Pixel Tracker

Monday, March 25 , 2019, 4:16 am | Fair 49º

 
 
 
 
Advice

Cynder Sinclair: Using a Financial Dashboard Helps Your Nonprofit Board Focus on Essentials

Financial oversight is one of the most critical responsibilities of a nonprofit board of directors, yet many boards fall short of optimum performance in this area.

Some aren’t sure where to start. Many don’t know how to gauge the financial health of their organization. Most are afraid that asking questions like “What reports should we be looking at?” or “What questions should I be asking?” will reveal their lack of understanding. So they keep quiet and pretend to understand.

Even if your organization produces monthly financial reports, understanding the implications of the data can be illusive for the very people who are charged with oversight.

Creating a financial dashboard — reports that illustrate key pieces of data, often in a graphical format — can focus attention on the vital signs of a nonprofit’s fiscal well-being.

A recent Forbes magazine article gives some excellent pointers on how to develop a financial dashboard and how to use it for optimum decision-making.

Graphs and visuals encourage storytelling, a sign of active interaction with the numbers.

Thoughtful financial analysis requires as many words as numbers. We encourage organizations to highlight meaningful variances — significant departures from budget — in financial reports.

Variance analysis goes beyond identifying financial trends. A nonprofit’s management team needs to be able to explain variances to the board and other stakeholders and determine appropriate action.

Seeing the numbers visualized prompts the question: “Why did we bring in less revenue than projected this quarter?” A practical conversation ensues: “Our income is actually highly seasonal. Should our revenue budget be modified to reflect this?”

Dashboards are effective tools for ensuring shared financial comprehension and engagement among board members.

Nonprofit boards are often a motley crew of professionals not accustomed to being at the same table: they may range from private-sector finance heavyweights to social-sector types. Given the varied governance responsibilities of a nonprofit board, a healthy tension among perspectives is inevitable, but it can be a tricky dynamic to manage.

Dashboards create a common language between board members, allowing those inclined to pore over the financials to communicate with those less driven by financial data.

Dashboards also convey to the board the level of information that is expected — and appropriate — for them to be familiar with.

The process of developing a dashboard can help define measures of success.

Leaders of dynamic nonprofit organizations move fast. When faced with time-sensitive decisions — about things like funding, program changes and partnerships — it helps to have a shared understanding of the organization’s priorities and measures of success.

By coming together to design a concise reporting tool, organizational leaders are forced to make choices — simply because you can’t pay attention to everything at the same time.

If any of the above sounds familiar, then a dashboard may be a useful tool for your organization. Developing the dashboard report in a thoughtful and inclusive way is essential, in order for the tool to be accepted and used by decision-makers across the organization.

Here are a few pointers to help get you started:

Create a diverse working group to identify what matters to your organization.

One of my clients, a growing youth-services organization, assembled a dashboard project team comprised of leaders from finance, development and programs. The team brainstormed valuable metrics from their respective functional areas to track over time.

This wish list was progressively brought into focus. By the end, the group had settled on a dozen metrics that they agreed the organization needed to pay attention to in order to succeed.

While this short list of measures will vary by organization, here are a few standard areas that we recommend tracking:

» Operating results for the organization and major programs

» Strength of balance sheet measures, particularly liquidity

» Fundraising performance

» Program outcomes tied to your theory of change.

Measure performance against a desired target. 

Displaying targets alongside actual performance on a graph helps tell an interesting story about different parts of an organization: revenues, expenses, program results. Setting targets is an exercise informed by historical data and gut instincts.

A good place to start is the current fiscal year’s operating budget. As you reforecast and adjust your budget, update your dashboard’s targets accordingly.

Pilot the dashboard for a set time, then re-evaluate.

Dashboards are only as useful as their applications. It can be tempting to stay in perpetual R&D mode to arrive at the perfect set of metrics, but you miss out on valuable user feedback.

Another data-savvy client, a food justice organization, committed to piloting their dashboard for a full year. They identified strategic questions for each graph to guide the conversation.

For example: Do year-to-date trends in budget-versus-actual performance align with seasonality and timing expectations? How does the number of people served relate to impact goals for each program area?

Build a dashboard that you can maintain.

There are many options for building dashboard reports: ranging from Microsoft Excel to systems like Intacct or Salesforce. An automated dashboard on a specialized software platform may seem ideal, but you can develop perfectly functional dashboard reports in Excel.

Rather than over-engineering your dashboard, prioritize a tool that will be painless for you to update on a monthly or quarterly basis.

Click here for a sample dashboard from CompassPoint as a good example of how relatively simple dashboards can be highly effective decision-making tools.

Over the past 10 years, dashboards have emerged in nonprofit parlance as a “best practice” for financial management. They are not a fix-all, but if financial reporting feels like an administrative, rote exercise at your organization, then a dashboard may be just the thing to energize internal discussions around finances.

— Dr. Cynder Sinclair is a consultant to nonprofits and founder and CEO of Nonprofit Kinect. She has been successfully leading nonprofits for 30 years and holds a doctorate in organizational management. To read her blog, click here. To read her previous articles, click here. She can be contacted at 805.689.2137 or .(JavaScript must be enabled to view this email address). The opinions expressed are her own.

Support Noozhawk Today!

Our professional journalists work tirelessly to report on local news so you can be more informed and engaged in your community. This quality, local reporting is free for you to read and share, but it's not free to produce.

You count on us to deliver timely, relevant local news, 24/7. Can we count on you to invest in our newsroom and help secure its future?

We provide special member benefits to show how much we appreciate your support.

Email
I would like give...
Great! You're joining as a Red-Tailed Hawk!
  • Ask
  • Vote
  • Investigate
  • Answer

Noozhawk Asks: What’s Your Question?

Welcome to Noozhawk Asks, a new feature in which you ask the questions, you help decide what Noozhawk investigates, and you work with us to find the answers.

Here’s how it works: You share your questions with us in the nearby box. In some cases, we may work with you to find the answers. In others, we may ask you to vote on your top choices to help us narrow the scope. And we’ll be regularly asking you for your feedback on a specific issue or topic.

We also expect to work together with the reader who asked the winning questions to find the answer together. Noozhawk’s objective is to come at questions from a place of curiosity and openness, and we believe a transparent collaboration is the key to achieve it.

The results of our investigation will be published here in this Noozhawk Asks section. Once or twice a month, we plan to do a review of what was asked and answered.

Thanks for asking!

Click Here to Get Started >

Reader Comments

Noozhawk is no longer accepting reader comments on our articles. Click here for the announcement. Readers are instead invited to submit letters to the editor by emailing them to [email protected]. Please provide your full name and community, as well as contact information for verification purposes only.

Daily Noozhawk

Subscribe to Noozhawk's A.M. Report, our free e-Bulletin sent out every day at 4:15 a.m. with Noozhawk's top stories, hand-picked by the editors.

Sign Up Now >