Laura Oxley, M.P.A., J.D. Phone: 423-895-2936 E-Mail: ldbo224@g.uky.edu Memo

To: Holston Habitat For Humanity

From: Laura Bowman Oxley

Date: April 12, 2015

Re: The Balanced Scorecard Approach

Intro The Balanced Scorecard is a management approach that connects inputs, outputs and outcomes. The ultimate goal is to linearly trace an organization’s process from beginning to end in order to gauge the overall effectiveness. For example, suppose a nonprofit wanted to decrease costs and considered cutting different programs or positions. If the organization based the decision on the bottom-line cost of each, the decision could actually be costly for the organization. Did the program generate a lot of revenue? Did the person holding the position generate goodwill capital for the organization? Looking at traditional financial statements cannot be the sole guidance for decisions. The Balanced Scorecard Approach attempts to identify the tangible and intangible variables of an organization in order to improve decision-making.

Viewpoints Considered As the name “balanced” implies, the Scorecard measures both internal and external perceptions to understand the needs within and outside of the organization. Specifically, four perspectives are reviewed in this process: financial, customer, business process and learning/growth. Financial Perspective: Aside from the obvious desire to maintain strong financial health, the financial perspective requires that managers have timely data in order to make healthy decisions for the organization. Additionally, is this data in a comprehendible format? Financial reports are not helpful if the organization’s leadership cannot translate these figures into applicable real-world data. If management can grasp the content provided by financial statements, leaders can properly guide the organization’s endeavors and even boost donors’ confidences. Stakeholder Perspective: The customer perspective includes the needs of donors, volunteers and clients. For this perspective, the Scorecard measures satisfaction and retention in order to keep the community engaged. Business Process Perspective: The business process perspective looks at each program within an organization and reevaluates its effectiveness. Often, organizations assume a program is meeting community needs, but even if this was once true, a greater need may have surfaced in the meantime. To do so, the organization must first measure cost and quality of its process. How many man-hours are allocated to a given project? How much does the program cost? When was the last time we searched for a less costly vendor? Additionally, this process looks to the quality of the output. Does the end product meet the clients’ needs? Did we achieve our goal the first time, or did we spend time and money to make adjustments to our “final product?” Lastly, what was the outcome? For example, Habitat has a distinct mission to “put God’s love into action.” After Habitat builds a home (an output), does the community see this demonstration of love (the outcome)? Do the families feel any difference in their spiritual journey? Learning/Growth Perspective: Nonprofits truly rely upon their employees, volunteers and board to provide the foundation necessary to fulfill the mission statement. In order to retain and build human capital, the organization must measure satisfaction, acquired skillsets, community connection and dedication to the organization’s mission. This information is largely subjective but necessary nonetheless. Regarding training, some employees feel frustration when asked to perform a task that is outside his or her wheelhouse. Conversely, when an employee is forced to attend a training in which he or she feels accomplished, an opportunity to train in an area of interest or unfamiliarity is lost. Lastly, consider how many employees could articulate Habitat’s

2

mission without first conducting a Google search. Many organizations overlook the fact that upper management concentrates on the mission but this does not always trickle down to volunteers or other employees. The Balanced Scorecard developers suggest the following table to focus the discussion for these perspectives:

Objectives Measures Targets Initiatives

Financial Stakeholder

Business Process Learning & Growth

The objective is an overall, big picture goal. The measure is how an organization will quantify or qualify their efforts in order to gauge success. The target is a goal the organization would like to achieve. And the initiative forces a discussion on how to connect the dots in order to achieve the desired outcome. Here is a simple example:

Objectives Measures Targets Initiatives

Learning and Growth

Adherence to the Mission Statement

Monthly anonymous surveys asking, among other things, familiarity with mission

100% of employees & 75% of volunteers comprehend and adhere to mission

Make the Mission more visible: on display, on employee work ID’s, discussed in monthly newsletter, explained in training sessions so that stakeholders connect the day-to-day to overall goals

As you can see, the Balanced Scorecard helps management identify needs, plan of action and review.

Implementation Organizations have varying approaches on who should build their Scorecard. Some organizations hire a professional who has a particular certification while others gather stakeholders who can represent distinct interests. If Holston Habitat decides to build the Scorecard based upon internal efforts, likely the best approach would be to gather several stakeholders, representing board members, donors, executives, volunteers, employees and clients and ask them to participate in a small group setting. Each group would have a list of prompts to discuss and review Habitat’s efforts. The groups should not necessarily be pressed to identify organizational objectives, measures, targets and initiatives. At this stage, the most important product is problem identification. This representation of diversified perspectives is meant to bring overlooked issues into the light; then, the Board, executives or even the collective group can discuss the best strategy going forward. While gathering a large group may be the best method, the most practical method may be a meeting among management where volunteers, employees and clients are represented by pre-collected anonymous surveys that ask specific questions regarding Habitat’s internal and external perspectives. At such a meeting among board members and management, a SWOT analysis is a pointed way of beginning the discussion. A SWOT analysis looks to examine the internal state of an organization, specifically studying the strengths and weaknesses, and the external state of organization, specifically studying the opportunities and threats.

Conclusion The Balanced Scorecard is a method intended to refocus the organization to its mission statement. Sometimes, the day-to-day tasks of an organization can cause the organization to lose sight of its overall goals. The Scorecard is meant to engage the nonprofit’s community, both internally and externally, so that stakeholders are invested in the organization’s purpose. In addition to community commitment, the Scorecard helps management see beyond financial statements. While these reports are certainly necessary, they often neglect to place decisions in perspective. Mainly, accounting reports do not always show the net effect of a program.