Strengthening Nonprofit Operations Planning through Self-assessment

A nonprofit’s operations are built into every aspect of what it does and how it does it. Strong back-office operations, including accounting, bookkeeping, information technology, human resources, and compliance, strengthen nonprofit organizations, enabling mission impact. Decisions about operations directly impact the scale, scope, and delivery of programs and services. 

In previous articles, we discussed why minimizing overhead is not an effective strategy and the need for strategic planning to include operational planning

But what can nonprofit organizations do to increase their focus on operations? As a first step, we suggest starting with an operations self-assessment.

Why an operations self-assessment?

Most nonprofit organizations compile and disclose information annually to federal and state governmental agencies, the public, the Board of Directors, and to other stakeholders through:

  • An annual financial audit
  • The IRS 990 Form
  • An annual report, and more.

This documentation reports a nonprofit’s compliance, financial stability, tax exemption, employment, and other practices, ensuring that the organization is fulfilling its agreements to be mission-based, not maximize profit, and create a public benefit. 

Some estimates for a nonprofit’s operations and personnel expenses are reported in these filings (i.e. the administrative category in the “allocation of functional expenses” on the Form 990”). But that’s it. There is no annual operational audit of processes or reporting, equivalent to a financial audit. There also is no annual operational report of activities or impact, equivalent to an annual report. 

We believe that this lack of attention to operations contributes to:

  • Operational processes not being proactively managed or invested in
  • Operations not being resilient or adaptive in the face of emergency or changing circumstances
  • Operational problems not getting addressed until systems are seriously broken or the organization is out of compliance with regulators or funders
  • Operational practices increasing an organization’s risk of not being effective or capable of fulfilling its mission

There is great potential for organizations to be more proactive in managing their operational strategy. But there needs to be a baseline to understand how things currently work. 

Self-Assessing Operations

Step 1. Start by identifying the back-office functions that are necessary and completed on a regular basis. The division of labor, tools, and strategies for back-office tasks will be unique to every nonprofit organization. Operational systems evolve over time to suit the people involved, the resources available, and the mission being supported. There is no one-size-fits-all approach.

Key areas to assess can include:

  • Accounting and bookkeeping
  • Compliance and risk management
  • Human resources
  • Information technology
  • Database management 
  • Fund development, 
  • Governance
  • Communications
  • Administrative functions (reception, clerical, purchasing, storage) 

This is an opportunity to also recognize if there are essential operational functions that are not being completed regularly. For example, we frequently see organizations lacking human resource services, even while employing staff or managing volunteers. 

Step 2. Figure out who is involved in each operational area, including leadership, staff, board members, volunteers, and contracted service providers. Oftentimes these functions are shared among leaders and staff or completed as a side task by someone who primarily focuses on programmatic work, for example, the executive director who also is responsible for accounting or website management. Sometimes operational processes are completed but not formally assigned – it isn’t completely clear who’s doing the work or how, for example, the database that is used by all, though it’s unclear who is responsible for updates and maintenance.

Step 3. Ask questions to better understand the current state of each service area. We suggest starting with…

Who is involved and what supports are available?

  • Is this operational service your primary job function? 
  • Is there more than one person who knows how to complete this job function?
  • Are processes and policies documented and accessible to others? 
  • Do you and the other people completing these tasks regularly participate in training or professional development related to this service?

Goals and feedback?

  • Are goals for this service area documented and understood? 
  • Do you receive regular and useful feedback that helps you to improve this service area? 

Current strategies and potential areas for improvement?

  • What are key systems and processes are used to complete routine tasks?
  • What are the strengths or weaknesses of current procedures?
  • How often are systems and processes evaluated and updated?  
  • If budget was not an issue, what improvements would you suggest?

Alignment of operations with the big picture

  • How do current practices support our organizational mission? 
  • Do the people, strategies, and systems involved reflect our organizational values? 
  • How does this service support the organization’s strategic plan? How is this service area involved in strategic goals and activities?
  • Does this service area strengthen our relationships with partner organizations, community members, funders, and other key stakeholders?

Step 4. Understand the time required to complete operational tasks and the associated financial costs. The largest operational expense will most likely be related to personnel – the hours required to complete tasks and the wages paid in compensation. If operational services are contracted, this will be easily estimated by reviewing contractor invoices. 

However, most nonprofit organizations do not contract and many do not have detailed time management practices in place for staff who complete operational tasks. Most organizations also have staff who work across multiple back-office functions. Understanding these challenges, ask the people involved to estimate the hours that are typically required for different operational tasks or alternatively, the percent of time they spend on operational responsibilities. Once hours are calculated, estimate the associated financial expense – the wages and benefits paid for the time allocated to operations.

In gathering this data, it will be important to communicate that these estimates are not intended to reduce hours or employment – but rather to understand how much time is being spent, potentially to increase dedicated hours or staffing in service areas that require more capacity. It’s also a great time to capture ideas about improving processes from those performing the services.

With this new understanding of the operational tasks being completed, the personnel involved, the processes and systems required, and the time and associated expenses, organizations have many of the inputs needed to develop a clearer understanding, a baseline, for how things are working. Yet it is important to remember that this self-assessment is limited to the information known from within the organization, one frame of reference. 

In the next article we’ll talk about how to also gather information about operations from your customers to generate a second frame of reference. We suggest that customers might include clients, board members, volunteers, partner organizations, and others who are impacted by but not directly involved in operations. 

In taking this more holistic view of operations, one that includes self-assessment and customer feedback, organizations will be prepared to develop strategic goals and indicators – the foundation for strategic planning.

This article is part of a series, based on conversations between Jackie Cefola and Debra Box about nonprofit shared services and related topics. 

Jackie Cefola, principal of Jackie Cefola Consulting, is a trusted advisor to nonprofit leaders who are starting up new collaborations, often related to shared services. Debra Box, principal of In the Box Consulting and former President and CEO of Support KC, where she helped nonprofit organizations to focus on their missions by providing integrated expertise in financial management and support services.

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