Dashboards: Measuring the organisation

1. Dashboards:Measuring the organisation�s performance  Alan Hough Research Student Australian Centre of Philanthropy and Nonprofit Studies, QUT Building Better Boards 2008

2. In this presentation, I am going to take you on a journey. First, I will be explaining why it is important that we know what is going on in our organisations. Then I will explain how we can know this. I will outline possible sources of information, and make suggestions about the sorts of information we should be seeking in of our role as directors. It will all sound so simple. Whenever there is a crisis in an organisation, the public asks �Where was the board?�, �Why didn�t they know?� and �Why didn�t they stop it?� Surely it was a simple task. But sometimes it is not simple to understand what is going on in our organisations. The reality is that we well never know everything there is to know. In the third part of the presentation, I will explain the reasons why. Now by this stage of the presentation, it might all seem a bit depressing, and we might wonder why we even try. But despite the fact that we will never know everything, there are things we can do to improve our understanding, and to help make sense of information that is usually incomplete and overwhelming. Finally, I want to talk about how we can influence what is going on in our organisations for the better. What I will be doing though is challenging some of the prescriptive notions about what constitutes an effective board. I want to open the possibility that there are different ways in which boards can be effective. We often come to events such as this seeking simple solutions and rational actions. And yes, there will be a bit of that in this presentation. But I also want us to be more comfortable in the complexity and uncertainty in our role as directors.In this presentation, I am going to take you on a journey. First, I will be explaining why it is important that we know what is going on in our organisations. Then I will explain how we can know this. I will outline possible sources of information, and make suggestions about the sorts of information we should be seeking in of our role as directors. It will all sound so simple. Whenever there is a crisis in an organisation, the public asks �Where was the board?�, �Why didn�t they know?� and �Why didn�t they stop it?� Surely it was a simple task. But sometimes it is not simple to understand what is going on in our organisations. The reality is that we well never know everything there is to know. In the third part of the presentation, I will explain the reasons why. Now by this stage of the presentation, it might all seem a bit depressing, and we might wonder why we even try. But despite the fact that we will never know everything, there are things we can do to improve our understanding, and to help make sense of information that is usually incomplete and overwhelming. Finally, I want to talk about how we can influence what is going on in our organisations for the better. What I will be doing though is challenging some of the prescriptive notions about what constitutes an effective board. I want to open the possibility that there are different ways in which boards can be effective. We often come to events such as this seeking simple solutions and rational actions. And yes, there will be a bit of that in this presentation. But I also want us to be more comfortable in the complexity and uncertainty in our role as directors.

3. Why understanding your organisation�s performance is important There are two reasons. The first is conformance issues, and the second is performance. To begin with the conformance aspect � There are two reasons. The first is conformance issues, and the second is performance. To begin with the conformance aspect �

4. Conformance ASIC v Adler & Ors Familiar with fundamentals Keep informed about activities Monitor org�s affairs and policies, by attending meetings, and Familiar with the org�s financial status In ASIC v Adler & Ors ([2002] NSWSC 171 at para 372(8)), the Court cited Daniels v Anderson and then itemised the responsibilities of directors: (a) a director should become familiar with the fundamentals of the business in which the corporation is engaged; (b) a director is under a continuing obligation to keep informed about the activities of the corporation; (c) directorial management requires a general monitoring of corporate affairs and policies, by way of regular attendance at board meetings; and (d) a director should maintain familiarity with the financial status of the corporation by a regular review of financial statements. Indeed, he or she will be unable to avoid liability for insolvent trading by claiming that they had never learned to read financial statements ...In ASIC v Adler & Ors ([2002] NSWSC 171 at para 372(8)), the Court cited Daniels v Anderson and then itemised the responsibilities of directors: (a) a director should become familiar with the fundamentals of the business in which the corporation is engaged; (b) a director is under a continuing obligation to keep informed about the activities of the corporation; (c) directorial management requires a general monitoring of corporate affairs and policies, by way of regular attendance at board meetings; and (d) a director should maintain familiarity with the financial status of the corporation by a regular review of financial statements. Indeed, he or she will be unable to avoid liability for insolvent trading by claiming that they had never learned to read financial statements ...

5. Performance Good information can help the board to influence the organisation in a positive way

6. The importance of board routines We have routines for financial information But not for the explicit and systematic assessment of non-financial performance

7. 2. Mechanisms for understanding

8. How do we find out what�s going on inside our organisations Operational reports Financial reports Client/member experience Potential and former client/members experience Staff experience (paid or volunteer) Funders Accreditation/standards Organisational newsletters and documents Regulators Personal experience and informal conversations External networks Risk assessments Media I just want to comment on a few of these sources. First, auditors. In addition to the audit statement, auditors will often provide what is known as a �management letter� or �management report�. This document will comment on the adequacy of financial systems and controls. To give an example of what you might find in a management letter that you won�t find in an audit report � Bank reconciliations not completed. The other thing is to note that directors can, of course, ask auditors to review particular areas of the organisation. Second, a comment about funders for those organisations who have them. My experience is that boards often don�t ask to see the terms of contract/grant, and don�t ask to see the reports that are lodged. In organisations with one major funder, the report to the funder is often an important document, and is often one that the board might consider. If you have a number of different funders, you might not want to see each and every report, but you want to have a system in place � such as a compliance report � that informs you that reports have been lodged and have been lodged on time. Compliance reports should cover funding contracts and agreements, documents required for regulators (e.g. Business Activity Statements), and documents required to be lodged with ASIC or state-based regulators. Third, personal experience and informal information. As I have noted, there is obviously a need for balance here. There is obvious danger relying on isolated scraps of information. But this information might prompt us you to ask questions or to seek other information.I just want to comment on a few of these sources. First, auditors. In addition to the audit statement, auditors will often provide what is known as a �management letter� or �management report�. This document will comment on the adequacy of financial systems and controls. To give an example of what you might find in a management letter that you won�t find in an audit report � Bank reconciliations not completed. The other thing is to note that directors can, of course, ask auditors to review particular areas of the organisation. Second, a comment about funders for those organisations who have them. My experience is that boards often don�t ask to see the terms of contract/grant, and don�t ask to see the reports that are lodged. In organisations with one major funder, the report to the funder is often an important document, and is often one that the board might consider. If you have a number of different funders, you might not want to see each and every report, but you want to have a system in place � such as a compliance report � that informs you that reports have been lodged and have been lodged on time. Compliance reports should cover funding contracts and agreements, documents required for regulators (e.g. Business Activity Statements), and documents required to be lodged with ASIC or state-based regulators. Third, personal experience and informal information. As I have noted, there is obviously a need for balance here. There is obvious danger relying on isolated scraps of information. But this information might prompt us you to ask questions or to seek other information.

9. Good information systems are � Concise Clear Timely Relevant to organisational strategy and the board�s work The best available Based on past performance, but forward-looking Contextualized, with interpretation and analysis Comparative Integrate internal and external reporting Graphically depicted

10. We will never know everything because � The sheer quantity of potential information The cost of potential information Reflect for a moment on the previous slide on potential sources of information. Can our organisation afford the cost of assembling all that data? Can we as individual directors � often performing these roles in our spare time � cope with the sheer quantity of information Sometimes performance is unknowable: Data cannot be obtained: where we deliberately don�t seek information on clients because it might be threatening, or our interaction with client is brief Causality difficult to determine: e.g., health promotion programsReflect for a moment on the previous slide on potential sources of information. Can our organisation afford the cost of assembling all that data? Can we as individual directors � often performing these roles in our spare time � cope with the sheer quantity of information Sometimes performance is unknowable: Data cannot be obtained: where we deliberately don�t seek information on clients because it might be threatening, or our interaction with client is brief Causality difficult to determine: e.g., health promotion programs

11. 3. The Nonprofit Dashboard

12. Butler�s The Nonprofit Dashboard $47, with CD of Excel tools and Word surveys Just one of many alternatives: e.g. for larger organisations, Pentaho freeware

13. Why a Dashboard A useful summary and addition to your Governance Information System Focused on key issues Routine format Omissions more likely to be noticed Can assist in: Organisational learning Internal and external accountability Improving performance

14. The Nonprofit Dashboard Visual display Can be linked to your mission +/or plan Based on key measures of performance Can include lagging and leading indicators

15. 4. How a Dashboard might be developed

16. Two methods of development A �quick and dirty� process where the CEO puts together a Dashboard for the board to play with But the board still needs to learn about the socialization strategies A considered process Examine info currently provided Interview key staff Ask board members what they need to know Review data systems and integrity (e.g. definitions) Review Scorecard formats and frequency Learn how to use the information Maintain the system: GIGO

17. 5. How a Dashboard might be used

18. Dean Spitzer, Transforming performance measurement: �One of the major reasons why performance measurement is seldom able to deliver on its positive potential is because it is almost never properly �socialized�, that is, built in a positive way into the social fabric of the organisation.�

19. How we can use the Dashboard To create a routine for monitoring performance Rule of thumb: Takes 6 occasions of use before groups really understand how to use the information Think out loud about our org�s performance Ask �What does this mean for my knowledge of the organisation? Ask �What does this mean for stakeholders?� Comparisons: historical performance, planned performance, standards, ratios, other organisations

20. What we know about the use of performance information Information used punitively will result in �gaming� Financial rewards will result in a concentration on the measures Organisations often measure what is easy to measure, not what is important People often demand more information than they use in practice Watch for �measurement churn�

21. 6. Why all performance measurement and management systems are both a solution � and a problems

23. Behavioural responses Saints: Honest about any deficits Honest Triers: Will not volunteer deficits, but will acknowledge if asked Reactive Gamers: Will meet the monitored target, even at the cost of dysfunctional consequences Rational Maniacs: Will knowingly conceal performance (Bevan and Hood 2006)

24. For performance measurement to be productive � 1. (a) Saints + Honest Triers > Reactive Gamers + Rational Maniacs, and (b) Targets don�t result in a shift from former to latter, or 2. Good measures are sufficient proportion to ensure adequate information (Bevan and Hood 2006)

25. Limitations of data on nonprofit performance Technical issues of management can be challenging Availability �v- cost Distinguishing contribution to outcomes Factors beyond the organisation�s control Data generalizability �Absence� data Difficult constructs Interpretability given absence of comparisons Paradoxical effects and unintended consequences

26. In conclusion � Dashboards are one means for improved monitoring of performance Successful implementation requires attention to the technical and the human elements