Data Will Always Give You the Wrong Answer (When You Ask the Wrong Question)

Submitted on Tue, 10/16/2012 - 3:56pm
For some organizations, putting a value on the outputs can be fairly easy, while in others it can represent the biggest challenge in putting this model into practice.

If a nonprofit or charity truly values the time of their volunteer, why is there pressure on managers of volunteers to increase the number of hours volunteered continually, without a correlated look at what outputs are generated with those hours. "How many hours did we get from volunteers?" is the wrong question, but sadly, it's the one on which the sector is currently focused. The right question is "What is the relationship between the number of hours of volunteer time that we consumed related to the value of what we accomplished?".

Consider the information below about a hypothetical nonprofit.

 

Year

1

2

3

4

Number of Volunteer Hours

100,000

90,000

80,000

70,000

In most of the organizations with which I have worked, the reporting that is requested from volunteer managers focuses on reports such as those above and in almost all of them, the manager would be considered to be failing in her job: the numbers of volunteer hours went down every year. In many cases, those hours are looked at as time that would have had to have been paid for or as associated with services that would not have been delivered had the time not been volunteered. Both can be false assumptions.

What if we add more data to the picture. (Assume for now that all this organization does is plant trees.)

 

Year

1

2

3

4

Number of Volunteer Hours

100,000

90,000

80,000

70,000

Trees Planted

500,000

500,000

500,000

500,000

It turns out this volunteer manager has been doing a great job and should be congratulated for accomplishing more with less. How did she do it? Maybe she had been over-scheduling in the past and got better at it with more experience. Maybe she provided her volunteers with training and they were then able to plant trees with greater ease and therefore planted more trees per hour. Maybe she bought better shovels.

The point is that from a resource management perspective, year 4 is far better than year 1. When the right question is not asked, the answer leads us astray.

Some of you might have raised your eyebrows on "bought better shovels". If you did so because you recognized that the cost of those shovels needs to be included somehow in this analysis, pat yourself on the back: you are correct. (If however, you did so because you thought it was wrong to spend money on better shovels when you had the option of letting volunteers work inefficiently since they are "free", get someone to kick you in the back-side.)

I believe that if we truly value the time of our volunteers, we should operate under the premise that we are spending their time, just like we spend cash. And, similarly to how we spend cash, we should spend as little of it as needed in order to accomplish our mission.

This relates to the principle of Scarce Resources. The important element of the principle of Scarce Resources is not that something can't be found, but rather, that a consumable resource can only be used once. A single dollar cannot be used to make two separate purchases and person cannot volunteer the same hour in two different places. That we must choose how to spend that dollar and we must choose how to spend that hour demonstrate the similarity between the two. As they are similar in nature, we should treat them the same: Consume as little as possible to achieve your mission.

I recognize that sometimes money is harder to come by than volunteer hours, so the option to purchase the "better shovels" might not always exist, but that does not break down the rationale of looking at volunteer time as something we spend and should try to minimize. Scheduling of volunteers in a manner that better aligns with needs and providing volunteers with better training can reduce the number of hours consumed with little or no increase in cost.

Simple financial reporting is a lousy management accounting tool - even more so in nonprofits

The adoption of the approach above can not only lead to more efficient consumption of volunteer resources, it opens the door to better management across an organization as a whole. Financial reporting by nonprofits only tells a portion of the story. By their nature, nonprofits more or less break even each year. The dollars spent are equal to the dollars they take in.

The following table represents the essence of financial reporting in the nonprofit sector (albeit simplified). It shows the two years of an organization as working at similar levels financially in that they both have neither a profit nor a loss, but are seemingly underperforming on donations/revenue in year two.

 

Year

1

2

Donations and Fees for Service

~$1,000,000

~$800,000

Expenses

~$1,000,000

~$800,000

Difference

$0

$0


Let's look at how these two years compare if we add something new to the reporting.

 

Year

1

2

Donations and Fees for Service

~$1,000,000

~$800,000

Expenses

~$1,000,000

~$800,000

Difference

$0

$0

Trees Planted

20,000

20,000

All other things being equal, Year 2 has clearly outperformed Year 1, since the same job got done while consuming fewer resources. If these were two different organizations rather two years of the same organization, to which one would you rather make a donation?

The financial records alone would not have demonstrated the differences in performance between these two years; in both years, the organization ran a balanced budget.

The path to the right answer begins with the right question

Because of the arithmetic simplicity of both of the examples above, we can intuitively see which year had the better performance. The application of this in real world, however, needs some means of comparing the data along some similar element. The return on investment formula,

ROI = (Inputs-Outputs) / Outputs,

provides us with that common element. Key to this methodology are three things.

  1. The value of volunteer time is treated as an input, along with cash expenses
  2. The outputs must be tracked and we must place a value on those outputs
  3. The outputs must be in line with the outcomes associated with the organization's mission

For some organizations, putting a value on the outputs can be fairly easy, while in others it can represent the biggest challenge in putting this model into practice.

For organizations whose outputs are similar to something in the for-profit sector, a monetary value for these outputs is easy to derive: use the same value the commercial sector uses. If your nonprofit does tax returns for people who need help with them but can't afford it, use the price you would have to pay if you went to a commercial service for one.

In other situations, putting a dollar value on something such as a friendly visit in a hospital is more difficult, although it is possible (although outside the scope of this article). Where it is deemed that actual dollar values simply cannot be placed on the outputs of your organization, the ROI model can still be used but the results have to be looked at slightly differently because dollars are used to value inputs and something else is used for outputs whereas the equation is designed to compare apples to apples.

Rather than place a dollar figure on each output, place a Mission Points value where the various Mission Points assigned to the various outputs indicate the relative degrees to which each one contributes to your mission.

Tony was the founding Chair of the Carpenter Hospice in Burlington. He has been recognized by the Ontario Ministry of Citizenship and Culture; received the June Callwood award for volunteerism; and is one of only three recipients of the designation of Patron of Burlington. In 2000, Tony began to combine his experiences as a volunteer in a variety of organizations with his knowledge of the internet and data management. The result of this effort is Volunteer IMPACT software that helps in the management of volunteers in terms of communications, scheduling and reporting.Tony has presented on a variety of topics at conferences on volunteerism, in Australia, Brazil, Canada, Colombia, Guatemala, England, Ireland, Korea, Singapore and the United States.