Hello, my name is Kori Kanayama of Kaoru Kanayama Consulting. I’m going to share an approach to assessing a nonprofit organization’s profitability and mission impact as a springboard to organizational sustainability. I presented this assessment methodology at the Spring AZENet conference.
This methodology can be done by nonprofit leaders, and by internal or external evaluators. It requires two kinds of data.
The first type of data is financial, and the task is to determine if each of the organization’s programs is making or losing money. The second type of data is mission impact data where a decision must be made on which indicators will be used to measure the impact of each program. Examples of indicators that could be used to assess impact include: Alignment with Core Mission, Program Excellence, Community Building Value, and Leverage.
After determining whether each program (or line of business) is making or losing money and whether the impact of each program is high or low, the data can be displayed on a simple quadrant matrix. Each program will end up in one (or could straddle two) of the four quadrants which show implications for the programs:
|Low Profitability||High Profitability|
|High Impact||HEARTAvoid making the choice to either shut it down or raise more money. Keep it, but control its costs. Too many of these make an organization unsustainable.||STARSeems to run itself, but resist the temptation to loosen oversight. Invest in these programs because this is where strategic growth opportunities are.|
|Low Impact||STOP SIGNInstead of holding onto this program, close it down or give it away. If making one last effort, do it with a budget and a deadline. Do an analysis on the impact of closing a business line, and pay attention to its effect on shared administrative costs.||MONEY TREEPrograms in this category need to be nurtured to increase their impact. Until impact is increased resist expanding, adding, or growing the program.|
Hot Tip: Allocate income and expenses as accurately as possible. Trying to prop up unprofitable programs defeats the purpose of the analysis. The point is to clarify the subsidizing relationships between business lines.
Hot Tip: This analysis can be incorporated into strategic planning, implemented at a board or senior staff retreat, or used as a stand-alone operational planning tool. See Jan Masaoka’s Blue Avocado blog post on alternatives to strategic planning which highlights the need to look at program impact and financial stability together.
Source Document: Nonprofit Sustainability by Jeanne Bell, Jan Masaoka and Steve Zimmerman.
My presentation at the AZENet conference.
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