How do the best nonprofit organizations define 'success'? What are the best practices for measuring financial and operational effectiveness?
The metrics that provide the clearest and most meaningful picture of a nonprofit organization’s success aren’t the typical financial performance metrics utilized by for-profit entities. While financial measures and stewardship are important to donors and funders, real-time metrics that show the impact and mission success are powerful enablers of sustainable results.
As virtually any nonprofit executive can attest, it can be challenging to track, measure, and report on performance and impact – especially as the organization grows, programs expand, and funding streams increase.
Nonprofits must demonstrate they’ve been effective stewards of funds and that those funds are reaching beneficiaries and achieving the desired social impact. As a result, many forward-looking nonprofit and NGO finance leaders are transitioning from a strictly financial view to a much more useful perspective: the organization’s social impact, as measured by return on mission (ROM).
ROM measures the social impact of financial investments and the nonprofit’s ability to achieve its mission by connecting specific spending decisions to program outcomes. For donors, ROM represents a long-desired way to ensure their funds are used properly and managed effectively. What’s more, the ROM discipline not only demonstrates the impact of spending decisions on the nonprofit’s mission, it can also guide internal investment decisions as funding grows, helping the organization allocate every incremental dollar to the area where it will have the greatest impact to benefit the mission.
How Room to Read delivers ROM
One of our customers – Room to Read – has been a pioneer of the ROM discipline. This global nonprofit is transforming the lives of millions of children worldwide through its focus on children’s literacy and gender equality through education. Room to Read’s innovative model focuses on deep, systemic change within schools in low-income communities, helping millions of children in 16 countries during the two time periods that are most critical in a child’s schooling: early primary school for literacy acquisition and secondary school for girls’ education.
With more than $50 million in annual contributions, the organization deployed Sage Intacct to transform its financial infrastructure, enabling an expansion of its outreach capabilities. After deployment, Room to Read completely rebuilt its general ledger, revamped its accounting practices, streamlined monthly closes, reduced costs, and increased staff productivity.
More importantly, Room to Read tied its financial data from Sage Intacct to operational data from Salesforce – from unlocking new insights into specific projects, grants, donations, and locations to showing new measures of children’s literacy and reading skills.
Now, when a donor funds a multiyear literacy program across multiple schools, Room to Read accurately reports specific information about the projects for any of its thousands of libraries. It tracks all expenses, from training teachers to supplying materials to children, to research and evaluation, as well as measuring and reporting on the program’s impact. That increases credibility, accountability – and donor confidence.
It also improves results. By adopting the ROM discipline, Room to Read improved productivity by 25 percent across its worldwide field operations and global finance teams and increased its revenue by 15 percent. The social impact was meaningful: with the savings, and efficiencies, the organization is able to reach an additional 100,000 children through its literacy programs and 21,000 girls through the Girls Education Program.
To learn more about how Room to Read is achieving its mission with digital finance transformation, watch this video.
Nonprofits are under a new level of pressure for transparency and accountability. On limited resources, they must find a way to achieve – and measure – successful outcomes. As we’ve seen from Room to Read and many others, new “outcome metrics,” fueled by real-time data, can make a huge difference.
For more info on Return on Mission (ROM) and other nonprofit metrics, download the complimentary eBook, Measuring What Matters in the Nonprofit World.