How can CEOs drive accountability and outcome measurement in their charities without losing sight of organisations caring supporting function?

The third sector’s role is changing as a result of moving from working predominantly in niche areas to greater involvement in core activities of public services. However, the third sector has tended to lag behind the public and private sectors in improving accountability and transparency. Given the number and range of stakeholders that third sector organisations work with, including some of the most vulnerable in society it is imperative to for organisations to build strategies that demonstrate effective governance, rather than just relying on the sector’s positive motives. Increasingly performance management systems are being used to help organisations balance the differing requirements of funders, staff, and service users, and strengthen organisations’ functions.

Developing effective monitoring to improve leadership and public perceptions

The third sector’s goals are more intangible and their ability to evaluate success less clear cut than the private sector, which focuses on profitability; or the public sector, where accountability comes through elected politicians. These differences in intension and preferred measurements have often caused problems, as funding agreements have usually been focused on inputs (where money went) and outputs (what the charity did), rather than outcomes (what difference was made).

Currently, the monitoring system of third sector organisations are largely controlled by funders, often stipulating reporting which offers minimal benefit to the third sector. Consequentially organisations spend too much time and resources focusing on providing less appropriate information. This reduces funders’ ability to fully understand the fund’s benefits, as they may receive reports that don’t fully reflect how much of an impact their money is making to communities.

However, more considered and proactive outcome measurements would reassure funders, and focus organisations minds on the provision of services. If third sector organisations were better able to highlight their societal benefits through effective performance measurement systems, whilst showing financial prudence then they would be more attractive to funders, and increase their role on the delivery of public services.

Learning to communicate more effectively with funders

New Philanthropy Capital (NPC) highlights a reciprocal problem between funders and the third sector, with funders being mistrustful of the third sector’s financial competence, and recipients being too nervous to question the funders volume or choice of reporting. However, through examining the optimum level of measurement, and having the confidence to explain the benefits of differing approaches it is possible to build trust with funders, provide them information that highlights the positive outcomes from their investment, and reduce administrative waste.

When funders ask for detailed reports they want to ensure that their money is not being wasted. However, often too little feedback is given, leaving charities unaware of how their reports are being used, or even at all. This can be demoralising, time consuming and inhibits future improvements to the monitoring system.

This is exacerbated by the timidity of some organisations in the face of funders, as they are reluctant to question or challenge their demands for fear of alienating funders. This weakens relationships and threatens trust, as charities may be hesitant to report problems or speak clearly.

NPC’s ‘Turning the Tables’ pilot study encouraged charities to be more proactive through producing their own standard report and then offering it to all of their funders. They suggested creating three types of reports:

• A core report, containing information relevant to the whole organisation.
• Project reports, containing detailed project specific information.
• Individual reports, tailored to the needs of particular funders.

This method helped re-examine the reporting structure through taking a holistic approach; improving organisations’ relationships with funders, through increasing empathy; and lowering administrative costs through reduced duplication and targeted monitoring.

Ensuring that staff members and service users are involved in the monitoring process

Engaging with staff is a useful way of encouraging innovation and ingenuity to create solutions. Given the fact that staff members are the front line of service it is necessary to seek their input to create an optimum balance between improving the needs of service users and funders’ needs for accountability and financial competence. Ensuring support for change and ascertaining whether the organisation currently has the training and capacity to handle any governance reforms is critical.

Similarly the involvement of service users in the governance of organisations and in defining outcomes is one of the factors which helps to distinguish the third sector as having a user-centred perspective, as opposed to the organisation-centred perspective so often seen in the public sector. Focusing public services on the user is one of the most fundamental challenges facing organisations who delivery and commission public services and is a key strength for the third sector.

Far from compromising the support which third sector organisations provide, a greater emphasis on outcomes and performance measurement will mean that organisations focus on delivering the services which really matter, and that funders are aware of the real impact which they are making.

This article was written by Jonathan McHugh in June 2008