An introduction to balanced scorecards for nonprofits

A group of local educators from one my community’s largest public school systems recently invested a portion of their valuable summer time off in attending a week of leadership training hosted by Harvard University. One area of focus centered around the concept of balanced scorecards.

The research into the use of balanced scorecards leads me to the work of Robert S. Kaplan entitled Strategic Performance Measurement and Management in Nonprofit Organizations.

Kaplan’s article gives an overview of the four main elements of a proper balanced scorecard. When combined, they allow virtually all nonprofits to move away from a set of financial objectives only and into a more diversified way to measure and monitor other key areas.

The most important net result is being able to gauge how effective and efficient they are in meeting the needs of all constituencies. This would of course include the measurement of their success in achieving the overall organization mission and its related objectives. This is truly needed by a large number of nonprofit organizations!

Here is a quick run-down of the four main elements of proper balanced scorecards:

1. Financial perspective

This perspective illustrates through the following what success is to those interested and involved with financial aspects of the organization:

• Objectives
• Measures
• Targets
• Initiatives

Organizations implementing this perspective will have a few key objectives with the appropriate measures, targets and initiatives. Keep in mind some higher-level financial perspectives such as Return on Investment and Return on Assets.

The objective of the balanced scorecard is to still know these financial items are important. They are just not the only focus…

2. Internal perspective

The same four areas listed above in “a” through “d” will apply to this and the other two perspectives. The goal of the internal perspective is to satisfy mission recipients (nonprofit customers), funders, volunteers and staff.

This allows objectives beyond the normal financial results.  Is our mission being achieved? Are others both internal and external-benefiting? What is the extent of their benefit?

This key perspective will probably have the most explosion in the growth of new tools and systems to measure outcomes for nonprofit organizations.

3. Learning and growth

This is not the typical organizational growth metrics. Here the organization outlines learning and growth as it applies to its full team of staff, volunteers, board, vendors, etc.

Improvement is the key result of the focus on objectives around learning. Measuring this takes additional effort since this is not the norm at most nonprofits.

Insights should be gained, which can be used in the other three perspectives.

This one perspective may have the largest impact on any organization’s internal team. This is reflected in such areas as happiness, satisfaction, innovation and retention.

4. Constituent perspective

How do we improve our relationships with constituents, as well as retain those relationships over the long term are two of the common areas of focus.

Some common areas to measure include:

• Donor Retention
• Dollar Retention
• Donor Acquisition Costs
• Donor Satisfaction
• Other Constituent Satisfaction

When used properly, the full picture of what is happening at any charity emerges. I can see why the local school group was so excited!

Is your organization using some form of a Balanced Scorecard? Let us know how it’s going in the comments below!