Performance in the Not-For-Profit Sector

1 Introduction

Non-profit seeking organisations are those whose prime goal cannot be assessed by economic means. Examples would include charities and state bodies such as the police and the health service.

For this sort of organisation, it is not possible or desirable to use standard profit measures. Instead (in for example the case of the health service) the objective is to ensure that the best service is provided at the best cost.

In this chapter we will consider the problems of performance measures and suggestions as to how to approach it.

2 Problems with performance measurement

• Multiple objectives
  

Even if all objectives can be clearly identified, it may be impossible to identify an over-riding objective or to choose between competing objectives

• The difficulty of measuring outputs
  

An objective of the health service is obviously to make ill people better. However, how can we in practice measure how much better they are?

• Financial constraints
  

Public sector organisations have limited control over the level of funding that they receive and the objectives that they can achieve.

• Political, social and legal considerations
  

The public have higher expectations from public sector organisations than from commercial ones, and such organisations are subject to greater scrutiny and more onerous legal requirements.

• Little market competition and no profit motive.

3 Value for money

Non-profit organisations, such as the health service, are expected to provide value for money. This can be defined as providing a service in a way which is economical, efficient and effective. Performance should be assessed under each of these ‘3 E’s ‘

Effectiveness

Determining how well the organisation has achieved its desired objectives.

Efficiency

Maximising the output for a given input (or, for a given output achieving the minimum input).

Economy

Attaining the appropriate quantity and quality of inputs at the lowest cost

4 The use of league tables

In the UK, the government insists that schools, police forces, hospitals and other public bodies publish league tables relating to their performance. For example, schools publish their exam grades. The government instigated league table reporting to provide the public with information that might be useful to make more informed choices and to put pressure on under-performing public-funded institutions. Managers in the institutions are themselves sensitive to this public reporting of performance. Generally, they dislike it, but the hope is that the transparency offered by league tables about performance encourages improvements in performance.

Potential problems:

• What should be measured? Not-for-profit organisations usually have complex sets of stakeholders and objectives. There is no single, agreed measure of what, say, a good school is, so league tables might over-simplify a complex appraisal. Of course, separate tables could be produced using several measures for each organisation – but that approach is likely to become complex and confusing to use. If the measures are summarised into one score, details are lost and the weightings given to each component might be arbitrary.
  

• Is the data ‘fair’? For example a school in a poor area of town, where there is less parental support, might find it hard to achieve the exam grades of a school in a prosperous area. Similarly the health problems and outcomes of people in a hospital’s catchment area will vary greatly depending on whether that area is affluent or poor.
  

• Manipulation of data. A police force can flatter its success at solving crimes by simply not recording some crimes. Doctors might not attempt risky, but necessary, procedures in case their success rate or that of the hospital’s declined.
  

• Magnification of differences. Three organisations achieving scores of 75, 74.5 and 74 will be labelled 1, 2, 3 which could mask the fact that there is really no material difference in performance.