Working Papers

Non Profit organisations (NPOs) provide important services throughout the world. Their scope covers inter alia health and welfare, research, education, social organisations, and professional associations. In pursuit of their charitable purpose(s), NPOs mobilise and use a large amount of funds. The fundamental reason for non-profit performance assessment is to determine how well an organisation is fulfilling its mission. Measuring and managing performance is a difficult task in any kind of organisation and more so in case of NPOs. The difficulty arises mainly due to the characteristics of NPOs which are distinct from those of for-profit organisations (POs). In view of the same, the concepts and tools used for performance measurement of POs may not be easily transferable to NPOs. Based on such considerations, various studies have suggested both financial and non-financial measures of performance for NPOs. This Paper reviews and evaluates various financial and non-financial performance measures proposed by various studies. The salient observations are (i) Under financial measures, three distinct performance categories viz. fundraising efficiency, public support and fiscal performance emerge from various studies; (ii) Few financial ratios across the three performance categories are found to be significant. They include relationships between: (a) direct public support and fundraising expenses (b) total revenues and fundraising expenses (c) total contributions and total revenues (d) direct public support and total assets (e) total revenues and total expenses, and (f) total contributions and total expenses; (iii) The equity ratio, revenue concentration ratio, administrative cost ratio, and operating margin are found to be good predictors of financial vulnerability of NPOs. (iv) The major limitations of financial measures are: (a) Difficulty in comparability and benchmarking across NPOs due to different accounting practices for similar transactions, (b) Adverse impact in the long run of focus on one performance category in short run, (c) Absence of single source of basic data for computation of financial measures, (d) Permits only post-facto analysis, and (e) Possibilities of misreporting; (v) Results measures, process measures, and social indicators are used by NPOs as measures of output; (vi) NPOs have also started using the Balanced Scorecard to derive performance measures from their strategies. Such Scorecards have NPOa??s mission as driving force, followed by the donorsa?? perspective and the recipientsa?? perspective in parallel, followed by internal processes perspective, and finally, learning and growth perspective.