IMHO: Who is determining the impact of NFPs?

OPINION: Demonstrating impact is essential for NFPs to stay focused on their mission, attract funding, evaluate their services and sustainably develop their organisations.

There is an increasing expectation that not-for-profit (NFP) boards will report on their impact and show how their work is ‘moving the needle’ on societal issues. This is a completely legitimate expectation.

Done well, it is an effective strategy evaluation tool and provides valuable information beyond a dollar value linked to social return on investment.

Effective impact reporting is a critical capability for NFPs and provides important insight into their activities. However, it is a growing challenge for organisations to resource, alongside delivering on their purpose.

What good impact reporting looks like

Good impact reporting is nuanced, layered and provides rich insights into the longer-term value of an organisation’s work. It strongly articulates the link between its strategic intention and benefits for the community.

Measuring and reporting impact should be an inherent component of a board’s strategic development process. This will determine what evidence is required – the data, metrics and the resource needed to do this effectively.

NFPs need to be supported to build the capability and capacity to measure and report on impact properly.

At the moment reporting isn’t always being considered upfront as part of strategy. This means organisations may not have the correct data to report on their work effectively.

Impact reporting requests are often funder, donor or investor-led with the expectation that impact can be demonstrated over a short timeframe. However, for many NFPs the change they are making may take place over many years and can even be intergenerational. Many impact frameworks, including those constructed for impact investment, are more financial by nature and not clearly applicable.

To prove their impact effectively, NFPs need to integrate both quantitative and qualitative data and a compelling narrative (storytelling). This should capture the essence of their work and the lived experience of those affected. Storytelling is also at the heart of Te Ao Māori and is important in Pasifika culture.

Audit tail wagging the dog?

As part of New Zealand’s financial reporting requirements, most NFPs are now required to complete a Statement of Service Performance as part of their annual financial reporting process. This unique-to-New Zealand standard is an important step in beginning to tell their impact story. There is good guidance around this available from the XRB.

This reporting provides a far more relevant picture than an adapted corporate financial model. It also starts to shift the narrative from unhelpful commentary such as “How much do you spend on administration?” to “What is your intended impact, who is better off?” or “What has changed?”

The compliance interpretation of this reporting carries some risk of the auditing tail wagging the NFP dog. Different interpretations, and a lack of consistency in what counts as evidence, is leading to some organisations having their performance measures rejected. There seems to be some discomfort in considering non-numeric impact measures, that are seen as greyer and less tangible. This has the potential for only quantitative data to be included as it can be (more) easily verified.

Ethical storytelling and client feedback is an important element of impact reporting that is at risk of being lost and not valued.

Opportunity to demonstrate real impact

For NFPs the community is at the heart of what they do. Numbers often don’t tell the full story and become meaningless without social commentary wrapped around them.

The emphasis is being placed on outputs which are being used as a proxy for demonstrating impact. This may inhibit an organisation’s ability to think more widely about the true outcomes and both the short and long-term impacts of their work.

With many funders, including businesses, asking for impact reports there is a significant opportunity to partner with NFPs to build capacity in this area.

If we want to see real societal impact we need to understand it comes at a cost, needs investment and a greater understanding of how NFPs should be allowed to tell their impact story.

Let’s support NFPs as they upskill in this area. They need the time and support to get this right without unrealistic demands.

Impact is an incredibly powerful tool and the NFP sector is well-placed to lead and innovate reporting in this area developing learnings that can benefit us all. 

About the author

Pru Etcheverry, ONZM MInstD is a director of Advocacy Answers New Zealand. She brings expertise in strategy, governance, leadership, not-for-profit management, and advocacy. She is a former CEO and holds current board roles.

The views expressed in this article do not reflect the position of the IoD unless explicitly stated.

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