Return on Mission: A Framework to Measure Success at Philanthropic Organizations | npENGAGE

Return on Mission: A Framework to Measure Success at Philanthropic Organizations

By on Oct 4, 2018

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As a nonprofit organization, which factor do you believe best showcases the success of your mission?

  1. Overhead to program expense ratio
  2. Having money left over to reinvest at the end of the year
  3. Programmatic statistics related to mission impact

As with many multiple-choice tests, there is only one answer here that makes sense: programmatic statistics related to mission impact. Unfortunately, philanthropies are typically (and problematically) judged by the first two criteria.

As Chuck McLean and Suzanne E. Coffman stated in their 2004 GuideStar article:

“There’s no question that nonprofit organizations have an obligation to manage their finances responsibly. There’s also no question that ratios can be valuable tools for evaluating charitable groups. By themselves, however, these figures can be more misleading than helpful.

If we continue trying to measure social change by financial criteria alone, we’ll never have full view of the inputs and processes necessary to create lasting impact.

How did we get here?

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For years, we’ve used language from for-profit businesses to explain nonprofit organizational activity. However, in an attempt to communicate mission success in borrowed terms, we have made it more difficult to explain the critical connection between financials, fundraising, and mission delivery.

There are undoubtedly for-profit business practices that we in the charity world use every day to the benefit of our employees and missions. However, we shouldn’t rely on for-profit output measures to paint a complete picture of nonprofit success.

For instance, the corporate profit and loss statement isn’t the same as our nonprofit budget to actuals report, and it falls short of providing the information necessary to effectively assess whether we need to course correct throughout the year.

To better understand the shortcomings of for-profit metrics as a true measure of nonprofit success, let’s take a look at how return on investment (ROI) is calculated.

How is ROI calculated?

ROI is a cost/benefit analysis methodology that measures how much money is made or saved for a given investment and is calculated as

ROI = (Gain from Investment – Cost of Investment / Cost of Investment) * 100

A sophisticated ROI calculation considers tangible and intangible items within the “Gain from Investment” part of the equation while the “Cost of Investment” is the straightforward tabulation of pricing.

Tangible items include hard costs, revenue, or new customers gained. Intangible value created includes items such as brand awareness, customer satisfaction, and operational excellence.

This formula permeates many nonprofit board meetings as a means of calculating the value of an investment. And while this measure works to an extent for nonprofits to understand the direct financial benefits of an investment, on its own, it fails to connect those metrics—which are the business of charitable work—to the social impact of that same work.

I’ve personally had to define the word “nonprofit” to a fellow board member when he wanted to discuss the ROI on a free program we were implementing for individuals who couldn’t afford a specific treatment. We found common ground, but it took a while for him to get out of his for-profit mindset and think in terms of mission outcomes instead.

For years, I’ve advocated for one key change that would take a for-profit success measurement framework — ROI — a step further to provide a truly mission-focused measurement of nonprofit impact, return on mission® (ROM).

So, what are the differences between ROI and ROM? They share much of the same DNA, but the final step to correlate the formula outcome to mission impact is what creates ROM.

How do we transition from return on investment to return on mission®?

As I explained in my previous npENGAGE article about nonprofit overhead:

The concept of [ROM] is that the real measure of a charity’s success is not in how [high] the return is on an ‘investment’ (e.g., a grant, major gift, etc.) but rather how much that investment impacts the mission itself. That, then, is the bridge that connects overhead and mission costs.

A simple way to think of ROM is in this formula:

ROM = ROI Measurement / Proportionate Mission Cost

Many food banks know how much it costs to deliver X number of meals per day, week, month, or year. But why not go a step further and consider investments in the systems that provide support for the mission? Can a new financial management solution help drive better efficiencies in meal delivery?

Surely a general ledger isn’t making meals, but it is driving the supply chain that brings in the items that become the meals, paying the expenses for those who work to prepare the meals, and keeping the lights on in the kitchen and dining hall to serve the meals.

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For example, if an ROI on a new financials system can create $5,000 per year in savings, then as an organization, you can attribute a portion of that cost to mission delivery enhancements. Divide that ROI by your meal delivery statistic, and you have a ROM for that new solution that is attached to mission delivery.

This line of thinking will have you reconsider what you see as direct programmatic delivery. Is an expense management or purchasing solution part of mission delivery? Absolutely, if the mission can’t provide optimal program delivery without it.

As you consider your next project, you, your internal project team, and your potential vendors all need to ask, “What’s the Return on Mission for this project?” If a positive ROM can be established, then you have a project worth pushing forward. With ROM we are measuring our mission’s work not by the outdated metrics of overhead/program or by for-profit business standards, but by the success of the mission delivery itself.

Do you agree? Disagree? I’d love to hear your thoughts on standard ROI and the concept of ROM in the comment section below.

ABOUT THE AUTHOR

Andrew Urban has had the privilege of working with technology in the nonprofit sector for 17+ years. His first book, The Nonprofit Buyer (2010), was written as a guide for nonprofit organizations in how to apply technology buying to mission success. He is passionate about mission-oriented technology decision processes but even more so about how those processes can amplify the impact to the causes they support. Andrew has been active in multiple youth charities around Austin, TX, his hometown, and he and his wife enjoy spending their free time around the music and outdoor activities Austin has to offer. 

Comments (43)

  • Amy Dana says:

    Forwarding this to my entire team right now!

  • Cathy says:

    Thank you for expressing the idea of Return on Mission. Sharing!

  • Heather says:

    Sending on to others! I wish our board could see it more this way.

    • Andrew Urban says:

      That can be a challenge. On one of my last board stints I ended up having to translate mission goals and budget priorities to several board members that simply couldn’t understand how a particular program “operated at a loss.” They saw profit potential where most of us saw kids being helped. We were able to eventually get through to them, but only by others of us on the board talking it through in terms they could relate to. Enlist your board members that understand and have them translate for you to the others. Good luck!

  • KaLeigh says:

    This is a great concept. Yes, a balanced budget is nice on paper, but if you didn’t DO anything regarding your mission, you’re missing the point.

    • Andrew Urban says:

      Exactly. The mission is why we’re all in this and success is gained by what you focus on most.

  • Karen Stuhlfeier says:

    Looking forward to reading this more in depth when I have time.

  • Sage says:

    I’m literally sending this to my analytics staff right now. 🙂 Thank you!

  • Karen says:

    That is why we all fundraise, to return to mission. Thank you Andrew.

  • Patti Hommes says:

    “The concept of [ROM] is that the real measure of a charity’s success is not in how [high] the return is on an ‘investment’ (e.g., a grant, major gift, etc.) but rather how much that investment impacts the mission itself. That, then, is the bridge that connects overhead and mission costs.”

    GENIUS!!!

    Thank you – sharing this with my Team!

    • Andrew Urban says:

      Thanks for the compliment! I’ve had the privilege of working with and learning from many smart people over the course of 18+ years in nonprofit technology and almost 25yrs on several nonprofit boards. I only hope I am able to add some positive notes to the discussion to move us all forward.

  • Sunshine Watson says:

    Thanks for posting

  • Mary Sommer says:

    It’s good to have a different metric for non profits.

    • Andrew Urban says:

      I obviously agree! The truth is we are different as a legal entity, have different metrics required for reporting, and our outcome measurement is 100% different than a for-profit company. It stands to reason then that we should have a different way to measure our success. Thanks for reading!

  • Lisa says:

    I am sending to our team and the accounting dept. right now!

  • Angie Stumpo says:

    Interesting thoughts!

  • Andy Schroeder says:

    We are so focused on ROI that we often look past the impact we are making on delivering the mission. I appreciate your insight and the way you challenged us to look at things in a different way.

    • Andrew Urban says:

      Exactly. I’m trying to see that while ROI is important, the end point of the exercise is different for us in the nonprofit sector. Thanks for the read!

  • Alicia Barevich says:

    Great information and explanation!

  • Maggi Junor says:

    I totally agree that we should be looking at ROM vs ROI but you have to overcome the donors mindset. While it makes perfect sense to those of us in the non-profit world it is a struggle to make those “business” people understand.

    • Andrew Urban says:

      Completely agree. That’s one reason I first started looking at it, years ago, in ROI terms with a twist, basically. Essentially, this is a way that allows us to co-opt a term those outside of our world will understand, but help them see what the end result of that exercise needs to be based upon the unique nature of our work and business model.

  • Alan says:

    Great post! The impact on mission is the only return. The challenge is in helping others see that. This post will help them do so

  • Barb says:

    ROM is a new concept for me. Good food for thought, thanks.

  • Mark says:

    It often seems that non-profits are using a for-profit mentality when running the business. I’m glad to see there are some people out there thinking of the inherent value to the mission of the organization instead of to the organization alone. Good article.

    • Andrew Urban says:

      There are certainly aspects of the “business” of being an operating organization with processes that we can borrow and enhance from the for-profit world, but it’s true the base reasoning for our existence, i.e. our value, is the mission itself.

  • Carlene Johnson says:

    Interesting stuff!!

  • Christine says:

    Thank you for this article. A great tool to share to help people understand the difference between money and impact.

  • Megan says:

    Return on mission – what a key point! You’ve put into words what we have been trying to do for a while now! Thanks!

    • Andrew Urban says:

      Thanks! I think it’s something we’ve all thought for a long time. Glad I could help put it into words!

  • Karintha says:

    This is a refreshing approach to assessing organizational investments. Makes me very curious about the program delivery statistics for my org and how those are being monitored or considered in investment decisions now.

    • Andrew Urban says:

      Thanks so much! I love the Outcomes work we’re doing here at Blackbaud to help with standardization around those metrics. Check it out if you haven’t yet.

  • Ann Nischke says:

    Tangible versus intangible value has always been the hang up point for us!

  • Sarah says:

    Great info, this will give us some great ideas to chew over on how we measure our success

  • Andrew Urban says:

    Thanks!

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