How can you measure the success of nonprofit organizations?
Is there an objective criterion to the success of nonprofit organizations or just arbitrarily decided on by the administrators?
Kenneth: Yeah, but I'm asking if there's an objective quantifiable measure for the success of a nonprofit organization. Like if I want to start a nonprofit firm I want to find some sort of objective measure of success to know how well I serve whoever I am serving. Is it solely up to subjective estimates by the manager or does the market have some kind of feedback mechanism to this?
Yeah, but I'm asking if there's an objective quantifiable measure for the success of a nonprofit organization. Like if I want to start a nonprofit firm I want to find some sort of objective measure of success to know how well I serve whoever I am serving. Is it solely up to subjective estimates by the manager or does the market have some kind of feedback mechanism to this?
Nonprofits still need an income to function so, in a sense, they are driven by consumer preference. It would be up to your true constituents, the donors, as to whether or not your venture is succeeding.
Shouldn't it be pretty clear that if a non-profit is able to stay "afloat" that is successful, as per the goals of its founders?
"It has been well said that, while we used to suffer from social evils, we now suffer from the remedies for them."
F.A. Hayek, The Constitution of Liberty
I don't completely agree with using strict monetary profits and losses as an indicator for success. Value is subjective, and that means profit is subjective too. This happens not only in the case of entrepreneurs but in all exchanges. A lot of people would rather work at a job they love doing for less money than spend all day doing something they hate for more. Of course this depends on how much more... but you get my drift.
Ultimately the same self-regulating forces of the market work just as well on "nonprofit" organizations as they do for anything else. If those involved feel doing what they do is worth it, then they'll keep doing it. Otherwise, they'll direct their resources to something they think is more worthwhile.
Like I said, profit is subjective. What kind of objective measure can determine whether you're succeeding or not depends on how you define success for yourself. Is your organization receiving enough donations to keep it going? Are your actions showing visible progress toward your goal? Again, it all depends on what you want out of it.
Um, even nonprofits need surpluses to cover up depreciating assets through replacement and new investment.
They also need to create more reserves for larger long-term investments for serving their members better.
And while owner's rewards in the form of profits may not be there, the main people running it still need a fixed salary to keep their bellies filled, and thus they need that surplus, the same way business enterprises do, to compensate themselves.
All this aside, these organizations largely run on donations and the donors just see if the goals for which it was set up have been achieved. For example, George Soros spent $50 million on an institute to show that free market does not work and market fundamentalism is wrong. Once the researchers in his nonprofit organization show whatever results that Soros wants proven, his work is done.
Oh, by the way...
businesses are not judged by "profits". Those are GAAP-based figures meant only for taxation purposes.
Investors look at operating cash flows.
They normally use them to predict future cash flows using regression, and then discount them with a hurdle rate.
I would say most non-profits measure their own success based on measurables that relate to the goal of the organization. In business school some lady from a non-profit came in once to talk to us, and she said her non-profits only goal was to get kids to read more often. She said a bunch of times she didn't care about teaching kids to read, and that her non-profit didn't support ventures that taught kids how to read, because that wasn't part of their founding charter or whatever. They would like lobby schools for DEAR (drop everything and read) time and would donate children's books to after school centers and other things. And she said she measured her success on the metrics they would get on how much kids were reading.
Kenneth:Yeah, but I'm asking if there's an objective quantifiable measure for the success of a nonprofit organization.
There's no objective quantifiable measure of any success, for profit or not. The profits of a business are only a measure of success in as much as they satisfy the desires of those making those profits, and not all profit is monetary. Saying monetary profits are the measure of a business' success assumes interpersonal comparrisons of value are possbile which they aren't. The same amount of monetary profit could satisfy one person and leave another wanting. Netting ten million bucks might attract one person to a field and make another leave it for a field where he can potentially get more. And as pointed out above, the satisfaction of doing something you love as opposed to the monetary profit made while doing something you hate... which is a true measure of success? Operating at a profit is a measure of 'success' in the aggregate only in as much as it indicates the creation of wealth via the business' operations; ie. everyone has been voluntarily satisfied along the way so there's a net gain for everyone, and these days with the mixed economy we live in even that can't really be guaranteed based on monetary profits anymore. And how satisfied they were, judged by who, and relative to or in lieu of whatever other opportunities for profit there were, monetary or otherwise, are things you can't really know.