Benchmarking Helps Not-for-Profits Achieve Greater Impact

When I was first introduced to the not-for-profit world, I knew there would be a steep learning curve. I read everything I could find on nonprofit finance, but it wasn’t until I got involved in a networking group of peer organizations that I felt totally at ease in my new role. When a peer recommended that I participate in a benchmarking study, I had no idea what to expect. It turned out that the experience was very valuable. The goal of the project was to explore ways to provide apples-to-apples comparisons and trending reports on key data. The overall lesson was that by comparing operating data and identifying areas where relative performance can be improved, we can make our organizations stronger.

Our group’s first attempt at providing data in a comparable measure was difficult. Fortunately, we had the advantage of meeting face-to-face to explain anomalies in the data and discuss the qualitative aspects behind it. A decade later, our results have been refined for the benefit of everyone in the group and our respective organizations.

I frequently speak on the topic of benchmarking, and folks ask, “How do you get started?” Often, they do not realize that benchmarking is quite simple. It can typically be performed in six steps:

Why – Frame why you are undertaking a benchmarking project.

What – Define what type of benchmarking study is needed to meet your objectives.

Who — Gather individuals who need to be involved and organizations with which to compare your organization.

Collect Data – Identify and collect the relevant data. More on this below.

Analyze – Crunch the numbers and analyze the results. Discuss lessons learned.

Repeat – Benchmarking is most effective when it’s part of an ongoing effort of continuous learning and improvement. Most organizations will end up fine-tuning their objectives, leading them back to step 1 to repeat the process.

Now, let’s talk about the data. Sometimes accountants are surprised to discover that the juiciest data can’t simply be gleaned from their organization’s financial statements. So what, then, is typically benchmarked? Well, of course it depends on your objectives (see steps 1 and 2 above), but here are some examples:

Current operating reserves

Investment allocations and returns for prior periods

Breakdowns of philanthropic revenue sources

Donor-dependency (operational surplus subtracted from donations)

Percent of planned gift maturities that are used for operations vs. quasi endowments

Percent of donations left after subtracting the cost to get them

Percent of expenses directly used in programs vs. operations and fundraising

Volunteer retention and recruitment stats

Number of participants or beneficiaries served

Volume of program activities initiated and successfully accomplished

What makes benchmarking especially challenging in some not-for-profits is that social impacts and constituents’ benefits can be more difficult to measure than purely financial results, because they are often intangible. That’s why participation in peer-to-peer networking groups is so beneficial. No matter what your not-for-profit does –education, advocacy, social justice, or [insert your good cause here] – there is a peer networking group that exists for you, so go find your tribe.

Through conversations with peers, not only will you identify best practices, you will get information by direct observation rather than inference. Benchmarking is a byproduct of the value of relationships. Through peer-to-peer learning, you will find out what actually works! The data is extremely useful, but there’s even greater value that comes from discussions on the qualitative aspects – basically, comparing the data and then learning from each other. Ultimately, this shared information enables us to make a difference in our workplaces, in our communities, and for those who depend on us to achieve our vital missions.

Want to learn more about benchmarking? Check out this webcast that is coming up on Wednesday, April 20. It is being hosted by the AICPA’s Not-for-Profit Section.

Bob Mims, CPA, CGMA, Controller and Director of Investments, Ducks Unlimited Inc. Bob serves on an Environmental Not-for-Profit Roundtable and frequently presents on the topic of strategic planning and business plan development. He is among the many speakers presenting at the upcoming AICPA Not-for-Profit Industry Conference. Follow him on Twitter @bobmims.

Data analysis image courtesy of Shutterstock