Periodically Check Key Performance Indicators (KPIs) to Keep Them Relevant
Nonprofit organizations are doing a better job at embracing change, evolving programs, and adapting operations in response to changing conditions. However, many nonprofits are not updating their assessment tools at the same pace as they are implementing change. Organizations generally use key performance indicators (KPIs) to assess performance and monitor progress, but too often they fail to check whether these assessment tools are still relevant and meeting the needs of the Board and management.
KPIs can take many different forms with various names and purposes. They are often relied upon as benchmarks to catch people’s attention, helping them to make quick assessments of how an organization is performing in certain critical areas. Consequently, a summary of the most important KPIs will often appear prominently on an organization’s financial dashboard where different users go first to obtain financial information as we discussed in our article about the process of building financial dashboards.
For example, KPIs can include safety safeguards (monitoring operating reserves, accounts payable, number of days of cash on hand), performance indicators (average size of donations, number of registrations, average cost per attendee), and benchmark assessments (budget variances, grant funds used, spending policy rates).
The key to making sure KPIs are doing their job is to regularly assess if they are still relevant to the organization, and not just operating as holdover trend analysis tools. Use a simple survey assessment that addresses three purpose-based questions for each KPI:
Is the KPI specific?
Is the KPI measurable?
Is the KPI appropriate?
Specific is an attribute that has you consider whether a KPI is too general in nature to be meaningful. A KPI that lets you know total year-to-date revenue for a major conference is trending up is too general because it fails to provide any useful information on what circumstances are driving the change. A positive change that is driven by a timing difference (e.g., if registrations were opened six weeks earlier than last year) might be a misleading indicator of performance.
Measurable has you consider whether the assessment you want to make can be quantified. There are many ways to successfully measure and benchmark accounts payable performance. However, it is hard to measure impact from increases in spending for health, safety, and security services.
Appropriate acts as a step-back assessment to consider whether the KPI is still providing useful information. Often a KPI that was meaningful a few years ago might not be needed now. For example, an organization that had very little liquidity and cash on hand might have needed to watch the number of days of cash available. If that same organization later sold their building and realized a large infusion of cash, the old cash on hand KPI would be meaningless.
Periodically check whether your KPIs are working. Use quarterly or semi-annual survey assessments based on the three questions above with a simple “yes,” “maybe,” or “no” answer. Keep the surveys anonymous. Treat the surveys as a first step to gauge whether sentiment for relevance is changing. When you discover that users find the relevance of your organization’s KPIs slipping, that will be the time to open discussions about making changes and considering new KPIs that better track with changing needs.
Planning Tip – Make sure to obtain feedback from Board members and other volunteer leadership (committees, task forces and working groups) on your organization’s key performance indicators (KPIs). These leaders are insightful and value-added users of KPIs. Regularly survey them on the effectiveness of your organization’s KPIs and whether they find them useful in fulfilling their fiduciary roles. Ask them for ideas for new KPIs and/or how to reformat current KPIs to better fit their information needs.
Consider having all staff involved in periodic assessments of KPIs. Obtaining feedback from different levels within an organization can be eye-opening. These assessments are an excellent opportunity to get feedback from staff, helping them to feel connected with the organization’s leadership and invested in its mission and operations. While you might have senior management assess KPIs quarterly, plan to have staff assess annually and with less detail.
