Welcome to our Summer Newsletter!

The emphasis on program results - through performance-based contracting and outcomes measurement - is a growing trend in government contracting and foundation grant making. In this issue, we offer some insights on how charities can use the data they collect to their advantage, serve their clients better and strengthen their communities.


Why the Focus on Performance and Outcomes*

Foundations and government agencies are and will continue to be committed to program results for various reasons. More funders think of grant making as an investment decision. They want to make sure they invest wisely, so they seek ways to measure "the return on their investment" (or grant making effectiveness), however imperfectly. Measuring program results becomes even more important in this challenging economy when many funders have to decide how and to whom they will allocate their more limited resources.

Transparency and accountability are the watchwords of the day. Foundations and governments are under increased public scrutiny about how they use the public's dollars. Demonstrating their spending's impact is critical, whether through higher children's reading scores, lower crime rates, a drop in diabetes cases, or more tourism. Charities, too, need to show program results to attract funding support, which is what performance measurement is all about.

At a recent forum, several nonprofit leaders complained about the increased burden placed on their organizations by performance-based contracts. It costs more to collect the extra data required, and government funding is less predictable. But, like it or not, the trend is here to stay. Even the new IRS Form 990 asks agencies to "describe the exempt purpose achievements for an organization's three largest programs." It strikes us that it may be more useful for nonprofit executives to redirect their energy on how best to use outcomes measurement to their benefit.


Talk to Your Funders

An ED reminded us recently that funders and providers have a mutual goal, which is "ultimately to use resources effectively for the best results possible". But as funders and charities each seek to create new yardsticks to evaluate program results, there may be a real disconnect over the outcomes identified to measure performance.

It can be useful - and wise - to start a dialogue to find out why a funder identified particular outcomes as important. What do they signify about the program? What was the funder trying to achieve? What were the underlying assumptions? At a minimum this will help you understand how the funder thinks, which you can convey to your staff and help inform future action.

As a program expert working directly with clients, you can enhance the funder's understanding of the key factors that lead to good program results. For example, one organization we know found its population’s needs had changed as the demographics shifted. It talked with its funder and presented a clear, fact-based argument about what was necessary to deliver the services contracted and their attendant costs. As a result, the agency obtained a rate adjustment.


Use Performance Information to Improve Your Program - and Funding

Many nonprofits we know think of performance and outcomes measurement as an obligation to their funders: their job is to gather and report the data. Instead executives can derive greater value using the information to identify weaker areas and then take steps to build a stronger program.

Performance and outcomes measures are essentially proxies for the factors, behaviors, or processes that are key in achieving good program results. For example, to place and retain individuals in jobs with a living wage (the workforce development program result), an agency needs to attract participants, keep them in the program over time, develop the critical job skills, and help them find and keep their jobs. By analyzing a program’s performance across each outcome tracked, an agency can find out where it is strong and where it needs to focus its energy and resources.

Continuing the workforce development example, one agency we know found that it placed most of its graduates, but they didn't stay in the job long. For workforce development performance-based contracts, job retention is not only critical, but also is tied to remuneration. The agency incorporated after-placement, follow up activities into its job counselors' responsibilities. Job retention lengthened, the agency could report better numbers, and its funding grew.

It is well worth the investment in an experienced quality assurance officer to analyze the data being gathered and reported - and it is a legitimate, and perhaps reimbursable, program expense. Many nonprofits think their job is done once the data is sent to the funder, but that's just the tip of the iceberg. An agency that also uses the information to improve its programs will serve its community better and be more financially sustainable.


Leverage How You Compare with Others to Serve Your Community Better

Many government agencies report program performance data for all the charities they fund. Many publicly-funded organizations can see how they compare with other providers for each indicator and how they rank overall.

We have found that learning how you compare with others can be incredibly enlightening to charities and prompts actions. They want to know why and what the high performers do differently, so executives often reach out to peers who excel to find out how they achieved higher performance ratings. By analyzing the individual and overall scores, an agency can seek out the better performing agencies to identify adoptable best practices. These may include modifying program delivery, changing monitoring tools, redefining job responsibilities or streamlining work flow processes. In this way, a nonprofit can increase the likelihood of getting additional, and more predicable funding from its performance-based contracts. The sector overall delivers better programs and the community is better served.

An organization with comparatively low scores overall should examine why and explore its rating's implications. Executives and boards should discuss the nonprofit's prospects longer-term to avoid financial distress. As the pressure to perform increases and funding decreases during a recession, it becomes more challenging for such organizations to survive. It may be a wise decision - and good for the community served - to move the contract(s) to another, stronger and higher-performing agency, and sooner rather than later.


* In this article we assume the outcomes are reasonable proxies for "program results". We recognize that they may not be universally applicable, "no one size fits all", and this is an evolving field.


We Want Your Suggestions!

Let us know whether or not you find our newsletters helpful and why, so we can improve, too! And we'd love to hear from you about suggestions for future issues.


Performance Results for Boards, too!

The push for performance measures extends beyond programs to boards as well. Governance Matters offers the "Good Governance Guide", a useful handbook of key indicators and their implications for nine major board functions, like strategic planning, board effectiveness, and program evaluation. Visit the Governance Matters website to use this tool to promote best practices, and learn more.