Monday, February 15, 2016

Developing Alternative Metrics of Performance

Amidst a sector-wide pushback against the ubiquitous use of “overhead” as a metric of performance, there is clearly a desire for additional means of measuring performance.  Though the release of the draft of new accounting standards was initially met with enthusiasm for its introduction of an intermediate measure of performance, this measure is best seen as providing details about whether funds received (or spent) arose from regular operations or are better viewed as transitory in nature.  That is, the new performance metric may provide better forecasting of future financial performance, but it does not address, nor was it intended to address, the need for new ways in which donors can better assess how effectively their funds are spent.

There is no doubt that pressure to measure effectiveness and impact rather than just financial efficiency will continue.  We see varied attempts at providing more measures of effectiveness outside of the accounting function, typically at the individual organization level; this will create further pressure for accounting standard setters to join the fray.  And, with the emphasis on developing comparable and auditable measures, accounting seems well-suited to develop such measures in a way that will encourage more widespread adoption.  Thus far, however, accounting standards have remained silent on the issue.

A modest first step would be to provide more detail on the types of program spending, disentangling grants and hands-on programming from awareness and public education.  Such a split is a modest change, but one that maintains the spirit of auditability that permeates accounting standards.

The next step would be to develop a systematic way of measuring outcomes that permits comparability and generates objective measures.  This is a larger leap for sure, but one that is likely to be made by someone.  Efforts by Charity Navigator, ImpactMatters, and others are worth noting in this regard.

A final step would be to develop measures not just of what was achieved but instead "value added".  This would entail a comparison of outcomes achieved by an organization to the counterfactual of what would have been achieved absent the organization's involvement.  And, for added measure, a reflection of what else could have been achieved with the resources is a key benchmark as well.  This final step is also an ambitious one, but equally critical if we are to develop ways to examine organizations that achieve the most "bang for the buck".

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