Nonprofit Excellence in an Outcomes-Based World

Social change is hard. It is no small matter to shift the systemic patterns of society that have left people struggling with poverty and inequality. But we in the nonprofit sector have devoted ourselves to just that work. And we want to know how we’re doing.

According to Nonprofit Finance Fund's 2015 State of the Sector Survey, 74% of the 5,451 nonprofits surveyed said that they collect outcomes data. 81% say they use outcomes or outputs data to help make decisions. Although ‘outcomes’ and ‘outputs’ data mean different things to different people, it is clear that organizations are paying increased attention to evaluating the results of our work.

With better knowledge of what works, organizations, funders, government officials, policymakers and other stakeholders can rethink how to fund solutions to social problems. Impact measurement has the potential to transform how social sector services are financed and delivered. However, arcane measures of operating efficiency like overhead have for too long dominated the conversation about nonprofit performance. We can do better.

The good news is that funders also care about results-driven approaches. The bad news is that funders do not always put their money behind that belief.71% of NFF’s survey respondents said that at least some funders require certain outcomes for funding. But 68% say funders "rarely" or "never" cover the costs associated with tracking outcomes.

So, what can nonprofits do to create a funding environment that fosters the right kind of progress towards an outcomes-based world? To begin answering this question, we looked to the leaders in the field and found five common characteristics in how they managed their operational realities:

Center for Employment Opportunities (CEO) provides comprehensive employment services for people with criminal records. CEO's theory of change suggests that if the employment needs of people with criminal convictions are addressed when they are first released from incarceration (or soon after), they will be less likely to return to jail. From there, CEO articulates a clear model for services, along with various measures of near and longer-term success.

In 2004, CEO undertook a randomized control trial to test their theory of change and evaluate its impact. CEO's demonstrated appetite for rigor in program design and evaluation was a strong factor in attracting philanthropic support.

CEO also has an extremely sophisticated understanding of its full costs, including categories such as operating expenses, savings, depreciation, reserves, outcomes measurement, and more.

In addition to ongoing program support for the critical services that the organization provides, CEO received targeted investments for organizational infrastructure, including a data tracking and performance management system, and a human capital* development plan. Combining its theory of change, outcomes measures, culture of continuous improvement, and knowledge of what it takes to sustain complex operations year after year, CEO was well positioned to receive $13.5MM in the nation’s third Pay for Success project.

Most organizations may not be as far along as CEO on the impact measurement continuum. But CEO still provides a shining example of the importance of articulating impact and full costs in a clear story. Resources exist to help all organizations get started. Financial SCAN**, a collaboration between our organizations, makes basic financial information and peer comparisons available online for all nonprofits that file Form 990 information with the IRS. Without understanding the long-term investments needed to successfully achieve—and measure—outcomes, the added costs come with even greater risks as we enter an increasingly outcomes-based world.

Nurse-Family Partnership’s (NFP) three decades of research proves the effectiveness of the organization's home visitation programs in producing dozens of positive outcomes, such as improvements in prenatal health, child development, and academic achievement. NFP's research includes Randomized Control Trial data and a national performance management system that collects data on each home visit. With data as the foundation, Nurse-Family Partnership’s leaders can advocate with local, state, and federal legislators to obtain sustainable public funding for agencies that are implementing and replicating home visitation programs. In 2010, President Obama signed into law the Patient Protection and Affordable Care Act, which includes $1.5 billion in mandatory funds for the Maternal, Infant and Early Childhood Home Visiting program. NFP is one of 17 agencies that are considered evidence-based under this program. Ultimately, this legislation has helped systemize public funding for NFP’s delivery and growth, along with many other home visitation organizations working towards the same goals.

Nurse-Family Partnership highlights how educating stakeholders about the outcomes achieved by their programs can influence evidence-based policy, ensuring the infrastructure for longer-term sustained support. They also demonstrate how nonprofits are increasingly recognizing the role they can play in creating a more supportive policy environment for society’s critical needs. In NFF’s 2015 survey, 33% of respondents said that they advocated to government on behalf of their organization’s cause.

Another important element of impact measurement is to educate supporters and investors on the economic impact of your nonprofit’s work. Nonprofits operate in the context of communities; their impact occurs within an ecosystem. That impact might be cultural, social, or economic. In Massachusetts, the Worcester Center for the Performing Arts demonstrated significant impact when they transformed an abandoned cinema into a 2,300-seat auditorium at the center of a new theatre district. An impact study conducted in 2008 projected that the project would create 135 jobs in the community, generating an estimated $5.5 million in annual income for local businesses. With the support of the New Markets Tax Credits Program, WCPA’s project ultimately created jobs for 18 full-time staff and 250 part-time staff, and the organization spends the majority of its $8.5 million annual operating budget locally. Surrounding businesses have also benefitted from the increased consumer spending of 600,000 new patrons who have been drawn downtown in the past several years. The project spurred further investment in the surrounding area.

While collecting this type of data can be challenging, there is a vast body of knowledge on how community-based organizations revitalize communities. Resources include Americans for the Arts and the Federal Reserve.

One of the common characteristics you will find among all of the high-impact organizations we discussed is a thoughtful attention to learning and network building. Conversations about the cost of measuring impact present the opportunity to redefine partnerships between service providers, funders, investors and government agencies around a shared vision for better outcomes. This means leveraging and building the right networks, and sharing the knowledge gained through collective research. Nonprofits can use platforms such as GuideStar’s Nonprofit Profile to share their impact stories publically or NFF’s Pay for Success Learning Hub to learn about best practices in the field. They can also band together around common definitions by using the IRIS comprehensive list of standard impact metrics.

Evolution is difficult, unpredictable, and risky. When CEO sought to build a ‘culture of continuous improvement,’ it demonstrated that collecting and responding to data requires an unrelenting, iterative approach to improvement—in programs, finance, and capacity. As nonprofits embrace this culture of adaptation, funders must also adapt their strategies to meet grantee needs, such as providing long-term investments, thinking beyond the grant, and financing collectively. They must also allow nonprofits to move along the impact measurement continuum at their own pace, while recognizing that social change is more than a data set or dollar figure. And in the end, it’s the stories behind these numbers that matter—stories about the people, the communities, and the ecosystems we seek to serve.

*Note: NFF now uses "people and skills" in place of the term "human capital" to describe the abilities, values, and perspectives people bring to an organization beyond their contribution to the organization's bottom line.

**As of October 2018, Financial SCAN is now the Financial Trends Analysis platform. Visit Guidestar by Candid for more information.