Performance Measurement in Not-for-Profit Organisations: Objectives, Targets and Conflicts

A state hospital in Kano has three official aims: treat more patients, shorten waiting times and keep within its annual allocation. In one year it treats 6% more patients, but patients now wait longer for treatment and the hospital overspends. Has it done well? A private company that earned a bigger profit than its target would say yes without further thought, because profit is a single figure that summarises success.

A hospital, a school, a police force, a charity or a government department has no such figure. Its real purpose is to benefit people, which cannot be added up in naira. It has to work within money that it does not earn from customers but receives from taxpayers or donors.

This topic explains the problem of non-quantifiable objectives in not-for-profit organisations, how they get around it by setting quantifiable key targets and measuring inputs, outputs and outcomes, the typical measures for health, education, policing and charities, and the problems of having multiple objectives. It builds on the earlier topic on the Fitzgerald and Moon building block model. The next topic covers value for money as a public sector objective.

Non-quantifiable objectives

Not-for-profit organisations provide benefits to a target group or to society as a whole. Government institutions use taxpayers’ money to provide health, education, policing, courts and administration such as tax collection. Charities provide help such as aid for victims of war or natural disasters, support for people with illnesses or disabilities, help for local communities, research funding and care for the old.

They work within the money available, from government budgets or from donations, but their prime objective is non-financial.

The difficulty is that non-financial objectives are hard to quantify: how does a health service quantify the provision of its services, or an education system the quality of learning, or a charity the relief of suffering? These overriding objectives cannot be properly quantified. For-profit companies have a quantifiable financial objective (profit, return on capital), but most not-for-profit organisations have broad objectives that cannot be reduced to one number.

In addition, they usually have many stakeholders with different interests (service users, funders, staff, government, the public), and no market test, since services may be free or priced below cost, so that revenue says little about success.

Measuring performance, and multiple objectives

Setting quantifiable key targets

A performance system relies on quantifiable indicators, as much for a charity or a ministry as for a company. Not-for-profit organisations can set financial objectives, though these are not the main one: a government department can aim to operate within its budget; a charity can aim to raise a target sum in donations or to keep administrative costs below a stated proportion of income.

But for performance measurement to work they also need quantifiable objectives that relate to their main purpose. They identify a number of targets that are “key” to success, and compare actual results with them. For practical reasons the number of key targets must be kept manageable.

• Health service: patients treated each year in hospitals and clinics; average length of stay; waiting times; reductions in specific diseases; the proportion of treatments that succeed; infection rates.
• Police: reductions in murders and burglaries; response time to emergency calls; the proportion of crimes solved and of successful prosecutions.
• Education: the number of pupils who achieve a given grade at stated ages; the proportion who go on to university or technical college; attendance; the pupil-teacher ratio.
• Charity: funds raised; the proportion of income spent on the cause as against fundraising and administration; the number of beneficiaries helped; the cost per beneficiary.

Inputs, outputs and outcomes

• Inputs are the resources used (money, staff, equipment). They show economy.
• Outputs are the services delivered (patients treated, pupils taught, calls answered). They show activity and efficiency.
• Outcomes are the benefits achieved (patients cured, pupils who pass, crime reduced). They show effectiveness, and are the real objective, but the hardest to measure and to attribute to the organisation, since other factors also affect them.

A good system measures all three and relates them, which leads to the idea of value for money, covered in the next topic.

Problems of multiple objectives

Where there are several objectives and no overall quantifiable main one, an organisation may do well on some targets and badly on others. The problems:

• It is difficult to assess overall performance when some key targets are met and others not. A national health service may treat more patients while waiting times lengthen; a police force may cut murders by 10% but see burglaries rise; a school system may hit targets at age 11 and miss them at 16.
• The targets chosen may not represent all the objectives, because only a manageable number can be set, so activities with no target may be neglected.
• Conflict between targets: more patients treated may reduce quality of care; low administrative cost may reduce the quality of fundraising or reporting.
• Gaming and distortion: managers concentrate on measured targets (for example, taking easier cases or rationing waiting-list entries) to look good in league tables.
• Different stakeholders want different priorities; weights have to be negotiated.
• Comparability: comparison between hospitals or schools is unfair if their patients or pupils differ.

Approaches: set a small number of key targets; weight them; use a balanced scorecard adapted to the sector (service user, internal process, learning, financial, and funders); compare with benchmarks; and use judgement and qualitative information alongside the numbers.

Layouts for not-for-profit measures

1. State the main objective and the key targets that stand for it.
2. Calculate each measure and compare it with the target (percentage of target achieved).
3. Classify as input, output or outcome.
4. Judge overall, noting conflicts between targets.
5. Recommend action and better measures.

Percentages to one decimal place; each answer is rounded once, at the end.

Worked examples

1. Patients treated.
   12,000 ÷ 11,400 = 105.3% of target, 5.3% above.
2. Waiting time. 28 days against 21 is 7 days, or 33.3%, longer than the target.
3. Spending.
   4.4 ÷ 4.0 = 110%, an overspend of 10.0%.
4. Judgement. One target is exceeded and two are missed, so overall success is unclear. The numbers suggest that the hospital has treated more patients by stretching resources: waiting times have lengthened and cost has risen. If quality of care (not measured here) has also fallen, the apparent success on volume would be false. A weighting of the targets, and an outcome measure such as the proportion of patients successfully treated, are needed.

1. Programme spending.
   168 ÷ 240 = 70.0%, below the 75% target.
2. Fundraising and administration.
   36 ÷ 240 = 15.0% each.
3. Cost per beneficiary.
   ₦168m ÷ 8,400 = ₦20,000.
4. Comment. The target is missed by five points. But a low administrative ratio is not the same as success: the measure says nothing about the quality of help or the outcomes, and cutting administrative cost too far may weaken control and reporting, and fundraising. The charity should report the outcomes of its programmes as well.

Expect variants: a case for a school or police force with a table of targets, a requirement to suggest key targets for a named organisation, discussion of why profit cannot be used, and a requirement to discuss how multiple objectives might be handled.

Common mistakes

• Suggesting profit as the measure of success for a public body.
• Giving only financial targets and forgetting the main non-financial objective.
• Confusing outputs and outcomes. A patient treated is an output; a patient cured is an outcome.
• Listing too many measures without selecting key ones.
• Ignoring conflicts between targets and the risk of gaming.
• Treating a low administrative ratio as proof of success.

Quick revision

• Main objectives non-financial and hard to quantify; financial constraints still apply.
• Set quantifiable key targets; measure inputs, outputs, outcomes.
• Multiple objectives: hard to judge overall, unrepresentative targets, conflicts, gaming.

How the marks are earned

• Measures linked to objectives.
• Calculation against target.
• Discussion of conflicts and limits.

Practice questions

These are original questions, written in the style of the Skills examination. Work each one before you open the answer.

Recall check: multiple choice

Section B style: written questions

Model answers

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