Stemming from a blog he authored for PICPA’s CPA Now, Michael Cade, strategy consultant and executive coach for MFCCoach LLC in Morrisville, joins us to discuss how vital it is for CPAs at nonprofits to understand organizational performance if they are going to help their employers achieve their missions. He provides details on critical driver analytics and communicating with nonprofit leaders. Get more insights from Cade at his blog, Not for Profit – Beyond the Numbers.

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By: Bill Hayes, Pennsylvania CPA Journal Managing Editor

Podcast Transcript

For nonprofit leaders, it would be incredibly tough to know if their organization is achieving its mission if they don't understand organizational performance, but whose responsibility is it to communicate this information and what sort of data and analytics do they need to be aware of? To discuss this today, we are with Michael Cade, strategy consultant and executive coach for MFCCoach LLC in Morrisville.

How important is it for nonprofit leaders to understand organizational performance if their nonprofits are going to achieve their missions?

[Cade] I think it's crucial and I think it's important to be clear that it's not just about the numbers. It really is understanding how the operation is working going forward and not just “What are the normal metrics that we see?” It's really important for them to get the whole picture.

Whose responsibility is it to communicate this information to nonprofit leaders and what do you think the best way to do it is?

[Cade] That's a big challenge. Organizations tend to have different functional leaders and they tend to each have a little slice of the pie. It's really important in a not-for-profit that everyone find a way to work together to give the senior management and the board a comprehensive look from multiple perspectives. That would be your finance leader and your operational leader and some of the other functional leaders actually looking at how those metrics work together and supporting each other instead of just saying, “Oh, here's the finance report and here's the HR report and here's the operations report.” They should all be tied together to see the common threads.

What are the critical driver analytics and what are a few examples of some of those that would be valuable for nonprofit leaders to be aware of?

[Cade] Every organization is going to have different drivers on performance and these are the underlying factors; these aren't results. We're used to, in the CPA world, talking about what happened and that's the results; these are the things that are happening. These are the ongoing things that happened every day during the operation. You want to make sure that you understand them and how they change over time. An example may be utilization or capacity. I think of a professional services organization, somebody who's doing service saying, “One of our important critical metrics is head count. How many people do we have available to provide that service?” And then backlog being how many clients are there that need the service? You're not looking at the “Here's what happened last month,” you're looking at “Where are we right now? And what direction are we moving in? And is it really helping us meet our mission”

When they're putting together a picture of organizational performance, why is it important for CPAs to include data not only from the finance department, but from departments outside?

[Cade] The financial data that we normally see in reporting is a lot about the “what happened.” Like I said before, it's results. It's “Here's how we met against our budget, here's how we achieved against some expectation.” When you add in the operational sides of the business, you're talking more about the how it happened and then you can start having deeper discussions about strategy. It's not just how we got here or what we did to get there, but how we got there and is it sustainable? Is it something that we can continue to do? Are our operations efficient? You can start asking a whole lot more questions than just, why were we under budget last month? When you get into this additional information, you can say, “Well, how did we meet the number? Is it sustainable? Do we expect it to go in the future? Is it heading in a good or bad direction?”

The podcast we're doing today was off of a blog that you did for our site, CPA Now, and, in it, you talked about how a CPA, when providing an idea of performance, must assess possibilities and realities. What exactly does that mean: possibilities and realities?

[Cade] I think we again tend to measure ourselves against numbers. Every organization has a budget and we tend to say, “Okay, we've either made or didn't make our budget,” but that's only part of the equation. What you really want to think about as far as performance is what should we have been able to have achieved? So this is a bigger, broader question than saying, “Yes, we have a budget and we need to make our budget and that's important, but is that straining the system? Is there air in the system? Could we do better?” It's basically looking at what's going on around us and within the organization and saying, “Are we doing as well as we could,” and in a not for profit that's incredibly important because everyone's focused on the mission and you want to do the best you possibly can. So you need to think a little bit when you're doing performance, you say, “Well yeah, we met our expectations, but should we have been able to do more?”

You said right there, “Every organization has a budget.” So, obviously there's some comparisons that can be made between a CPA's nonprofit and other nonprofits, right? How important is it to compare yourself against similar organizations when you're measuring performance?

[Cade] It's critically important to know what's going on in your sector, and this goes for any business. This isn't just in the not-for-profit space, but I think it’s even more so in the not-for-profit space. You have a budget, you start the year, and reality happens. So, if you expected your donations to go up by 5%, and in your sector everything's going up by 25%, you don't pat yourself on the back because you got 5% at the end of the year. You say, “Well, why didn't we get 25? Why didn't we get 30? Why didn't we get 40?” And the opposite is true as well. If you're expecting 10% growth in contributions and the sector is just flat, the money is just moving away from it, then you have to understand that you know you're going to have to do something different in order to make those numbers. So, looking outward in an organization, not just measuring against yourself, is really just critically important to figuring out where you fit in the sector and how you want to move going forward.