Measuring success is part of the governance and management responsibility of all non-profit organisations. This responsibility augments obligations related to compliance with legal, regulatory and ethical requirements
According to vocabulary.com, ‘hocus-pocus‘ is an illusion or a meaningless distraction that tricks you in some way. Originally derived from invocations used in magic shows (like ‘abracadabra’), it’s actually fake Latin.
Some of what passes for performance and conformance governance might also be called hocus pocus, as it does not necessarily use the most appropriate indicator or measure to permit a valid evaluation to be carried out.
Confusion can also arise from leaders using certain terms interchangeably. Differentiating between measurement terms and establishing shared understandings of their meaning would therefore be helpful. The header image above offers one way to distinguish between key terms. This may be helpful if you feel your board could benefit from an improved understanding of this central aspect of their governance role.
All incorporated entities need to be able to demonstrate their solvency – their ability to pay all their debts as and when they become due and payable (refer S.95A of the Corporations Act). This is a conformance requirement, and so it’s one of the key metrics all boards should be continuously monitoring. It is also a key focus of scrutiny by independent auditors.
KPIs, Key Metrics and OKRs
Adopting a Key Performance Indicator (KPI) to achieve a certain percentage in revenue growth year on year, or to recruit a certain number of new members/donors, are performance targets. They are not of concern to regulators like ASIC or the ACNC. Such measures may be important, but they do not normally qualify as ‘key metrics‘ (like solvency ratios, member/donor growth, etc.).
Supporting KPIs, key success factors (AKA competitive or strategic ‘posture’) identify the settings required for an organisation to operate effectively in its domain, i.e. what it must do well to achieve its strategic goals e.g. agility, reliability, diversity, and client engagement.
Objective and Key Results (OKR) measures have become popular in some quarters as they separate outcomes-based results (which measure quantifiable outcomes), from effort-based results (which measure the relative success of innovations, projects, or initiatives).
Key result areas (KRAs) may be used by directors when devising the CEO performance plan, otherwise, identification of KRAs is a management function performed by the CEO and other executives for senior staff roles.
‘Objective’ objective assessment
Adopting vague indicators which could only be assessed subjectively would not represent good governance.
While qualitative measures are required for some types of strategic objectives, it should be possible to identify the types of evidence that could objectively be used to determine whether or not, and with what measure of success, a strategic initiative was achieved. An objective (evidence-based) assessment of objective (goal) achievement if you will.
The set of such measures will include both quantitative and qualitative evidence, according to the nature of the matters being evaluated. The selection of methods and measures will also depend on a range of variables, such as the nature of the organisation, its service profile, regulatory obligations, size, age, and governance maturity.
Unlike hocus pocus, ‘locus’ and ‘focus’ are real words.
Etymonline.com advises that locus is a noun (plural loci), meaning “place, spot, locality,” and that it derives from the Latin locus “a place, spot; appointed place, position; locality, region, country; degree, rank, order; topic, subject”.
The same authority advises that focus too is of Latin origin. It means “point of convergence,” with its Latin origin referring to “hearth, fireplace” (also, figuratively, “home, family”).
‘Modus’ is the third Latin term used in the header chart, meaning the “way in which anything is done” (hence modus operandi).
The locus of control is a factor in the selection of the right evaluation measures. If the board is responsible for setting strategy and the associated key performance indicators (albeit with advice from management), then they are the locus. If management is responsible for setting goals for a given position, then management is the locus (of control).
Applying Robert Tricker‘s 2X2 corporate governance matrix (illustrated below), the focus of monitoring and evaluation needs to be both be internal and external. It also needs to be performance and conformance related. Depending on which aspect of governance the board is monitoring and evaluating, different types of measures will be suitable.
Your Monitoring and Evaluation Framework
Development and review of your monitoring and evaluation framework, along with reflections on governance variables, the validity of evaluation measures, lead and lag indicators, and evaluation processes will be the focus of future blog posts.