2 minute read time
What is a KPI
A key performance indicator (KPI) is a measurable value. It shows how well an organisation is reaching its goals. In not-for-profits, KPIs are very important for committees and boards to set and monitor. KPIs help boards track progress, find areas for improvement, and show they are responsible to everyone involved, including those who give money and the public. KPIs should focus on those aspects that enable the organisation to progress their mission as well as those that are likely to constrain and risk progress. KPIs make sure resources are used well, so the not-for-profit delivers their social impact and remains compliant with funding.
Impact understanding the Importance of KPIs in not-for-profits Governance
Not-for-profits organisations, like any other organisations, need to measure their success. Simply having a good purpose isn’t enough. We need ways to show we’re achieving our goals and using resources effectively. Key Performance Indicators (KPIs) are the tools we use to do this.
Defining Your KPIs: Aligning with Mission and Strategy
The first step is to define what success looks like for your organisation. This means carefully considering your mission statement and strategic plan.
- What are your key goals?
- What are the most important things you need to achieve?
- What do staff and volunteers need to deliver on?
Your KPIs should directly reflect these goals using measurable data. For example, if your purpose is to provide affordable housing, KPIs might include the number of families housed, the average rent paid, and tenant satisfaction rates. If your focus is on environmental conservation, KPIs could include hectares of land conserved, species protected, or community engagement.
Financial KPIs: A Crucial Element
Financial KPIs are essential for understanding the financial health of your organisation.
Some examples include:
- Revenue growth: Are your fundraising efforts successful?
- Expense ratios: Are you managing your resources efficiently?
- Cash flow: Do you have enough money to operate effectively? You should know how much it costs the organisation to operate every week and how many weeks of cash (working capital) you have.
- Debt levels: Are you monitoring your debt position?
- Quick ratio: This is a ratio that tells you what your ability is to quickly meet your short-term liabilities and commitments with the cash and other liquid assets you have.
Monitoring these indicators helps ensure financial stability and sustainability. Remember, even with a strong mission, financial mismanagement can severely hinder your ability to achieve your goals.
Non-Financial KPIs: Measuring Impact and Effectiveness
Beyond finances, non-financial KPIs are crucial for measuring your impact and effectiveness. These can be more challenging to quantify but are equally important.
Examples include:
- Program participation rates: How many people are benefiting from your services?
- Client satisfaction: Are your clients happy with the services you provide?
- Volunteer engagement: Are volunteers actively involved and satisfied?
- Community partnerships: Are you collaborating effectively with other organisations?
- Staff satisfaction: Are your staff members satisfied with their role and the organisation’s impacts and progress?
Regular Monitoring and Reporting: The Key to Improvement
Once you’ve established your KPIs, regular monitoring and reporting are vital. This allows you to track progress, identify areas for improvement, and make data-driven decisions. Regular board meetings should include KPI reports, allowing for open discussion and strategic adjustments. This continuous feedback loop is essential for ensuring your organisation remains effective and efficient.
Using Data to Drive Improvement: A Personal Anecdote
We know from experience that people can find it hard to define clear KPIs. One way to do it is to work out from a risk perspective what risks can constrain your organisation, such as loss of funding or paying clients. Then work out what KPIs need to be met to reduce this risk. Doing it this way is a good short-term solution to putting KPIs in place, but we do recommend you don’t stop there.
You can start with those KPIs that are more easily tracked, such as financial KPIs and KPIs from funding agreements. You can then discuss your purpose (objectives in the constitution), and decide what measures you need to see and feel to know that you’re progressing this impact. You should also as a committee review any staff you have, or your key staff member (CEO or manager), to do the same. Then continue this process through the programs you deliver, the people that deliver those programs and organisations or partners you work with. This will help you define a solid list of metrics to set and monito
Summary
Measuring success requires a strategic approach using KPIs. KPIs help you see how well your organisation is doing. Pick KPIs that match what your organisation wants to do. Regularly monitor progress, and use data to drive improvement, Use what you learn to get better. Keep changing your KPIs as your organisation changes.