give nonprofit organizations data to improve their programs.
So how do you define your impact metrics? First, identify the evidence validating you are achieving your mission. Keep in mind the more metrics you have, the less likely you will measure them well. Only measure what really matters. It is possible that different programs require slightly different metrics, but try to have some consistent metrics across all programs.
Sometimes a broad mission makes impact monitoring challenging. A broad mission such as ending hunger in your community requires proof of progress through a community food insecurity survey. Just measuring the amount of food distributed does not verify everyone is eating three meals a day. And the broad “ending hunger” mission may require other measurements including baseline and cause-effect. In this example, a “baseline” survey measures food security before your programs began, in order to verify improvement.
“Cause-effect” evaluations validate that your program, and not other external factors (such as higher employment), improved food security. When impact metrics get complicated, re-evaluate your mission or consider guidance from an impact evaluation consultant.
Five steps to simplify impact monitoring for nonprofit boards
While impact monitoring is a weakness in many nonprofits, boards can take practical steps to improve effectiveness:
1. Only track the most important measurements of your mission.
2. Track results as often as practical or as often as necessary, whichever comes first.
3. If feasible, automate the impact measure collection process.
4. Compile impact metrics in one place, so you have a single source for accurate impact data, even if it’s just a spreadsheet.
5. Hold staff accountable for tracking agreed-upon impact measures.
Activity monitoring
Activity monitoring measures compliance with board-approved policies and plans. If the board approves policies and assigns responsibility but never monitors compliance, it fails at governance. Similarly, a board fails at governance if it approves a plan and budget but never checks to see if the organization is on track.
The best approach is to automate compliance whenever possible. For example, setting up the nonprofit’s bank account to require two signatures for checks over $5,000, automatically enforces the policy. Automating compliance reduces the chance of noncompliance. But automation may require investment not all nonprofits can afford.
When automation is not feasible, create monitoring routines in board meetings. For example, include plan and budget updates on the regular monthly board meeting agenda. When a board is clear about the monthly monitoring information it wants – and members get it ahead of the meeting – board meetings are more productive.
Also, board calendars can include reminders of monitoring activities. If all board members must complete an annual conflict of interest disclosure, schedule it on the board calendar for every February. Keeping a routine helps boards be consistent with their responsibilities to monitor policy and plan compliance.
When compliance cannot be automated or fit into the board routines, consider delegating to board committees. For example, delegate financial policy compliance monitoring to the finance committee, which can add this to its month-end routine. Or delegate responsibility for new member signatures on policy statements to the nominating committee. A routine new member checklist helps the nominating committee remember its responsibility.
Effectiveness monitoring
The final group of metrics boards should monitor combines impact and activity measures. Effectiveness metrics monitor how well the organization utilizes resources, including donations. Educated donors care about effectiveness metrics. Boards should care, too.
Effectiveness metrics are report cards on board performance.
Here are some effectiveness metrics and how they are calculated:
Program efficiency - Amount of money spent on programs divided by total expenses.
Program expense growth - Measure of program spending increase in the past year.
Fundraising efficiency - Cost required to raise $1 in donations; fundraising income divided by fundraising expenses.
Program cost per service - Program expenses divided by impact metrics: Calculates a “cost per service,” which helps the organization plan its budget.
Many effectiveness metrics allow comparisons among nonprofits, so some “gold standard” benchmarks exist. Some effectiveness metrics also are required on the annual IRS Form 990. Most of these metrics could be added easily to the board’s monthly financial reports, where they can be routinely monitored.
Five steps to simplify activity and effectiveness monitoring for nonprofit boards
In summary, monitoring the organizations compliance with policies and progress against the plan/budget can be simplified with these five steps:
Agree on board expectations for activity and effectiveness monitoring.
Automate compliance as much as possible.
Add routine monitoring to the board meeting agendas and calendars, or delegate to committees.
Standardize reports aligned with board monitoring expectations.
Hold staff accountable for reporting expected metrics.
Remember, unmet reporting expectations could mean a performance issue, but it also could mean fraud. Be serious about the board’s responsibility for monitoring.
Practical next steps
Here are suggested changes to improve your board’s results monitoring:
Give your board an honest grade on results monitoring, and then make an improvement plan a priority.
Assess your impact measurements. Do they align with your mission? How happy are you with the quality and frequency of the data?
Are impact metrics saved in a master file so that results are reported consistently?
Evaluate your policies and determine if compliance can be automated. If not, consider how monitoring can be part of routine board meeting agendas and calendars, and set clear board expectations.
If results monitoring will be delegated to a board committee, be sure to add that to the committee charter.
Check our financial policy template if you think financial policy compliance monitoring can be improved.
When approving the plan and budget for the year, consider adding goals to improve effectiveness metrics, and then add them to monthly reports.
Celebrate improvements in results monitoring – this is one of the most challenging aspects of board governance!