The balanced scorecard

The need for strategic planning is greater than ever in the not-for-profit sector.

In today's constantly evolving and shifting climate, every organization needs a strategic mind-set guiding its mission and planning. The not-for-profit (NFP) sector is no exception. Unlike other organizations, however, NFPs don’t define their success strictly by the measure of their profits or losses.

 

“The NFP sector is mission-based and cannot rely on profits or losses as an indication of how they are performing,” says Cam Scholey, MBA, PhD, FCPA, FCMA, author of A Practical Guide to the Balanced Scorecard, and a speaker and educator in the areas of strategy mapping and balanced scorecard (BSC).

 

According to a recent report by Imagine Canada, the NFP sector is one of the fastest-growing in Canada, with a growth rate of 6.4% annually. But, with traditional revenue streams such as individual donations and government funding in decline, and increased competition from social enterprises (for-profit businesses with primarily social objectives), the need for strategic planning is greater than ever.

 

Enter the BSC. In a sector where success is measured on multiple and often intangible levels, the BSC offers NFPs a way to measure performance in a manner similar to for-profit businesses. And, when it comes to assets, instead of bank statements and financial return on investments, some of the most important assets in any NFP are its most intangible: its human, informational and organizational capital.

 

“Unfortunately, most NFPs do not measure the health of these assets,” says Kurt Schobel, MBA, FCPA, FCMA, a retired Air Force officer who now teaches accounting at the Royal Military College of Canada and the Smith School of Business at Queen’s University in Kingston, Ont. Schobel also works with NFPs to develop strategy maps and balanced scorecards. “Like any organization, a NFP needs the right people, the right technology and the right organizational structure to execute its strategy and grow.”

 

“Interestingly, the BSC’s contribution to the growth of human, informational and organizational capital can usually be linked to the objectives established in the stakeholder and internal perspectives,” says Scholey. “Objectives are typically established here first. To fully synchronize stakeholder and internal tasks and activities with the pace of business, the human, informational and organizational capital must be assessed and bolstered where possible. The BSC can heighten attention and mindfulness toward strategy by shedding light on where the growth opportunities are. For example, the NFP might realize that it is coming up short on staff with a particular competence needed. Or perhaps it’s the information system that must be bolstered.”

 

Schobel adds, “By including metrics related to these three components, NFPs ensure that senior management and board members are kept abreast of changes related to their intangible assets. For example, within an NFP, the board and senior management may not always be close to the volunteers and lower-level employees, and thus including metrics related to people on the balanced scorecard provides them with performance data to help develop and grow. The same holds true for the information and organizational capital.”

 

Most important, says Schobel, is the need for the entire top management team to recognize the value and promote the use of the BSC. “A balanced scorecard cannot be a pet project for one member of management. Implementation takes time. Developing a strategy map followed by a balanced scorecard takes months, not days. The entire process is iterative and thus the nonprofit organization needs to build time into its processes to properly develop, use and assess performance.”

 

Tips to keep in mind when creating a balanced scorecard

1. Communication is critical, otherwise the BSC initiative is at risk in terms of realizing full success.

2. The communication plan should include a sales pitch for the BSC. If it is perceived as “just more work,” the initiative is in trouble.

3. No need for expensive software. A regular, well-designed spreadsheet application can provide all the information and insights needed.

4. There is no best time of year to start the BSC process. The BSC initiative should start as soon as conveniently possible.

5. Ensure that your mission-based strategy is the centrepiece of the BSC. A well-built strategy map boosts confidence that the objectives in the BSC are the correct ones.

—Cam Scholey