UK: For What It’s Worth

Last Updated: 17 December 2002
Article by Ian Harris

A version of this article was originally published as "How to Count Your Blessings" (outcome measurement), Charity Finance, pages 42-43, Plaza Publishing Limited (December 2001).

Ian Harris and Michael Mainelli, Directors of Z/Yen Limited examine the value of measurement the not-for-profit sector. In a sector where measurement can be especially hard and budgets can be especially tight, prioritising and ensuring that organisations get value for money from their activities are real challenges. Ian and Michael argue persuasively that not-for-profit organisations should focus on applying their information to supply evidence of their worth. Ian and Michael show that providing evidence of worth in the not-for-profit sector tends to require thoughtful application of simple information technology (IT) rather than the deployment of sophisticated IT solutions. As a result, small and medium-sized not-for-profit organisations can afford to apply these ideas and prove their worth.

High aspirations and low budgets

‘There’s something happening here. What it is ain’t exactly clear.’ Not-for-profit sector people often complain that they would like to measure their performance but it is so difficult to agree measures for their work that they don’t really measure anything. As a result, ‘it ain’t exactly clear’ whether the organisation is achieving anything or not. Further, to quote Sir Cuitous Fudge, Chief Executive of Save Our Spratts, "there are so many calls on our over-stretched resources, dear boy, that the small matter of proving whether or not the organisation is achieving its aims will have to wait. We simply don’t have the resources to do the job and do all that measurement stuff as well. We are achieving our aims, you can take my word for it."

For what it’s worth, the present authors believe that providing evidence of worth should be at or near the top of any not-for-profit organisation’s agenda. In the commercial world, companies are judged in the harsh market place of financial performance, especially if the company is public. Not-for-profit organisations, especially charities, are stewards of resources that have been provided by and for people and organisations other than the not-for-profit organisation itself. The organisation therefore, in our view, has a duty to provide evidence that those resources have been well deployed. Such evidence is not necessarily about money, but it is about the outcome of the organisation’s activities and/or the progress the organisation’s work is making towards its goals (e.g. its charitable objectives).

The table below illustrates a corporate model for shareholder value and indicates how not-for-profit sector objectives and evidence effectively follow the same principles.

Level

Corporate Term

Corporate Examples

Not-for-Profit Sector Term

Not-for-Profit Sector Examples

1

Corporate objectives

  • Shareholder returns
  • Shareholder value added

Charitable objectives

(or Organisational goals)

  • Relieving poverty in developing nations
  • Saving rare animal species

2

Valuation components (or Critical Success Factors)

  • Positive discounted cash flows
  • Profitability

Outcomes (or Critical Success Factors)

  • Ensuring that households have sufficient able-bodied people
  • Reducing demand for clothing made from rare animal fur

3

Value drivers (or Key Performance indicators)

  • Sales growth
  • Profit margins
  • Capital employed

Measures (or Key performance indicators)

  • reduced percentage of local population with AIDS
  • number of countries prohibiting rare animal fur

Where Sir Cuitous Fudge does have a point, of course, is that not-for-profit organisations tend to have high aspirations but tight resources. Further, those aspirations are often a complex portfolio of aims, which generate similarly complex information needs if you wish to provide evidence that you are meeting those aims. For this reason, it is especially important for not-for-profit organisations to:

  • set achievable objectives in their strategies;
  • prioritise possible areas of activity and/or projects;
  • find "good enough" solutions to maximise the impact of their limited resources;
  • record and measure sufficiently to prove that they are meeting the objectives they have set.

The process of prioritising activities should start the process of defining benefits and agreeing how the organisation is going to prove that it has achieved those benefits. It is similar in principle to the comparative analysis commercial organisations do when evaluating alternative projects for investment. This approach helps the resource-strapped to achieve more of their aims than they would otherwise achieve. The appraisal might not be all numbers, but the analysis requires definition and demonstrable, measurable benefits. In other words ‘what it is should be exactly clear’.

Information to provide evidence of worth

Different types of not-for-profit organisation use different types of information to prove their worth. We perceive the sector to consist of organisations that attempt to achieve one or more of the three following things:

  • service delivery to meet needs (e.g. a developing world charity providing care for orphaned children in war-torn places, or a UK charity providing care homes and day care for the elderly);
  • expanding frontiers to mitigate needs (e.g. a medical charity developing drugs which might cure and/or prevent disease, or a developing world charity adapting irrigation techniques to help meet the needs of farmers in barren places);
  • changing systems to remove or release needs (e.g. an advocacy organisation seeking to change government policies which are indirectly leading to abuse of young people in the youth justice system, or an environmental organisation seeking to protect a depleting world resource).

Examples of some types of information organisations in the above categories might use to prove their worth are shown in the table below.

Information for:

Service delivery

Expanding frontiers

Changing systems

Risk avoidance / management

Minimising adverse incidents

Minimising direct and indirect costs of failures

Reputation maintenance

Quality of life /

Volatility reduction

Maintenance of service standards

Consistency of progress in line with targets

Value of reduced volatility and/or improved quality arising from changes

Reward enhancement

Achieving outcome targets

Commercial value directly or indirectly caused

Impact of changes on communities

Larger and more complex not-for-profits often work in many of these categories and need information of many types to prove their worth. Once again prioritisation, evaluation of benefits and investment appraisal become important. For example, the initial work that led to the Children’s Society case study shown below arose from an IT strategy study in 1997. Many priorities were assessed in that study, with high priority being allocated to information relating to performance measurement of rewards arising from service delivery and changing systems.

Z/Yen is currently undertaking research into this increasingly important aspect of not-for-profit sector work, testing some of the ideas shown above and expanding on this (currently skeletal) model. We expect to report back to the sector in spring 2002. We intend to present back to the sector some simple models and tools that should help not-for-profit organisations of all shapes and sizes to provide evidence of their worth to their stakeholders. For now, let us wet your appetites with a couple of interesting examples.

Specific examples of using information to supply evidence of worth

The Children’s Society MART

The Children’s Society (The Society) is committed to tackling the root causes of problems faced by children and young people, especially those whose circumstances make them particularly vulnerable. It has an annual income of c£40M, runs about 100 social work projects and employs c1,200 staff.

The Social Work Performance Measurement and Recording Initiative (MART Initiative) was designed to equip social work projects and units with the knowledge and ability to undertake performance measurement and recording in a harmonised way. The benefits sought from MART include encouraging good practice, improving the quality of information, evaluating the effectiveness of practice and providing the ability to measure and learn from information shared between groups of project and units.

The tools designed to support the Initiative are:

  • MART: the Measurement and Recording Template, which has been developed by the Society's IT department specifically to support this work. MART is a configurable Microsoft Access database, which provides a common data structure while enabling projects/units to meet local information needs safely, securely & flexibly;
  • SMART: Several "MARTs", allowing data from several MART sites to be consolidated for reporting, comparison and shared learning.

The IT development was a fairly low-key matter, with one Society Access expert working part time on the initiative for eighteen months or so, under the supervision of Z/Yen. In the later stages, other Society staff were involved in the testing and brainstorming on improvements to the tool. The emphasis from the outset was on skills transfer to ensure that the Society would be self-sufficient once the initiative was implemented.

The rollout to over 120 projects and units is taking place between 2000 and 2002. All but 20 or so projects and units have started work on MART at the time of writing (Autumn 2001). The Society is already using knowledge obtained through this Initiative on other Society Initiatives such as planning and project management of IT projects, information models used for liaison between departments and MART potentially being used as a tool in other Society departments.

The Marine Stewardship Council – Alaskan Salmon Model

The Marine Stewardship Council (MSC)’s objectives are to bring about a sea change in oceans management by providing economic incentives for sustainable behaviour and advancing public education in the principles and practice of conservation. The MSC is now one of the leading voices in the marine conservation community. It is a global charitable organisation with its international headquarters in London.

The MSC has a refreshingly business-like approach to providing evidence of its worth. Brendan May, the MSC Chief Executive, says "business people are used to undertaking cost/benefit analysis to support their decisions and often feel uneasy when not-for-profit organisations advocate solely intangible or qualitative benefits. Of course, some not-for-profit issues are intrinsically qualitative, hard to measure and tricky to express in financial value terms. Our argument is that not-for-profits should nevertheless try their best to provide empirical evidence to back requests to the business world. This sometimes requires real imagination".

For example, Z/Yen has been working with the MSC to try and prove the tangible value of the MSC's certification scheme for sustainable fishing using the same risk/reward option theory techniques that Z/Yen uses to help industry with decision making and government lobbying. The IT required to do this type of work is very straightforward; basically spreadsheets, potentially with links to databases (although not in MSC’s case). Using historical data on fish volumes and prices has enabled us to model the Alaskan Salmon industry (five major species of salmon). Using this model, we can value the reduced market volatility that following the MSC standard should yield (using option pricing theory) and thus evaluate and measure the scheme’s worth. If our conservative assumptions are correct, the implied saving to the Alaskan Salmon industry is over $1M a year, some 50 times more than the cost of the certification ($100,000 for five years). After a few years, the predictions will be replaced with actual data on post-certification volatility. We hope that the savings will be even greater than estimated.

Double measures for everyone

The MSC is a fairly small charity. The Children’s Society is much larger, although the component projects participating in MART are small. Neither used complex IT systems for their measurement, but applied good management planning and focus to achieve good measurement practices. In both cases the specific spend on technology was low to negligible, but the thought, effort, training and skills deployment was significant. Most not-for-profit organisations can use the above and similar techniques to support service provision, development, fundraising, and campaigning work. The approaches used can be sensibly applied to large and small organisations alike.

The case studies above are both examples of the thoughtful application of simple technology to do sophisticated measurement. Contrast these approaches with the (supposedly) sophisticated deployment of technology which so often tends to bog down information projects in not-for-profit organisations. Perhaps it is fear of gargantuan information systems projects that makes the Sir Cuitous Fudges of this world quiver at the mention of measurement. Or perhaps it is a lack of focussed management through demonstrable results. We argue that it is often wise to question the case for a large deployment of technology to provide evidence of worth, but always foolish to question the case for measuring and providing evidence of worth.

In short, measurement in the not-for-profit sector can be hard, but it is not impossible. Demonstrating benefits and providing evidence of not-for-profit organisations’ worth are becoming increasingly important aspects of not-for-profit sector work. Although it can be hard work, it can be done, even on modest budgets in smaller and medium-sized not-for-profits.

Ian Harris and Michael Mainelli are Directors of Z/Yen Limited, the risk/reward management practice. Their most recent book, IT for the Not-for-Profit Sector, is published by ICSA Publishing, ISBN 1860721303. Z/Yen specialises in risk/reward management, an innovative approach to improving performance through strategy, systems, people and organisation. Z/Yen clients include blue chip companies in banking, insurance, distribution and sales/service companies as well as many not-for-profit organisations.

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