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    BFIN 411

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    Ben Lagat
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    BFIN 411

    Uploaded by

    Ben Lagat
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    Assignment sample

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    © © All Rights Reserved

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    Download as docx, pdf, or txt
    3 views5 pages

    BFIN 411

    Uploaded by

    Ben Lagat
    Assignment sample

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    © All Rights Reserved
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    BFIN 411: PERFORMANCE MANAGEMENT

    1. Discuss how non-profit organizations use of key performance indicators to raise


    their finance (10mks)

    1. Financial KPIs

    Although nonprofits do not make a profit for owners or shareholders, they still have financial
    obligations that need to be considered. Examining financial KPIs ensures that the nonprofit is
    on the right track with its finances. The financial KPIs include:

    a) Fundraising Return on Investment (ROI)

    Fundraising ROI = (Total revenue – total expenses) / total expenses

    This metric evaluates the expenses incurred organizing a fundraiser against the revenue raised
    from that fundraiser. A negative fundraising ROI implies a loss, while a positive value
    implies a gain.

    Most nonprofits have limited staff and resources; therefore, the fundraising ROI can help an
    organization understand if its fundraising budget and resources are being used efficiently to
    obtain contributions and other support.

    b) Program Efficiency Ratio

    Program efficiency ratio = program expenses / total expenses

    The program efficiency ratio examines how well the organization is achieving its mission.
    The indicator is calculated by dividing the program expenses by the total expenses. A higher
    ratio means the nonprofit can comfortably cater to its program expenses. Typically, a healthy
    nonprofit has a program efficiency ratio of 75% or higher; however, this can vary based on
    the type of nonprofit. This ratio is important to many current and potential donors as it
    indicates how much of the organization’s resources are being used to directly support its
    mission.

    c) Liquidity

    Liquidity = Current assets – current liabilities

    Liquidity is the ability of the organization to get cash whenever needed. It is also called
    working capital or operating reserve. This KPI assesses the amount of money available in the
    organization. When evaluating liquidity, it is crucial to consider the cash conversion cycle.
    Low or negative liquidity may indicate the organization does not have sufficient assets to
    cover its upcoming financial obligations. It is typically recommended to maintain an
    operating reserve to cover at least 25% of the annual operating budget.

    d) Gifts Secured

    Gift secured refers to the number of gifts your nonprofit received over time. The standard
    time for evaluating gifts secured is annual; however, an organization can also evaluate
    monthly, quarterly, etc. You can analyze this KPI more effectively by segmenting your
    donors. To calculate, add the total amount of gifts received in a specified period.

    2. Marketing KPIs

    Nonprofit organizations rely on donors to raise revenue. Therefore, these organizations


    require aggressive marketing strategies to attract donations. Marketing KPIs help track the
    success of these strategies.

    a. Donor Growth Rate

    Donor growth rate = [(number of donors this year – number of donors last year) / donors last
    year] x 100

    The donor growth rate measures the changes in acquired or lost donors over a specified
    period. This metric is also important in conjunction with the donor retention rate, which
    measures the number of repeat donors from the previous year. A low rate may limit your
    organization’s ability to grow its fundraising efforts.

    b. Social Media Engagement Rate

    Social media engagement rate = (number of engagements / total number of impressions) X


    100

    The social media engagement rate examines how well users engage with the organization on
    social media platforms. User engagement plays a vital role in the effectiveness of marketing
    strategies. Social media engagements involve user interactions, including shares, likes, link
    clicks, or comments.

    An engagement rate of between 1% and 2% is satisfactory for most organizations. Using


    previous engagement rates as a benchmark can help your organization improve its
    effectiveness. Comparing the rates with other peers in the industry can also help evaluate
    efficiency.

    c. Email Open and Click-Through Rates

    Email open and click-through rates track the success of email marketing. Email open rates
    show the ratio of people who opened the emails to the total number of people who received
    emails. The average email open rate for nonprofits is 21.33%.

    The email click-through rate measures the number of people who have taken action on your
    email. The rate is calculated by dividing the number of people who clicked at least a link in
    the email by the total number who received it. A high click-through rate shows that the email
    marketing strategies are effective.

    3. Community Outreach KPIs

    Community outreach KPIs measure the effectiveness of your reach in the community.

    a) Beneficiary Growth Rate

    Beneficiary growth refers to the changes in the number of beneficiaries over time.
    Organizations can track this annually, quarterly, or monthly. This metric can help your
    nonprofit make operational decisions, determine how many people to hire, and budget for the
    upcoming years.

    b) Beneficiary Satisfaction Rate

    Organizations should survey how satisfied the community is with their services to indicate if
    their programs are effective. Beneficiary satisfaction rates can help nonprofits decide which
    programs to prioritize and which to get rid of.

    c) Evaluate Individual Programs

    Each fundraising event requires different amounts of resources. Evaluate each program to
    determine the total cost it takes to put on the event vs. the amount of revenue it brings in.
    This measurement will help you identify which programs to eliminate or focus on to improve
    donor growth and retention.

    d) Donor Restricted Net Assets

    Donors can often dictate how they want their contributions to be utilized. Measuring this can
    help you understand how much you have in “free” funds vs. cash with restricted use. This
    KPI can tell you what percentage of your contributions are designated by donors for a
    specific use.

    e) Cash Flow/Position

    The cash flow KPI calculates how much your organization is spending vs. receiving at a
    given time. It will give NGOs insight into the condition of the organization and whether you
    can continue to meet your financial obligations.

    2. Discuss what is meant by the following; - (10mks)


    a) Balance scorecard

    The balanced scorecard is a management system aimed at translating an organization's


    strategic goals into a set of organizational performance objectives that, in turn, are measured,
    monitored and changed if necessary to ensure that an organization's strategic goals are met.

    A key premise of the balanced scorecard approach is that the financial accounting metrics
    companies traditionally follow to monitor their strategic goals are insufficient to keep
    companies on track. Financial results shed light on what has happened in the past, not on
    where the business is or should be headed.

    The balanced scorecard system aims to provide a more comprehensive view to stakeholders
    by complementing financial measures with additional metrics that gauge performance in
    areas such as customer satisfaction and product innovation.

    b) Performance prism

    The Performance Prism (PP) is a performance management approach. It is a further


    development of the Balanced Scorecard performance management system. Basically, unlike
    the balanced scorecard, it employs a stakeholder approach to developing an organizational
    strategy. That is, it begins by focusing on the interest of all stakeholders - investors,
    employees, suppliers, vendors, and the community.

    c) Transfer pricing

    Transfer pricing is a legal technique used by large businesses to move profits around from
    parent companies to subsidiaries and affiliates to ensure funds are evenly distributed.
    However, many multinational corporations use it as a tactic to lower their tax burdens and
    end up fighting the IRS in court.
    d) Strategic management accounting

    Strategic management accounting involves the evaluation of external information regarding


    competitors in the marketplace, political/monetary policies affecting the market, current
    trends in prices, share and costs. The result of this evaluation is then focused on the available
    resources of the firm. So, management can determine the needed responses of the
    organization in order to be at the top in the market. Strategic management accounting goes
    beyond internal affairs to include all other external data and information. It aims to take
    strategic steps to beat the competition in the marketplace.

    e) Relative costing positioning

    A relative cost position is a detailed analysis that includes the production capacity and cost
    positions of all competing companies in the economic marketplace. Business owners use this
    information to create a chart indicating which companies have the lowest and highest relative
    cost position in the market.

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