Not-for-Profit Notebook

Practical insight and analysis on the accounting, audit and tax issues impacting not-for-profit organizations.

Beyond the Bottom Line: The Power of Outcome Measures

A U.S. charity recently made the news when it was accused of reporting an inaccurately high percentage of every donated dollar that went to program services. The media outlet that uncovered the discrepancy looked beyond that claim, though, to scrutinize the organization’s outcomes — a strong sign of the growing importance of outcome measurement. Savvy stakeholders, as well as savvy nonprofits, realize that outcomes can convey a more complete picture of an organization’s performance than figures pulled from financial statements.


What is outcome measurement?

Outcome (or performance) measurement is essentially a method of determining the impact of a program or activity. Unlike traditional measures, such as number of clients served or the amount of donations received, outcome measures allow an organization to assess whether a program is achieving its intended results. An “outcome” is generally described as a specific desirable result or quality of a nonprofit’s services.

Outcome measures should gauge the level of accomplishment of a program goal in terms of changes in the lives of individuals, families or the community at large. For example:

  • A program designed to teach reading to adults may use the literacy rate for the area served as an outcome measure, and
  • An organization whose mission is to help teens stay in school by providing a supportive after-school environment with tutors and supervised activities might look at changes in the dropout rate, graduation rate or similar outcomes.

Bear in mind, though, that outcome measurement won’t prove that the results — good or bad — are due solely to your efforts.

An outcome measurement program will require an organization to identify appropriate outcomes and indicators of those outcomes. It also will involve the collection of data relevant to the indicators (for example, by surveys or interviews of clients, program dropouts and their family members) and analysis of that data.

The not-for-profit should release regular user-friendly reports of its findings to stakeholders. And, of course, the organization must take appropriate action based on the findings.

Why track outcomes?

Some nonprofits may have no choice when it comes to outcome measurement — grant makers or other stakeholders might require it. But even organizations free of such demands should consider engaging in the process in light of its many benefits.

Outcome measurement can act as a check that the nonprofit is successful at reinforcing the mission and goals for board members, staff and volunteers. Measuring and reporting outcomes can take the focus away from how resources are being allocated, such as the percentage of funds spent on “program related activities.” Achieving sustainable success may include investing in such non-program-related activities as training, leadership development and strengthening internal controls, all of which improve outcomes.

The results of outcome measurement can be shared with other existing and potential stakeholders to demonstrate the impact of the organization’s programs and activities and, in turn, support marketing and fundraising efforts. The results also can prove helpful with short- and long-term planning. It makes it easier for the not-for-profit to identify effective programs and activities, as well as those in need of improvement.

Are there any caveats?

Yes. For example, outcomes need to be measured on an ongoing basis. Rather than examining client or other conditions only shortly after the completion of service, a nonprofit also should return to evaluate the conditions at some point down the road. Have the results eroded over time?

Additionally, not every important outcome will be immediately measurable. Some outcomes take years or longer to materialize. In such cases, a nonprofit might be able to identify milestones to measure progress against as time goes by. So-called “soft” outcomes — for example, stronger relationships among community members — can be difficult or impossible to measure but still merit regular consideration.

Finally, while outcome measurement can be helpful for planning, organizations should remember that it’s backward-looking. Budgeting, policymaking and other long-range planning decisions, on the other hand, are about the future, and conditions might be different then.

It’s a process

While different organizations will take different approaches to outcome measurement, every nonprofit can expect some stumbles along the way. But nothing is written in stone — the process can be adjusted as necessary. The important thing is to make outcome measurement a regular, ongoing activity that reflects the organization’s mission-driven priorities.

Sidebar: What about smaller nonprofits?

Outcome measurement isn’t a good idea just for larger, more sophisticated organizations — in fact, it might be even more important for smaller nonprofits with fewer resources. Organizations that need to make every dollar and staff or volunteer hour count can use outcome measurement to determine which programs and efforts truly work and then either eliminate or strive to improve those that don’t, rather than continuing to throw money down the drain.

Moreover, smaller not-for-profits can’t afford to stick with traditional metrics such as overhead ratios while larger organizations move on to outcome measurement. Like it or not, those organizations tend to set the trends — as larger nonprofits increasingly make available their outcome measures, grant makers, social investors and individual donors will increasingly expect to see such measures before they pull out their wallets. Smaller organizations that fail to adopt outcome measurement risk being left behind when it comes to funding support.