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© 2014 SAGE Publications, Inc. Chapter 6: Ensuring Accountability and Measuring Performance
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© 2014 SAGE Publications, Inc.
Theories Explaining the Nonprofit Theories Explaining the Nonprofit Sector Sector
• Failure Theory • Market and Government Failure • Gap Fillers • Supply-Side Theories • Altruism and Giving
© 2014 SAGE Publications, Inc.
Theory of Commons Theory of Commons Public Good versus Common Good? Question on Social Return on Investment.Dual bottom line. Do we need our own theory?
© 2014 SAGE Publications, Inc.
Chapter 6: Ensuring Chapter 6: Ensuring Accountability and Accountability and Measuring PerformanceMeasuring Performance
© 2014 SAGE Publications, Inc.
Defining AccountabilityDefining Accountability
• Accountability -- taking responsibility for an individual’s or organization’s actions• Not doing things that are wrong (e.g., following
the law)• Doing the right things (e.g., following best
practices)• Demonstrating effectiveness (e.g., measuring
impact on organization’s mission)• Good student metaphor• Following rules and meeting basic requirements• Engaging in exemplary student behavior• Demonstrating understanding of course material
© 2014 SAGE Publications, Inc.
Mechanisms for AccountabilityMechanisms for Accountability
1. Requirements of Law
2. Self-Regulation
3. Transparency
4. Charity Watchdogs
© 2014 SAGE Publications, Inc.
Requirements of LawRequirements of Law
• Sarbanes-Oxley Act• Adherence to “best practices”• Ethical behavior
• Pension Protection Act of 2006• Includes changes regarding charitable giving
and publishing the Form 990-T with regard to unrelated business income
• State laws – State Attorney General• IRS regulation – Form 990
© 2014 SAGE Publications, Inc.
Self-RegulationSelf-Regulation
• Panel on the Nonprofit Sector (Independent Sector, 2005)• Recommendations that reflect Sarbanes-Oxley
included 33 principles for good governance and ethical conduct. In the areas of:• Legal compliance and public disclosure• Effective governance• Strong financial oversight• Responsible fund-raising
• Standards and accreditation• Long history in educational and health care institutions• Relatively recent concept in the broader nonprofit
sector
© 2014 SAGE Publications, Inc.
TransparencyTransparency
Many nonprofits are motivated to provide accountability by public scrutiny. Charity watchdogs:•Proactively examine nonprofit organizations, applying their own standards•Complete their evaluations with or without the cooperation of nonprofit organizations•Can offer a type of certification or assurance that a nonprofit meets their established criteria for ethical operation
© 2014 SAGE Publications, Inc.
Charity WatchdogsCharity WatchdogsBetter Business Bureau Wise Giving Alliancewww.bbb.org/us/Wise-Giving
GuideStarwww.guidestar.org
American Institute of Philanthropywww.charitywatch.org
Charity Navigatorwww.charitynavigator.org
© 2014 SAGE Publications, Inc.
The Overhead Myth The Overhead Myth http://overheadmyth.com/
http://overheadmyth.com/nonprofit-emaciation/
© 2014 SAGE Publications, Inc.
Measuring Performance: IntroductionMeasuring Performance: Introduction
• Key questions• How do we ensure that an organization is
effective in achieving its mission?• How do we define and measure an
organization’s impact?• Key terms and distinctions• Organizational performance• Effectiveness versus efficiency• Organizational versus program effectiveness
© 2014 SAGE Publications, Inc.
Measuring Performance: StrategiesMeasuring Performance: Strategies
1. Financial ratios• Ratios most commonly used in evaluations• Cost of fund-raising• Percentage of overhead expenditures
• Charity Navigator
2. Measuring against peers• Benchmarking -- comparisons among
organizations• Statistical benchmarking• Corporate benchmarking
© 2014 SAGE Publications, Inc.
Measuring Performance: StrategiesMeasuring Performance: Strategies
3. Outcomes• Inputs, activities, outputs, and outcomes• Logic models and causal relationships
4. Common indicators• Identifying a common set of outcomes and
indicators for all nonprofit organizations• Urban Institute and the Center for What
Works
© 2014 SAGE Publications, Inc.
Measuring Performance: StrategiesMeasuring Performance: Strategies
5. Balanced scorecard (Kaplan and Norton, 1992)• Originally developed for use in the for-profit sector• Combines financial data with other considerations• Four perspectives -- financial, customer or client,
internal business, innovation and learning
6. Dashboard (Paton, 2003)• Developed as a balanced scorecard specifically
designed for nonprofits• Five perspectives -- current results, underlying
performance, risks, assets and capabilities, change projects
© 2014 SAGE Publications, Inc.
Measuring Performance: StrategiesMeasuring Performance: Strategies
7. Social return on investment (SROI)• Monetizes the social value created by nonprofits• Methodology evolved from cost–benefit analysis
8. Blended value• Builds on concept of social return on investment• Three measures -- economic value, social value,
and environmental value• Attempt to define common measures of
performance for organizations across all sectors
© 2014 SAGE Publications, Inc.
Debate over Performance Debate over Performance MeasurementMeasurement
• Need for performance measurement• Management inherently involves the strategic
allocation of resources to achieve and improve results
• Lacking information about performance means we cannot be certain that an organization is achieving its mission
• Concerns about performance management• Lack of universally-acceptable standards and
methods of measuring organizational performance• Amount of time and effort devoted to measuring
effectiveness takes away from other activities• Risk of developing “disconnected managerialism"
(Paton, 2003)