In Brief

Key performance indicators (KPI), long familiar to corporate managers, are increasingly being used by financial managers at notfor-profit organizations to measure the effectiveness of an entity’s operations. Fundraising will always be a challenge, and thus notfor-profit managers will always need to maximize their available resources. The authors provide background information and processes for developing task-specific KPIs that present clear and relevant information for stakeholders.

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Well-managed nonprofits are constantly looking for ways to become more efficient, utilize resources better, and make scarce funding go further. One way to gauge a not-for-profit organization’s efficacy is by comparing it to similar organizations, as well as to the organization’s own history. Ratio analysis, horizontal analysis, and vertical analysis are a few of the methods familiar to most CPAs. Since the basic information that serves as the foundation for the various analyses comes from the financial statements, these metrics are available to external users as well as internal users.

Key performance indicators (KPI) are task-specific metrics designed to synthesize important operating indicators into a convenient set of management tools. KPIs are often grouped on the desktop of a single computer screen to form the basis of a dashboard: the goal is to have a variety of important information at a manager’s fingertips. This article illustrates a process for developing and implementing KPIs that will make a meaningful contribution to a not-for-profit organization’s operations.

Developing KPIs

There is a wealth of information available on generic KPIs. A good place to start when developing entity-specific KPIs is with an understanding of the user perspective. There are many stakeholder groups with a need to analyze an entity. Because each stakeholder group will view and analyze the nonprofit from a different perspective, it makes sense that each group will use a different set of KPIs. Such groups include the board, management, staff, customers, vendors, donors, lenders, competitors, auditors, regulators, and watchdog organizations.

To illustrate, take as an example the fundraising function. Developing a KPI regarding the efficiency of an organization’s fundraising depends on which stakeholder group will be viewing it. If the initial group of interested stakeholders comprises the board, management, staff, and donors, each group will likely have a different focus:

  • The board might be interested in how much the organization raised versus the expectation for the period.
  • Management might be interested in the size of the average donation.
  • Staff might be interested in how much was raised per full-time equivalent employee.
  • Donors might be interested in how much their donation represents as a percentage of the total amount raised.

Exhibit 1 shows a matrix displaying these focuses that demonstrates breadth; each KPI has a similar measurement goal, with variations depending on the perspective. A similar matrix can be developed for each needed metric; for many, there will be several numerators and denominators that can be combined in different ways to produce KPIs that measure different elements of efficiency.

Exhibit 1

Sample KPI Matrix—Breadth

Board; Management; Staff; Donors Numerator; Raised to date; Raised to date; Raised to date; Donation amount Denominator; Total to be raised; Number of donations; FTE; Total raised KPI; % of total raised; Average donation size; Amount raised per FTE; Proportion of total represented by donation FTE =Full Time Equivalent KPI =Key Performance Indicator

Depth can also be displayed by taking one perspective and developing more than one metric. Multiple measures of similar attributes provide a more robust picture. Staying with fundraising as the metric and using the perspective of management, more KPIs can be developed, such as the following:

  • The percentage raised toward this year’s goal (Raised to date/Budgeted fundraising)
  • The percentage increase or decrease compared to last year (Raised to date/Fundraising total last year)
  • The relative importance of fundraising to total revenue (Raised to date/Total revenue this year)
  • The expected importance of fundraising to this year’s budget (Budgeted fundraising/Total revenue)

Exhibit 2 places the variables that would be needed to complete these KPIs into the same matrix format. As before, the numerators and denominators can be combined in a variety of ways to produce the identified KPIs, as well as others. The benefit of the matrix is its ability to define the information needed to produce a multitude of performance indicators. Seeing the variety of numerators and denominators that have been identified can also lead to the development of new KPIs without needing to collect additional data. Note also that a variable can be both a numerator and a denominator.

Exhibit 2

Sample KPI Matrix—Depth

Management Numerator; Raised to date Budgeted fundraising Denominator; Budgeted fundraising Fundraising total last year Budgeted fundraising last year Total revenue Total budgeted revenue

The KPIs can also be viewed year-by-year to gauge trends, as shown in Exhibit 3.

Exhibit 3

Sample KPI Matrix—Year-to-Year

2018; 2017; 2016 Average donation; Total raised/Number of donors Total raised/Number of donors; Total raised/Number of donors Importance of fundraising—budgeted; Total fundraising budgeted/Total revenue budgeted; Total fundraising budgeted/Total revenue budgeted; Total fundraising budgeted/Total revenue budgeted Importance of fundraising—actual; Total raised/Total revenue; Total raised/Total revenue; Total raised/Total revenue Are we on track with fundraising?; Total fundraising to date/Total fundraising budgeted; Total fundraising to date/Total fundraising budgeted; Total fundraising to date/Total fundraising budgeted

New Disclosures Lead to New KPIs

New financial disclosures, whether voluntary and initiated by the organization or involuntary and based on a new accounting standard, offer the opportunity to use this new data to develop new KPIs. Two developments that demonstrate a need for new KPIs are a recent FASB standard, Accounting Standards Update (ASU) 2016-14, Not-for-Profit Entities (Topic 958): Presentation of Financial Statements of Not-for-Profit Entities, which requires that all nonprofit organizations prepare a statement of functional expenses, and the growing interest in sustainability reporting.

The statement of functional expenses will not be new for some nonprofits (e.g., those classified as voluntary health and welfare organizations), nor for those that file Form 990, which requires a similar breakdown of expenses in Part IX. For other organizations, such as private foundations, the statement of functional expenses may require the separation of program expenses from nonprogram expenses for the first time (in publicly available financial documents). The 990-PF filed by private foundations does not have a disclosure similar to Part IX on the 990; this distinction presents an opportunity for the public and other interested parties to create ratios and other measures of performance and efficiency that they previously could not. In addition, organizations may benefit from an internal analysis of these ratios to anticipate how the public may now view them. Some of these ratios may also rise to the level of becoming a key performance indicator for use within the organization.

Exhibit 4 presents an illustrative statement of functional expenses from ASU 2016-14 (page 66, ASC 958-205-55-21). Given the popularity of administrative costs ratio analysis, the ratio of supporting activities expenses as a percentage of total expenses is sure to be a metric commonly calculated by both external and internal stakeholders. In this case, that ratio is 13.1%.

Exhibit 4

Sample Statement of Functional Expense

Program Activities; Supporting Activities A; B; C; Programs Subtotal; Management and General; Fundraising; Supporting Subtotal; Total Expenses Salaries and benefits; $7,400; $3,900; $1,725; $13,025; $1,130; $960; $2,090; $15,115 Grants to other organizations; 2,075; 750; 1,925; 4,750; 4,750 Supplies and travel; 890; 1,013; 499; 2,402; 213; 540; 753; 3,155 Services and professional fees; 160; 1,490; 600; 2,250; 200; 390; 590; 2,840 Office and occupancy; 1,160; 600; 450; 2,210; 218; 100; 318; 2,528 Depreciation; 1,440; 800; 570; 2,810; 250; 140; 390; 3,200 Interest; 171; 96; 68; 335; 27; 20; 47; 382 Total expenses; $13,296; $8,649; $5,837; $27,782; $2,038; $2,150; $4,188; $31,970

Another popular ratio will be the “program activities” subtotal as a percentage of total expenses—in this case, 86.9%. A key difference between Form 990’s functional expense breakdown and the one now required by ASU 2016-14 is that FASB includes the ability to differentiate between different program areas, represented by programs A, B, and C. This differentiation provides an opportunity for interested parties to analyze program expense within the context of separate programmatic strategies.

For example, some program areas may be, by the nature of the work, more people-heavy, and others may require more travel expense. Over time, trends within individual programmatic areas can be tracked, which may present a more productive analysis than comparing across program areas that may have different requirements to carry out distinct types of effort.

New financial disclosures, whether voluntary or involuntary, offer the opportunity to use this new data to develop new KPIs.

The KPIs discussed so far have been developed based on knowing what information is wanted and using the inputs to provide that information. Another approach is to look at the available information and form the KPIs by considering what can be calculated. Taking apart the illustrative statement of functional expenses in Exhibit 4 provides this list of the variables:

  • Total expenses—Program A/B/C
  • Total program expenses
  • Management and general expenses
  • Fundraising expenses
  • Total supporting expenses
  • Total expenses
  • Salaries and benefits—Program A/B/C
  • Salaries and benefits—Total programs
  • Salaries and benefits—Management and general/Fundraising/Supporting
  • Grants to other organizations—Program A/B/C
  • Grants to other organizations—Total programs
  • Supplies and travel—Program A/B/C
  • Supplies and travel—Total programs
  • Supplies and travel—Management and general/Fundraising/Supporting
  • Services and professional fees—Program A/B/C
  • Services and professional fees—Total programs
  • Services and professional fees—Management and general/Fundraising/Supporting
  • Office and occupancy—Program A/B/C
  • Office and occupancy—Total programs
  • Office and occupancy—Management and general/Fundraising/Supporting
  • Depreciation—Program A/B/C
  • Depreciation—Management and general/Fundraising/Supporting
  • Interest—Program A/B/C
  • Interest—Total programs
  • Interest—Management and general/Fundraising/Supporting

There are various ways to develop KPIs from the list of the available variables. One way is to start with the most summarized information and work toward more granular information; this would provide the KPIs shown in Exhibit 5.

Exhibit 5

KPIs Developed from Statement of Functional Expenses

KPI; Calculation Expenses as a percentage of the total; Programs/Total expenses Supporting/Total expenses Each cost center as a percentage of the total; Program A/Total expenses Program B/Total expenses Program C/Total expenses Management and general/Total expenses Fundraising/Total expenses Each program as a percentage of total program expenses; Program A/Program expenses Program B/Program expenses Program C/Program expenses Salaries and benefits as a percentage of total expenses; Total salaries and benefits/Total expenses Salaries and benefits—Program A/Total program A expenses Salaries and benefits—Program B/Total program B expenses Salaries and benefits—Program C/Total program C expenses Salaries and benefits—Management and general/Total management and general expenses Salaries and benefits—Fundraising/Total Fundraising expenses Salaries and benefits from each cost center as a percentage of total salaries and benefits; Salaries and benefits—Program A/Total salaries and benefits Salaries and benefits—Program B/Total salaries and benefits Salaries and benefits—Program C/Total salaries and benefits Salaries and benefits—Management and general/Total salaries and benefits Salaries and benefits—Fundraising/Total salaries and benefits

Another Approach to KPI Development: Sustainability Reporting

Another development that provides a rich environment for KPIs is the growing interest in sustainability reporting. Accounting in the sustainability context offers different challenges and opportunities; instead of publicly available financial data (as with the statement of functional expenses), the sustainability data used tends to be nonfinancial and internal to the organization. Instead of the public, which may independently create its own KPIs that may reflect in certain ways upon the organization, the intended user of sustainable accounting data is often, at least initially, the organization itself, as it aims to understand and measure its longer-term viability in, and impact on, a changing world.

An organization’s viability and impact to a changing world are also the concerns of two prominent organizations dedicated to sustainability accounting: the Sustainability Accounting Standards Board (SASB) and the Global Reporting Initiative (GRI). GRI CEO Tim Mohin summarizes them by saying, “GRI looks at the company’s impacts on the world, and the SASB looks at the world’s impacts on the company” (“Collaboration among Reporting Frame works: The Future of Sustainability Reporting,” GRI website, Jan. 10, 2018,

A company’s impact can be difficult to quantify, and moreover can be vastly different from one organization to the next. In actuality, what sustainability accounting means is very different depending on the operating environment of the organization. Measurements of sustainability depend upon the organization’s mission and the realm within which that mission is to be accomplished. Three of the common groupings used are economic, social, and impact; there are multiple layers within each. Below are examples of KPIs drawn from these larger groupings. They represent different areas, but each is important.

Economic: Enterprise Risk Management

An organization needs to use its resources efficiently in order to ensure long-term sustainability, and this includes mitigating risks. Risks at the enterprise level come from the inside as well as the outside. One of the top-of-mind issues for organizations is cyber-risk, and KPIs can be used as a tool to track elements of the organization’s risk management program. If the IT department performs (or hires consultants to perform) phishing or penetration tests, it can use KPIs to track the number of staff sent phishing emails at each test date and the number of employees who clicked on the phishing link. They can track these attempts over time to ensure that their internal training has been happening often enough.

KPI tracking might look like the following:

Phishing Test

January Attempts; Successes C-Suite; 35; 7 Senior staff; 60; 10 Middle staff; 78; 5 Junior staff; 233; 30 February Attempts; Successes C-Suite; 29; 4 Senior staff; 65; 12 Middle staff; 82; 12 Junior staff; 235; 25

Social: Diversity, Equity, and Inclusion

Many nonprofits have initiatives to develop a more diverse group of board members and managers (e.g., promoting women into top management). What the initiative will specifically hope to achieve will differ across entities, but no matter the focus, the organization has a goal in mind, and this goal can be tracked with a KPI. While perhaps not as dynamic nor easily graphed in real time, a quarterly or annual KPI can be useful in show the nonprofit how well it is attaining its goal. Exhibit 6 shows a diversity KPI matrix that focuses on gender, race, and ethnicity.

Exhibit 6

KPI Reporting for Diversity

Board; C-Suite; Middle Mgmt; Program Services; Administration; Fundraising Gender Identity A; 10%; 5%; 15%; 75%; 65%; 50% B; 70%; 75%; 80%; 25%; 35%; 50% C; 20%; 20%; 5%; 0%; 0%; 0% Race A; 30%; 10%; 40%; 20%; 35%; 30% B; 20%; 40%; 50%; 40%; 20%; 30% C; 50%; 50%; 10%; 40%; 45%; 40% Ethnicity A; 10%; 5%; 20%; 5%; 10%; 25% B; 30%; 25%; 25%; 20%; 10%; 20% C; 20%; 40%; 20%; 45%; 40%; 30% D; 40%; 30%; 35%; 30%; 40%; 25%

Impact: Organization Reach

There are many ways to measure impact, and these ways will differ between organizations based on their mission. One aspect of impact that is similar across organizations is market awareness, which can be operationalized as “communication.” For many nonprofits, the dissemination of their work, their research, and their findings are an integral component of their impact. It would therefore be valuable to have KPIs that measure this.

Most organizations today have Twitter accounts and Facebook pages; KPIs can be established tracking followers, likes, and retweets. A real-time graph can be developed for the organization that shows the number of followers. Where there are annual follower goals established, the KPI can track progress against those goals. Some organizations might also include these KPIs on their website, to share with the public.

Human service organizations regularly track the number of client contacts and patient visits. The tracking of these figures makes for a useful KPI, as seen in this hypothetical example:

  • 9,296 individual lives impacted in 2016-2017
  • 363,840 units of service provided
  • 188,834 children and their families have been impacted by our programs over the last 65 years.

If the organization budgeted a certain number of service visits (for contract monitoring or its own planning purposes) this can be incorporated into the KPI (again, the example here is hypothetical):

Budgeted Cohort; Actual; Quarter; Year Infants; 490; 500; 2,000 Children; 4,200; 5,000; 20,000 Teens; 1,120; 1,000; 4,000 Adults; 32,085; 37,500; 50,000

Another impact element that an organization can track with KPIs is the number of downloads from its website. The downloads might be annual reports, financial statements, Form 990s, or position papers on certain program initiatives. This would provide a robust measure of reach and acceptance.

The Value of KPIs

KPIs are useful tools to manage mission-critical data. They can also be used to create functioning dashboards that provide a multitude of information on one screen. As an organization uses data to better define its core mission, it gains insight about what’s most important to measure—an iterative process which can take time. Building organizational capacity to create meaningful KPIs may benefit organizations in the long term. No matter how you do it, every organization runs smoother and more efficiently when data drives its decisions and there are few better ways to utilize data then KPIs. In addition, stakeholders will increasingly expect externally facing KPIs. A formal approach to developing, using, and evaluating the information provided by KPIs will make a not-for-profit organization more efficient and better functioning because people tend to improve what they measure. KPIs also offer a standard to help in benchmarking, which provides additional data points for use in analysis of the organization’s efficiency.

Every organization runs smoother and more efficiently when data drives its decisions and there are few better ways to utilize data then KPIs.

Jeffry Haber, PhD, CPA is a professor of accounting at the LaPenta School of Business, Iona College, and the senior director, finance, at the Commonwealth Fund, New York, N.Y.
Caitlin Schryver is president of Dots Will Connect, Ithaca, N.Y.