Tuesday, August 30, 2011

Key Performance Indicators

I will be speaking at the Pennsylvania Community Providers Association 2011 conference in October on A Roadmap to Financial Health Using Key Performance Indicators and Dashboards. As I am putting together the presentation I am thinking about leading indicators and lagging indicators.

Key Performance Indicators (KPI's) are indicators used to measure performance in strategic area such as financial, quality of care, operational performance, and business development. My focus for this presentation is on financial indicators--days cash remaining, days sales in accounts receivable, cost per unit of service, etc.

Lagging indicators show you what happened in the past. Leading indicators help you see what might be happening in the future. For example, look at days sales in accounts receivable as a leading indicator. If over time, you see this number getting larger it means you are not collecting monies due you as fast as you used to. If this continues though--you are going to start to have cash flow problems. You may also end up having to write off revenue as a bad debt.

Initially you might look at the increasing days sales in accounts receivable and excuse it as a consequence of the economy, your client mix, payor difficulties, etc. However, if you have been tracking this as one of your indicators AND you are cognizant of the detrimental effect it has on other areas, you will pursue the reasons for the increase and seek to remedy the situation.

I have come across a few articles in these areas. While these articles relate to businesses, they have some great applications for nonprofits.

The Power of Leading Indicators - As Important As Ever by Paul Niven

Managing Through The “Rear View Mirror”…a dangerous practice for any business by Robert Champagne

Which is more important? Rearview mirrors or windshield? by Gary Cokins

Thursday, August 11, 2011

The Data (and Donations) are in the Details

Last summer I spoke with a wonderful group for a wonderful organization, the Association of Fundraising Professionals at their Lehigh Valley conference. The presentation was "Where Can your Limited Funding Dollars Have the Most Impact: Communicating to Your Funders the Power of Their Investment in Your Organization."

A lengthy title, but it reminds nonprofits that their funders are indeed investors. Prior to making an investment, investors will look at the investment and make sure it delivers a good return on their money, at a level of risk that is acceptable to them. What information do your investors need to determine that their money will make the most impact in your organization?

First you need to figure out where your funds have the most impact. If you have several programs you need to look at each program separately. What are the direct costs related to that program? How many people can you serve? What amount of staff time is required to deliver your services? Can you use your staff time or your facilities or your resources in a more efficient manner to serve more people?

Once you have the financial information and the data, you need to figure out the best way to communicate that to donors and grantors. Different audiences will need different types of communication. One grantor may be interested in investing in your organization because they can see that if they provide money for staff training, the staff will be able to serve 50 more people each week. Another donor may donate because you have explained that their donation of $500 will enable your organization to build a well that can bring water to 600 people every day. And another funder may appreciate your commitment to building a stable, healthy nonprofit that continually is a community resource. They are glad to add to your reserve fund because they can see evidence of this stability in your financial statements.

Financial and data analysis will not only attract more donors, it will help you manage your nonprofit better. As the saying goes, “If you can measure it, you can manage it”

Cindy Bergvall, CPA