© 2014 SAGE Publications, Inc. Theories Explaining the Nonprofit Sector Failure Theory Market and Government Failure Gap Fillers Supply-Side Theories Altruism and Giving

© 2014 SAGE Publications, Inc. 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 Accountability and Measuring Performance

© 2014 SAGE Publications, Inc. Defining 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 Accountability 1.Requirements of Law 2.Self-Regulation 3.Transparency 4.Charity Watchdogs

© 2014 SAGE Publications, Inc. Requirements 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-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. Transparency 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 Watchdogs Better Business Bureau Wise Giving Alliance GuideStar American Institute of Philanthropy Charity Navigator

© 2014 SAGE Publications, Inc. The Overhead Myth

© 2014 SAGE Publications, Inc. Measuring 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: 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: 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: 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: 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 Measurement 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)