The voice for creating better measurements continues to grow in the non-profit world. And that’s certainly a good thing. But my experience in business says much depends on what, and how much, you measure.

In measuring performance, quantity often exceeds quality. The “American Way” says “more is better.” It is not.

I’ve learned to develop “key performance indicators” which are few and meaningful. The tricky part of KPIs is that one must look for causes rather than outcomes to measure. My son says “measure leading, not lagging, indicators.”

Outcomes (lagging) are revenues generated and costs reduced or contained. The problem with these being measured is that by definition, once we’ve measured them, it’s too late to affect them.

For more effective (leading) measures, identify the cause of revenue increases or costs reduced and measure those instead. When we positively impact the causes we will eventually create desired outcomes.

In our foundation’s case, our primary revenue generator is a for-profit business whose profitability is driven by increasing customer satisfaction and controlling variable payroll expenses.

So we measure customer satisfaction levels religiously. If we made more people happy this month, our revenue is likely to increase next month.

For our key expense KPI, we chose a “% of sales” for part-time labor that is efficient and we manage to that number.

So we know if we rated over 91% in customer satisfaction and managed temporary labor to 5% of sales and during any period, our profit (the ultimate goal, since profit funds our foundation) is likely to improve in the upcoming quarters.

In our non-profit work we’ve decided that the best ways to measure our effectiveness are 1) scale and 2) leverage. That is, 1) how many people did we help, and 2) how much time and money was invested to achieve the desired outcome? Our ultimate goal, and therefore what we measure, is to eventually achieve a 1:50 leverage ratio, meaning, a $10,000 investment results in $500,000 in social and/or economic impact.

Our non-profit measures still need more work but we’ve improved a lot in 2012. So back to work we go.

Peace,
Tim