For-profit companies place a great deal of weight on financial measures when evaluating their own performance (revenue, profits, etc.). That’s logical.

Their customers pay for their products and services and so financials are a pretty fair measure of their success (or lack thereof).

It doesn’t work the same way with nonprofits. Yes, revenues are important, primarily as a way to offset costs. But financial metrics are almost never the key indicator of success. 
First, because those who pay for the services of a nonprofit (donors, philanthropists) are generally not the ones receiving them. Second, because nonprofits are mission-driven; they seek to make a positive change in the world and fill gaps that market forces don’t fully address.
So, given their non-financial emphasis, nonprofits face a special challenge: What should they be measuring to be assured that the actions they take will create the changes they hope to bring about?
This question becomes even more difficult to answer when there is a significant lapse in time between actions taken and outcomes desired. For example, a nonprofit that provides support services to middle school children in the hope of improving their success in college will have a hard time gauging its impact on an annual basis over the next decade.

How Nonprofits Can Measure Success

One way that successful nonprofits deal with this quandary is to think carefully about the many cause-and-effect links along the way. The process they use is called a “Theory of Change.” (It’s a “theory” because any time you are making assumptions about how one action will lead to another, there is an underlying theory at work.)
Working through this process — being clear about what you expect the cumulative cause-and-effect impact of each action to be as you move in the direction you hope — forces you to make your assumptions explicit.​
For example, I worked with an organization that used a blend of critical factors to determine if charities are making good use of their donated funds and rate them based on these evaluations. The organization believed that reviewing these evaluations would inspire prospective donors to shift their donations from lower- to higher-rated charities. Over time, the “better” charities would have more funding, be able to do better work, and society overall would benefit. Sure enough, a large percentage of doners did in fact change their donations based on what they learned.

Look for Intermediate Metrics

Intermediate metrics can help you identify whether the actions you take are likely to have the impact you expect. 
For example, FIRST (For Inspiration and Recognition of Science and Technology), founded by inventor Dean Kamen, is one of many organizations hoping to interest young people in STEM concepts so they can become science and technology leaders. FIRST created a program of robot-based competitions for kids that has all the feel of a major sporting competition.  
The events are fun and the kids clearly enjoy the process. But how does FIRST know if any of this is making a difference in the direction desired?
To find out, the organization conducted a multi-year study that tracked students who participated as well as a cohort of their peers who did not. Among other things, they found that 81% of the FIRST alums had declared a STEM major when they got to college, compared to 58% in the comparison group. 
This intermediate measure — more kids majoring in STEM studies — is consistent with the organization’s ultimate goal of developing more science and technology leaders.

You Need to be Explicit

Multi-year studies take time and can be expensive. But even if you don’t have the resources to conduct a truly scientific, longitudinal study, you can still benefit from the overall concept. It starts by being as explicit as possible about the impact you are seeking to make:

How will the audience you serve be better off in the future?
How will the specific steps you take build towards the overall impact you seek?
What measures will you use to assess the success of each step?

One example is Squashbusters, a sports-oriented nonprofit whose Theory of Change is based on closing an opportunity gap that prevents kids from lower-income backgrounds from moving up the economic ladder.
In addition to organized sports participation, the Squashbusters program provides tutoring, test prep support, and mentoring, based on the belief that all of these factors need to be addressed in order to achieve the desired impact. Some of the explicit measures they use include the percent of “graduates” who enroll in college (98% to date) and the percent who complete their Bachelor’s degrees within 6 years (70%). 
These explicit outcomes serve as proxies for the long-term impact they seek.


Making change happen can be difficult. Measuring the progress of these changes, especially in the case of nonprofits that are working to create outcomes that may not occur for many years into the future, can be especially challenging.
The Theory of Change, an approach that involves the establishment of explicit, intermediate, measurable objectives can help organizations stay on track and be assured that their investment of time, money, and people is paying off.


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