Clarity is the first step to nonprofit excellence.
Social change is hard. It is no small matter to shift the systemic patterns of society that have left people struggling with poverty and inequality. But we in the nonprofit sector have devoted ourselves to just that work. And we want to know how we’re doing.
According to Nonprofit Finance Fund's 2015 State of the Sector Survey, 74 percent of the 5,451 nonprofits surveyed said that they collect outcomes data. Eighty-one percent say they use outcomes or outputs data to help make decisions. Although “outcomes” and “outputs” data mean different things to different people, it is clear that organizations are paying increased attention to evaluating the results of our work.
With better knowledge of what works, organizations, funders, government officials, policymakers, and other stakeholders can rethink how to fund solutions to social problems. Impact measurement has the potential to transform how social sector services are financed and delivered. However, arcane measures of operating efficiency like overhead have for too long dominated the conversation about nonprofit performance. We can do better.
The good news is that funders also care about results-driven approaches. The bad news is that funders do not always put their money behind that belief. Seventy-one percent of NFF’s survey respondents said that at least some funders require certain outcomes for funding. But 68 percent say funders “rarely” or “never” cover the costs associated with tracking outcomes.
So, what can nonprofits do to create a funding environment that fosters the right kind of progress towards an outcomes-based world? To begin answering this question, we looked to the leaders in the field and found five common characteristics in how they managed their operational realities:
CLARITY: High-impact nonprofits can clearly articulate their theory of change
Center for Employment Opportunities (CEO) provides comprehensive employment services for people with criminal records. CEO's theory of change suggests that if the employment needs of people with criminal convictions are addressed when they are first released from incarceration (or soon after), they will be less likely to return to jail. From there, CEO articulates a clear model for services, along with various measures of near and longer-term success.
In 2004, CEO undertook a randomized control trial to test their theory of change and evaluate its impact. CEO's demonstrated appetite for rigor in program design and evaluation was a strong factor in attracting philanthropic support.
CEO also has an extremely sophisticated understanding of its full costs, including categories such as operating expenses, savings, depreciation, reserves, outcomes measurement, and more.
In addition to ongoing program support for the critical services that the organization provides, CEO received targeted investments for organizational infrastructure, including a data tracking and performance management system, and a human capital development plan. Combining its theory of change, outcomes measures, culture of continuous improvement, and knowledge of what it takes to sustain complex operations year after year, CEO was well positioned to receive $13.5MM in the nation’s third Pay for Success project.
Most organizations may not be as far along as CEO on the impact measurement continuum. But CEO still provides a shining example of the importance of articulating impact and full costs in a clear story. Resources exist to help all organizations get started. Financial SCAN, a collaboration between our organizations, makes basic financial information and peer comparisons available online for all nonprofits that file Form 990 information with the IRS. Without understanding the long-term investments needed to successfully achieve—and measure—outcomes, the added costs come with even greater risks as we enter an increasingly outcomes-based world.
CAPITAL: High-impact organizations seek capital at scale
Nurse-Family Partnership’s (NFP) three decades of research proves the effectiveness of the organization's home visitation programs in producing dozens of positive outcomes, such as improvements in prenatal health, child development, and academic achievement. NFP's research includes Randomized Control Trial data and a national performance management system that collects data on each home visit. With data as the foundation, Nurse-Family Partnership’s leaders can advocate with local, state, and federal legislators to obtain sustainable public funding for agencies that are implementing and replicating home visitation programs. In 2010, President Obama signed into law the Patient Protection and Affordable Care Act, which includes $1.5 billion in mandatory funds for the Maternal, Infant and Early Childhood Home Visiting program. NFP is one of 17 agencies that are considered evidence-based under this program. Ultimately, this legislation has helped systemize public funding for NFP’s delivery and growth, along with many other home visitation organizations working towards the same goals.
Nurse-Family Partnership highlights how educating stakeholders about the outcomes achieved by their programs can influence evidence-based policy, ensuring the infrastructure for longer-term sustained support. They also demonstrate how nonprofits are increasingly recognizing the role they can play in creating a more supportive policy environment for society’s critical needs. In NFF’s 2015 survey, 33 percent of respondents said that they advocated to government on behalf of their organizations’ causes.
CONTEXT: High-impact organizations place themselves in the context of their communities
Another important element of impact measurement is to educate supporters and investors on the economic impact of your nonprofit’s work. Nonprofits operate in the context of communities; their impact occurs within an ecosystem. That impact might be cultural, social, or economic. In Massachusetts, the Worcester Center for the Performing Arts demonstrated significant impact when they transformed an abandoned cinema into a 2,300-seat auditorium at the center of a new theatre district. An impact study conducted in 2008 projected that the project would create 135 jobs in the community, generating an estimated $5.5 million in annual income for local businesses. With the support of the New Markets Tax Credits Program, WCPA’s project ultimately created jobs for 18 full-time staff and 250 part-time staff, and the organization spends the majority of its $8.5 million annual operating budget locally. Surrounding businesses have also benefitted from the increased consumer spending of 600,000 new patrons who have been drawn downtown in the past several years. The project spurred further investment in the surrounding area.
While collecting this type of data can be challenging, there is a vast body of knowledge on how community-based organizations revitalize communities. Resources include Americans for the Arts and the Federal Reserve.
CONVERSATION: High-impact organizations learn from each other, share best practices, and work in partnership
One of the common characteristics you will find among all of the high-impact organizations we discussed is a thoughtful attention to learning and network building. Conversations about the cost of measuring impact present the opportunity to redefine partnerships between service providers, funders, investors, and government agencies around a shared vision for better outcomes. This means leveraging and building the right networks, and sharing the knowledge gained through collective research. Nonprofits can use platforms such as GuideStar’s Nonprofit Profile to share their impact stories publicly or NFF’s Pay for Success Learning Hub to learn about best practices in the field. They can also band together around common definitions by using the IRIS comprehensive list of standard impact metrics.
Evolution is difficult, unpredictable, and risky. When CEO sought to build a “culture of continuous improvement,” it demonstrated that collecting and responding to data requires an unrelenting, iterative approach to improvement—in programs, finance, and capacity. As nonprofits embrace this culture of adaptation, funders must also adapt their strategies to meet grantee needs, such as providing long-term investments, thinking beyond the grant, and financing collectively. They must also allow nonprofits to move along the impact measurement continuum at their own pace, while recognizing that social change is more than a data set or dollar figure. And in the end, it’s the stories behind these numbers that matter—stories about the people, the communities, and the ecosystems we seek to serve.
Evolution is difficult, unpredictable, and risky. When CEO sought to build a ‘culture of continuous improvement,’ it demonstrated that collecting and responding to data requires an unrelenting, iterative approach to improvement—in programs, finance, and capacity. As nonprofits embrace this culture of adaptation, funders must also adapt their strategies to meet grantee needs, such as providing long-term investments, thinking beyond the grant, and financing collectively. They must also allow nonprofits to move along the impact measurement continuum at their own pace, while recognizing that social change is more than a data set or dollar figure. And in the end, it’s the stories behind these numbers that matter—stories about the people, the communities, and the ecosystems we seek to serve.
Antony Bugg-Levine is the CEO of Nonprofit Finance Fund, a national nonprofit and financial intermediary that unlocks the potential of mission-driven organizations through tailored investment, strategic advice, and accessible insights. In this role, he oversees more than $340million of investment capital and a national consulting practice, and works with a range of philanthropic, private sector and government partners to develop and implement innovative approaches to financing social change. Antony writes and speaks on the evolution of the social sector and the emergence of the global impact investing industry. He is the co-author of Impact Investing: Transforming How We Make Money While Making a Difference.
Jacob Harold is the president and CEO of GuideStar. He came to GuideStar from the Hewlett Foundation, where he led grantmaking for the Philanthropy Program. Between 2006 and 2012, he oversaw $30 million in grants that, together, aimed to build a 21st-century infrastructure for smart giving. At the beginning of his career, Jacob worked as a climate change campaigner for Rainforest Action Network and Greenpeace USA and as organizing director at Citizen Works. He also worked as a consultant to nonprofits and foundations at the Bridgespan Group and as a climate change strategist for the David and Lucile Packard Foundation based at The Energy and Resources Institute in New Delhi, India.