PERFORMANCE MEASUREMENT IN NFPO

COURSE OUTLINE
 Week 01 – Introduction
 Week 02 – Advanced costing methods
 Week 03 – Assignment, Cost volume profit analysis
 Week 04 – Quiz, Planning with limiting factors
 Week 05 – Pricing
 Week 06 – Assignment, Relevant costing
 Week 07 – Mid-term Examination
 Week 08 - Quiz, Risk and uncertainty
 Week 09 - Budgeting
 Week 10 - Assignment, Quantitative analysis
 Week 11 - Quiz, Advanced variances
 Week 12 - Performance measurement and control
 Week 13 - Assignment, Transfer pricing
 Week 14 – Quiz, Performance measurement in NFPO
o Week 15 – Project Presentation
o Week 16 - Final Examination
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 maximize profit

• 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

• Another problem is that these organizations 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’
Problem of non-quantifiable objectives

Question/-

Discuss how a hospital should determine whether to allocate limited

surgical resources to expensive organ transplants or to more routine
hip/knee joint replacements ?
Performance measurement in NFPOs

• Not for profit organizations may have some no quantifiable objectives but
that fact does not exempt them from the need to plan and control their
activities

• A university is an example of a nonprofit making organization. The

performance of this not for profit organization must be assessed.
Measures may include :
 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
Performance measurement in NFPOs
Question/-

A charity which collects funds and donations and utilizes these in the care of terminally ill
patients. The governing body has set the manager three performance objectives for the
three months to 30 June 20X7:
• To achieve a level of donations of $150,000
• To keep administration costs to no more than 8% of donations
• To achieve 80% of respite care requested from the community

Actual results were as follows:

April May June
Donations($) 35,000 65,000 55,000
Administration costs ($) 2,450 5,850 4,400
Respite care requests (days) 560 570 600
Respite care provided (days) 392 430 510

Prepare a statement to assist the manager in evaluating performance against objectives

and comment on performance
The problem of multiple objectives

• Multiple stakeholders in not for profit organizations give rise to multiple

objectives. As a result, there is a need to prioritize objectives or to make
compromises between objectives

• A hospital will have a number of different groups of stakeholders, each

with their own objectives. For example 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
The problem of multiple objectives

Question/-

Describe the different groups of stakeholders in an international famine

relief charity. Explain how the charity may have conflicting objectives and
the impact this may have on the effective operation of the organization.
Value for money (VFM)

A common method of assessing public sector performance is to assess value

for money (VFM). This comprises three elements:

• Economy – an input measure. Are the resources used the cheapest possible
for the quality required? For example cost of books, computers and teaching
compared with the quality of these resources.

• Efficiency – here we link inputs with outputs. Is the maximum output being
achieved from the resources used? For example how often are the library
books that are bought by the university taken out on loan by students?

• Effectiveness – an output measure looking at whether objectives are being

met? For example the % of graduates who find full time employment within
6 months of graduating
Value for money (VFM)
Question/-

A local authority may have ‘maintaining an acceptable quality of life for elderly
residents’ as one of its objectives. It has several means by which it may achieve
this objective, including:

• Providing ‘meals on wheels’ (Social Services Department)

• Providing a mobile library (Libraries Department)
• Maintaining access to and facilities in local parks (Parks Department)
• Providing police support to the elderly at home (Police Department)
• Providing nursing homes (Housing Department)

Required:
Explain how the local authority would determine whether the service was
effective in providing VFM