Are "sharp businessmen" the salvation for nonprofits? While not the singular message of the Wilmington Biz article, this is the final message. For some reason the author believes that the only folks with capacity to discern how to measure effectiveness or to even set the standards for measurement are businesspeople. I don't agree - I think the folks who pursue a mission do know what are their expectations: they have a theory of change, grounded in facts or otherwise, that define for them and those they rally how the world or their community or the folks or animals or things will be as a result of their intervention. They do have an idea even if they haven't calculated all the numbers. Yes, folks who do calculate the numbers on a daily basis can be helpful but not them alone. More importantly, calculating the numbers does matter for all the reasons further described in the following article. So, businesspeople essential - not necessarily. Calculating the numbers - absolutely!
From Willington Biz:
Measuring Nonprofit ROI
Donations to nonprofits, by their very nature, provide a return on a community’s investment. In many cases, the return can be estimated in dollars.
For example, with the help of volunteers, WARM may spend $2,500 on the home of an older adult to build a wheelchair/walker ramp, install grab bars, and complete other accessibility upgrades. These fall prevention measures may enable the homeowner to remain safe and independent in their home for three years or longer. Falls can cause head, hip, or other serious injuries, requiring a costly emergency room visit and ultimately assisted care. The median annual cost of an assisted living facility in the Wilmington area (the highest in the state) is over $50,000. That $2,500 investment can save $150,000!
Savvy donors always ask nonprofit leaders to report back on the ROI, measured sometimes by dollars saved and always by impact in the world: homes rebuilt, acres conserved, children fed, patients seen.
I’ve observed four nonprofit investment approaches. If you are on a board or donate to a local charity, think about the characteristics you’ve observed.
Fixed
The organization is meeting the need for its services at its current capacity. Leaders have decided it is not necessary to grow. Maintenance, staffing, and other ongoing expenses are covered; investing in sophisticated technology, new/larger facilities, personnel, and other infrastructure is not needed.
Fearful
Many organizations cannot meet the demand for their services, but the leaders shy away from investments. They may look at a recommendation for a $2,000 database and think, “$2,000 could buy a lot of program supplies,” or assume donors don’t want to pay for indirect costs such as continuing education. They are afraid to make a mistake; so, they play it safe.
Foolish
Any investment decision requires a careful analysis of the expected benefits and risks. This becomes even more important when managing donated funds. Obviously, buying every shiny new toy or spending extravagantly on events and facilities can drain funds intended for the mission. This does not honor our donors or improve our service to the people who need us.
Fruitful
Investments in nonprofits have a high return when they build the capacity of the organization to fulfill its mission. Just as in the for-profit sector, the return can be measured in dollars. That $2,000 database may save $4,000 worth of staff administrative time over the next three years, leaving more resources for the program in the long run.
In the nonprofit sector, there is a second bottom line: How much more impact can we make? That continuing education may result in a stronger after school program or a more efficient building practice. Most donors expect charities to strive for excellence.
At WARM our cost benefit analysis includes questions such as:
- How will this investment improve our services?
- How many more families can we serve?
- How will it enhance the volunteer experience and increase retention?
- How will it put us in a better position to attract and administer more funds?