Building a Balanced Scorecard for non-profit organizations isn’t as straightforward as it is for businesses. Hospitals, educational organizations, municipal governments, and government agencies aren’t usually driven by the profit motive. The finance perspective of the Balanced Scorecard seems to be a stumbling block. So where does “finance” fit in a non-profit and how do you explain the finance perspective to employees who are driven by a mission, not by revenue or profit?
After helping non-profits with their strategy, operations, and Balanced Scorecards and building matching Excel scorecards and dashboards I’ve come across a few tips that make the financial perspective easier to work with. Here’s a few that might help you.
Classic Balanced Scorecard Perspectives
In the classic Balanced Scorecard from Kaplan and Norton, the Finance perspective takes the topmost position with the other perspectives below, like this,
- Learning and People
The reasoning for this structure is that each layer below supports and drives the layer above. For example, “Learning and People” is composed of people, best practices, and IT infrastructure. “Learning and People” supports “Process”. Similarly, without good Processes you can’t produce the effectiveness, efficiency, and quality that drive Customer objectives. And succeeding at Customer objectives achieves Financial objectives.
This hierarchy of perspectives makes sense in a for-profit organization. Every layer supports the one above to eventually satisfy stockholders at the Finance level. But, is the same true when you’re working with non-profits?
When I’ve worked with stakeholders like teachers or nurses they rightfully take offense at having Finance as the topmost perspective. These organizations often start with a predefined resource at the Finance level (read money). For example, a school district has a predefined budget. Teaching the students better will rarely produce more funds. In non-profit organizations they want to achieve a mission, like increasing educational levels or improving healthcare.
While talking with a group of nurses at a hospital one of them sparked an epiphany. The mission was their topmost concern! (Duh! That was obvious.) But, their real financial need was to be prudent. They needed to manage their finances to produce the greatest result. In two words this is “Financial Stewardship.”
At that point I decided to do two things that have served me well in mapping performance and Balanced Scorecards for non-profits. First, for non-profits I added a new perspective, Mission, and moved it to the topmost level – accomplishing the mission defines success for most non-profits. The second was to change the Finance perspective.
Non-Profit Balanced Scorecard Perspectives
For non-profits Finance should be called to Financial Stewardship. Since the financial resources are usually predefined they limit what the organization can do. They should be moved to the bottom most level.
Now, the perspectives for most non-profits looks like this,
- Learning and People
- Financial Stewardship
The middle perspectives are similar to for-profits. Financial Stewardship should strive for effective and efficient use of funds and adherence to budget. The Mission perspective can be more difficult. For some organizations it may be difficult to measure, but you can measure achieving your mission. It can be a hard metric or you can find a proxy. For example, Mission measures might be “Percentage of Population Vaccinated”, “Change in Reading Level for Children”, “Change in Percentage of Teen Age Pregnancies”, or “Positive Sentiment Expressed in Social Media.”
While the Non-Profit Balanced Scorecard isn’t as straightforward as the for-profit, it can be even more powerful. With an aligned, objective-oriented organization you can get more done with the same resources.