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Balanced Scorecards for Nonprofits and NGO's
Since strategies are critical to the success of non profit organizations (NPO) and non governmental organizations (NGO), balanced scorecards represent the central management system for running the NPO / NGO. One of the biggest difficulties for NPO / NGO's is to restrict the scope of strategic objectives. NPO & NGO's will typically have an overall strategy that tries to do too many things with too few resources. Therefore, the first step for building an NPO / NGO Balanced Scorecard is to make strategic choices about what the NPO and NGO can realistically hope to accomplish. Remember, it is better to have a few successes than a lot of failures.
Additionally, existing legacy systems are often riddled with numerous measurements and reports, making the organization focus on the wrong things. Although some of these controls may be important, they should not be part of your balanced scorecard. The Balanced Scorecard should be based on the vital areas within the strategic plan. Once a realistic strategic plan has been developed, you can establish perspectives for the scorecard.
Perspectives for NPO / NGO's can differ significantly from private sector scorecards. For example, the Customer Perspective is usually the most important perspective for an NPO / NGO. Customers represent the essence of why an NPO / NGO exists. Additionally, many NPO / NGO's will have two customer perspectives; customers who contribute resources to the NPO / NGO and customers who receive the services and products of the NPO / NGO. In some cases, customers who receive services will not pay for the services. Payment is made from another source. Also, customers can under-score every perspective within the Balanced Scorecard. For example, the City of Charlotte, North Carolina has a balanced scorecard that includes Community Safety, Transportation, and Economic Development as perspectives. All of these perspectives have customers. Therefore, the customer perspective for NPO / NGO's is considerably different than commercial businesses.
Whereas the Financial Perspective tends to be important for commercial businesses, financials is not as critical for NPO / NGO's. For example, United Way 's balanced scorecard places the customer perspective at the top. Internal processes, such as improving efficiency, increasing capacities of local United Way 's, and delivering services, fall below the customer. The Financial Perspective is listed at the bottom since it does not represent a major strategic objective; financial activity is the lubricant or enabler for operations, but not a critical strategic objective.
Probably the biggest challenge for NPO / NGO's is to align existing resources with the strategic themes that have emerged from the strategic planning process. Alignment will usually flow in a similar fashion to commercial business scorecards. You start at the top where overall organizational management and strategies occur. Second, you move down to the operating units that will deliver the products and services in accordance with the strategic plan. Next, support services must design their scorecards to meet the needs of the operating units. Finally, scorecards are developed at the individual level based on the three layers above.
Since NPO / NGO's are facing more and more demands with fewer resources, it has become increasingly important for NPO / NGO's to be very selective in their strategies; focusing on those areas that will have the biggest impact. Balanced Scorecards are only as good as the strategic themes of the NPO / NGO. And the Balanced Scorecard will tell the NPO / NGO how well it is doing with its strategic themes. If performance is poor, it may be necessary to re-strategize and decide which initiatives should be continued and which should be discontinued. Balanced Scorecards represent a system of communication, providing feedback in relation to the strategic map of the NPO / NGO. The better the strategic map, the better the results you will get from the Balanced Scorecard.