© 2014 SAGE Publications, Inc. Theories Explaining the Nonprofit Sector Failure Theory Market and...

© 2014 SAGE Publications, Inc.

Theories Explaining the Nonprofit Theories Explaining the Nonprofit Sector Sector

• Failure Theory • Market and Government Failure • Gap Fillers • Supply-Side Theories • Altruism and Giving


Theory of Commons Theory of Commons Public Good versus Common Good? Question on Social Return on Investment.Dual bottom line. Do we need our own theory?


Chapter 6: Ensuring Chapter 6: Ensuring Accountability and Accountability and Measuring PerformanceMeasuring Performance


Defining AccountabilityDefining Accountability

• Accountability -- taking responsibility for an individual’s or organization’s actions• Not doing things that are wrong (e.g., following

the law)• Doing the right things (e.g., following best

practices)• Demonstrating effectiveness (e.g., measuring

impact on organization’s mission)• Good student metaphor• Following rules and meeting basic requirements• Engaging in exemplary student behavior• Demonstrating understanding of course material


Mechanisms for AccountabilityMechanisms for Accountability

1. Requirements of Law

2. Self-Regulation

3. Transparency

4. Charity Watchdogs


Requirements of LawRequirements of Law

• Sarbanes-Oxley Act• Adherence to “best practices”• Ethical behavior

• Pension Protection Act of 2006• Includes changes regarding charitable giving

and publishing the Form 990-T with regard to unrelated business income

• State laws – State Attorney General• IRS regulation – Form 990


Self-RegulationSelf-Regulation

• Panel on the Nonprofit Sector (Independent Sector, 2005)• Recommendations that reflect Sarbanes-Oxley

included 33 principles for good governance and ethical conduct. In the areas of:• Legal compliance and public disclosure• Effective governance• Strong financial oversight• Responsible fund-raising

• Standards and accreditation• Long history in educational and health care institutions• Relatively recent concept in the broader nonprofit

sector


TransparencyTransparency

Many nonprofits are motivated to provide accountability by public scrutiny. Charity watchdogs:•Proactively examine nonprofit organizations, applying their own standards•Complete their evaluations with or without the cooperation of nonprofit organizations•Can offer a type of certification or assurance that a nonprofit meets their established criteria for ethical operation


Charity WatchdogsCharity WatchdogsBetter Business Bureau Wise Giving Alliancewww.bbb.org/us/Wise-Giving

GuideStarwww.guidestar.org

American Institute of Philanthropywww.charitywatch.org

Charity Navigatorwww.charitynavigator.org


The Overhead Myth The Overhead Myth http://overheadmyth.com/

http://overheadmyth.com/nonprofit-emaciation/


Measuring Performance: IntroductionMeasuring Performance: Introduction

• Key questions• How do we ensure that an organization is

effective in achieving its mission?• How do we define and measure an

organization’s impact?• Key terms and distinctions• Organizational performance• Effectiveness versus efficiency• Organizational versus program effectiveness


Measuring Performance: StrategiesMeasuring Performance: Strategies

1. Financial ratios• Ratios most commonly used in evaluations• Cost of fund-raising• Percentage of overhead expenditures

• Charity Navigator

2. Measuring against peers• Benchmarking -- comparisons among

organizations• Statistical benchmarking• Corporate benchmarking



3. Outcomes• Inputs, activities, outputs, and outcomes• Logic models and causal relationships

4. Common indicators• Identifying a common set of outcomes and

indicators for all nonprofit organizations• Urban Institute and the Center for What

Works



5. Balanced scorecard (Kaplan and Norton, 1992)• Originally developed for use in the for-profit sector• Combines financial data with other considerations• Four perspectives -- financial, customer or client,

internal business, innovation and learning

6. Dashboard (Paton, 2003)• Developed as a balanced scorecard specifically

designed for nonprofits• Five perspectives -- current results, underlying

performance, risks, assets and capabilities, change projects



7. Social return on investment (SROI)• Monetizes the social value created by nonprofits• Methodology evolved from cost–benefit analysis

8. Blended value• Builds on concept of social return on investment• Three measures -- economic value, social value,

and environmental value• Attempt to define common measures of

performance for organizations across all sectors


Debate over Performance Debate over Performance MeasurementMeasurement

• Need for performance measurement• Management inherently involves the strategic

allocation of resources to achieve and improve results

• Lacking information about performance means we cannot be certain that an organization is achieving its mission

• Concerns about performance management• Lack of universally-acceptable standards and

methods of measuring organizational performance• Amount of time and effort devoted to measuring

effectiveness takes away from other activities• Risk of developing “disconnected managerialism"

(Paton, 2003)

© 2014 SAGE Publications, Inc. Theories Explaining the Nonprofit Sector Failure Theory Market and...

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