ACCA F5 Chapter 14 Performance Measurement In Not-for-profit Sectors Flashcards

1 The problem of non-quantifiable objectives The not-for-profit sector incorporates a diverse range of operations including national government, local government, charities, executive agencies, trusts and so on. The critical thing about such operations is that they are not motivated by a desire to maximise profit.

1 The problem of non-quantifiable objectives Many, if not all, of the benefits arising from expenditure by these bodies are non-quantifiable (certainly not in monetary terms, e.g. social welfare). The same can be true of costs. So any cost/benefit analysis is necessarily quite judgemental, i.e. social benefits versus social costs as well as financial benefits versus financial costs. The danger is that if benefits cannot be quantified, then they might be ignored.

1 The problem of non-quantifiable objectives Another problem is that these organisations often do not generate revenue but simply have a fixed budget for spending within which they have to keep (i.e. a capital rationing problem). Value for money (‘VFM’) is often quoted as an objective here but it does not get round the problem of measuring ‘value’.

2 Performance measurement in not-for-profit organisations University overall: • overall costs compared with budget • numbers of students • amount of research funding received • proportion of successful students (by grade) • quality of teaching – as measured by student and inspector assessments • number of publications by staff. Individual department or faculty: • cost per student • cost per examination pass • staff/student ratios • students per class • number of teaching hours per member of staff • availability of learning resources, e.g. personal computer (PC) per student ratio • number of library books per student • average age of library books.

3 The problem of multiple objectives Multiple stakeholders in not-for-profit organisations give rise to multiple objectives. As a result, there is a need to prioritise objectives or to make compromises between objectives

3 The problem of multiple objectives • Employees will seek a high level of job satisfaction. They will also aim to achieve a good work-life balance and this may result in a desire to work more regular daytime hours. • Patients will want to be seen quickly and will demand a high level of care. There is potential conflict between the objectives of the two stakeholder groups. For example, if hospital staff only work regular daytime hours then patients may have to wait a long time if they come to the hospital outside of these hours and the standard of patient care will fall dramatically at certain times of the day, if most staff only work regular hours. The hospital must prioritise the needs of the different stakeholder groups. In this case, the standard of patient care would be prioritised above giving staff the regular daytime working hours that they would prefer. However, in order to maintain staff morale an element of compromise should also be used. For example, staff may have to work shifts but may be given generous holidays allowances or other rewards instead.

3 The problem of multiple objectives The stakeholders will include donors, people needing aid, voluntary staff, paid staff, the governments of the countries granting and receiving aid. There may be conflicting objectives. Donors and people needing aid will want all of the funds to be spent on famine relief. Management staff may require a percentage of the funds to be spent on administration and promotion in order to safeguard the long-term future of the charity. Donors may have their own views on how donations should be spent which conflict with management staff. The charity may wish to distribute aid according to perceived need. Governments in receiving countries may have political reasons for distorting information relating to need. These conflicts may make it difficult to set clear objectives on which all stakeholders agree.

4 Value for money (VFM) 1) Economy – an input measure. Are the resources used the cheapest possible for the quality required? 2) Efficiency – here we link inputs with outputs. Is the maximum output being achieved from the resources used? 3) Effectiveness – an output measure looking at whether objectives are being met

4 Value for money (VFM) Economy - this is about balancing the cost with the quality of the resources. Therefore, it will review areas such as the cost of books, computers and teaching compared with the quality of these resources. It recognises that the organisation must consider its expenditure but should not simply aim to minimise costs. e.g. low cost but poor quality teaching or books will hinder student performance and will damage the reputation of the university. Efficiency - this focuses on the efficient use of any resources acquired. For example: • How often are the library books that are bought by the university taken out on loan by students? • What is the utilisation of IT resources? • What % of their working time do lecturers spend teaching or researching? Effectiveness - this measures the achievement of the organisation's objectives. For example: • The % of students achieving a target grade. • The % of graduates who find full time employment within 6 months of graduating.