How to determine whether your organization is on track and moving in a healthy direction.
As Nonprofit Board Directors, we are often faced with an onslaught of data and information at our board meetings. In addition, we have the ultimate responsibility and accountability for our organization’s actions — we are the fiduciaries of the organization. Even those board members with the best of intentions have trouble fully grasping all of the information that is put in front of them. My colleagues on other boards often ask me “How do we focus our attention on what matters most?”.
While some board directors may have dashboards showing important metrics of the organization, there is an uneasy feeling that it’s not enough information or in some cases, it’s too much information to wade through before the board meeting. Some board finds themselves in a very uncomfortable position very quickly. One colleague of mine discovered too late that their organization lost a major funding source. Another fellow board members only discovered a major budget shortfall at the board meeting. Unfortunately for this board member, the only available next step was massive layoffs and closing of some of the organizations’ services.
“Those data points on your dashboard are all good”, I tell them.
Yet, they are lagging indicators of your organization’s health and by the time your board sees them, it’s too late to change anything. As a board member myself, I have found lagging indicators easier to track and measure but harder to influence. It’s because those indicators track what has already happened.
What if you were to track leading indicators instead? Leading indicators are more difficult to track and measure because they may be more subjective or require manual input. However, leading indicators are easier to influence because you can course-correct sooner.
What are some leading indicators I can begin to track on my nonprofit board?
I’ll mention a few areas now and in my next article, we’ll dive deeper and discuss more. In the area of staff retention and morale, you likely track or have a pulse on staff turnover. Again, this is a lagging indicator, since you receive this statistic only after an employee has separated from the organization. As a leading indicator, your board could ask to include vacation and sick time used across the organization. Very low use of vacation time may indicate staff are stretched too thin or being asked to wear too many hats. Increased use of sick time might indicate issues with morale or staff looking for work elsewhere. Another leading indicator might be the tracking of worker’s compensation claims. An increase in claims is potentially, although not always, an indicator of stress or strain in an organization depending on the nature of the organization’s work.
I wouldn’t being doing my job if I didn’t mention investments as another leading indicator. Both large and smaller nonprofits can and often do have reserves, board designated funds or even endowments.
Investment performance is a lagging indicator of how well your investments or reserves are working for you.
Once you review performance, the results have already passed. Yet, there are several things you can do to develop leading indicators. For example, does your organization have an Investment Policy Statement? Have you reviewed this statement in the last 2 years? Most importantly, are you staying within your target investment allocation? If the answer to any of these questions is “I am not sure”, then put this on the agenda at your next board meeting. Even if you’re not on the Finance or Investment Committee, the full board should be receiving quarterly or semi-annual updates on the status of the reserves and the investments.
In my next article, we will dive deeper into how you can position your board for success in developing leading indicators.
Talk to the financial experts at Fairlight Advisors to learn more about managing your nonprofit’s investments. Schedule a free consultation today!
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