Balanced Scorecards, KPIs and Continuous Performance Essentials for NFPs
8 June 2017 at 8:05 am
There’s a need to embed the modern, “balanced scorecard” methodology into not-for-profit organisations to measure performance and set continuous improvement targets, according to Michael Court from Balanced Scorecard Australia, who offers his top essentials for success.
Not-for-profit organisations (NFPs) are becoming increasingly obliged by governments, donors, clients and the public to become more accountable and to demonstrate real ‘mission impact’.
As a result we have seen the rapid growth and acceptance of KPIs (key performance indicators) and “balanced scorecards” to measure organisational performance and to set continuous improvement targets. Unfortunately both of these tools have suffered greatly from poor application.
So how do these tools get used effectively? Just what is meant by terms such as “continuous improvement” and “managing resources more effectively”?
Clearly we don’t mean just cost-cutting. We are talking much more about using and managing the resources at our disposal in a way that will ‘maximise’ some specified desired outcomes.
There has been continual study of this area in recent times.The conclusion has been that organisations need to have a “strategic management system” that begins with a clear and agreed statement of the outcomes that the organisation is seeking to achieve (the strategic direction or purpose), how it is intended to achieve those outcomes (the strategy maps), and to also have in place a set of systematic implementation processes that are understood and supported by the employees and management.
There now seems to be a fairly widespread acceptance of the “balanced scorecard methodology” as being current best practice. However, and confusingly, different levels of understanding have emerged because of the continuing evolution of the methodology.
So what is the modern Balanced Scorecard Methodology?
Basically it is a set of annual practices which form a “strategic management system”. To be effective they need to be coordinated and driven by a member of the organisation’s senior management team, integrated into the organisation’s budgeting and management systems, and understood and supported by the organisation’s employees.
The strategic management activities (SMAs) that have come to be embraced within the modern balanced scorecard methodology are set out below.
A: THE ANNUAL STRATEGY REVIEW (most NFPs do something along these lines)
SMA1. Annual Strategic Assessments (both internal and external). These are normally carried out by planning staff (where they exist) and summarized into an annual SWOT summary. Based on the strategic assessment details, the senior leadership confirm or fine tune the organisation’s strategic direction.
SMA2. Reviewing/Redeveloping the organisation’s Strategic Framework. The senior leadership team reviews and confirms their collective understandings of the organisation’s short and medium term goals, the current customer/client value proposition, and the main focus areas for ongoing strategic development (the organisation’s main strategic themes).
B: STRATEGIC PLANNING (most NFPs have a ‘strategic plan’ or something similar which is updated each year but many are not yet familiar with applying the ‘balanced scorecard’ strategic planning methodology which facilitates the development of meaningful KPIs).
SMA3. Reviewing/redeveloping the core strategic objectives within each of the main Strategic Focus Areas – usually undertaken by cross-functional teams led by members of the Leadership Team and co-ordinated at senior level.
SMA4. Reviewing/developing ‘Strategy Maps’ for the organisation – defining what are the organisation’s main drivers of performance within scorecard ‘perspectives’and how they drive the outcomes that the organisation is seeking to achieve.
C: STRATEGY EXECUTION (usually not understood very well and not done systematically by most NFPs because of the lack of established strategy implementation processes).
SMA5. Reviewing/developing/refining of organisation-wide performance measures (KPIs) Carefully defining and communicating to staff performance measures and targets that are specifically linked to the achievement of the core strategic objectives.
Subsequent strategic management activities are as follows:
- SMA6. Cascading strategy execution to the organisation’s sub-units.
- SMA7. Development and management of performance improvement projects
- SMA8: Reporting and managing performance
- SMA9. Managing the Strategy Development and Execution processes.
Balanced Scorecard Australia (BSA) has recently worked successfully with a number of NFPs to begin embedding the modern balanced scorecard methodology in their organisations.
The tailored workshops and training allowed the senior staff of NFPs to develop and begin implementing strategic management systems that suited their organisations and addressed current challenges. It is important that such management systems are developed to fit the organisational culture and to match the available resources.
The staff involved benefit greatly from good training in how to develop such systems.
BSA runs two day introductory training courses in all Australian capital cities every year and is happy to talk with any NFP seeking further information.