Charity Financials: Ask yourself what impact you make

How can you measure impact?

Charity financials can be complex and hard to understand. What would you say if a funder offered you an additional £1m, but wanted to know what difference it would make to the ordinary person on the street? Several years ago, this question was posed to one of the charities I work with, and it really made us think.

We had plenty of information about where the charity’s money came from, and we knew what we spent it on. We had decent finance systems with cost centres and detailed analysis of actual spend compared with budget.

But what did all this tell us about impact? Not very much, is the short answer. What we had was a good record of historical costs, but this told us only about the resources that were being put into activities – the inputs. There was no link to the outcomes for the beneficiaries. And the funder was asking a very good question – if we push in more funding (more inputs), how does this translate through activities to outputs?

This is where charity finance professionals add value

Charities that develop a better understanding of the links between inputs, activities and outputs will be in a better position to respond to opportunities. They are also more likely to learn more about which programmes work best for their beneficiaries.

So we need to start by looking at the processes and understanding where time and effort has to be applied. Staff activity equals cost, so we need to understand which activities really matter and work out whether there are better ways of working. One example I saw was a training programme where staff were spending a lot of time recording details on a database but trainees were dropping out. Switching staff attention to the pastoral care of trainees improved the outcomes for trainees and the finances, and the number of performance indicators required was reduced.

Measuring outcomes is more difficult for many charities, because they cannot always track the full outcomes. For example, if your charity provides advice, you can ask the clients if they were satisfied with it. You won’t necessarily know whether the advice helped them to sort out their whole problem, but you do now have information that you spent a certain amount of time with a client and you have their feedback. It will not be too big a leap to create reports showing the cost of each hour of advice, the cost per client and the quality of the outputs. You probably also have information about the category of the advice sought. You are therefore beginning to report on the effectiveness of your work.

Chasing after perfection in this type of reporting won’t help you. In my experience, it’s best to start reporting something – it will generate a discussion, and flawed numbers can be corrected. Financial professionals have the skill and ability to offer clear analysis of processes to help charities link inputs to outcomes within charity financials – and improve.