Accountability for performance measurement has become an important and urgent subject for nonprofit organizations as they encounter increasing competition from other agencies who are competing for scarce funding. In this article, we will take a deeper look into setting up and tracking accounting performance.
A performance measurement is a numeric analysis that indicates how well an organization is achieving its objectives. These measurements can be used to examine the performance of all aspects of a business, including the accounting, marketing, materials management, and more.
Set a primary financial goal and applicable KPI’s
First, nonprofits need to set a primary goal compared to its previous year. Achieving this goal requires implementing strategies and action plans. Key performance indicators, or KPIs, are ways to measure progress toward the implementation of the strategies and the success of each strategy. Nonprofits financial strategies can be categorized into two key areas: revenue/ donation growth and cost efficiency.
During the annual goal-setting process, nonprofits should identify areas of the company’s operations that need improvement and develop strategies to cause these improvements to happen. For example, if a primary goal for a nonprofit is to increase revenue by 10%, the KPI must be measurable and applicable to that goal. This may include increasing fundraising efforts through a targeted marketing campaign or increasing grant writing efforts and applications to funding opportunities.
If the primary goal is to improve cost savings by 10%, the KPI may include increasing in-kind donations to offset actual costs incurred by the organization or increasing training to decrease operational errors. Now, determine how to measure whether the intended improvements were realized.
Decide as an organization how often these KPIs should be measured and weighted. Perhaps some should be measured monthly but reported to the management team and the Board on a quarterly basis. Ideally, the organization measures and reports performance on all functions of the business to give insight to the efficiency of the entire operation. Below are several examples of numeric ways to measure accounting performance goals.
- # Days to close the books and sign off the month
- # Days to close the books and sign off the year
- # Days to process invoices
- # Time to process transaction /payment
- # Payroll processing time
- # Days in accounts receivable
- % Invoices accuracy
- % Accuracy of transactions /payments
- # Factual errors identified in reports
- # Errors reported by outside auditors
- % Audit recommendations implemented
- % Transaction items requiring reconciliation
- % Collection rate of outstanding pledges
- # Internal complaints received
- # Internal customer satisfaction index with accounting services
- % Tasks finalized on time
- % Processes optimized
- # Accounting employees to FTEs ratio
- # Improvement ideas coming from accounting employees
Analyze KPI’s and apply what you’ve learned
After monitoring and reporting KPI’s, it’s now the responsibility of management to celebrate the wins and create process improvements for those that fall below the acceptable KPI’s.
Again, refer to the improvements identified in the annual goal setting process. Measure as often as possible and reconcile the KPI’s against the primary financial goal. Monitor and note the inputs (numbers that make up the KPI’s) in relation to the outcomes. KPIs are meaningless if the valuable information gained is not used to drive decisions and improve operations.
Director of Business Development