The metrics people learn in MBA programs are not the best way to measure the effectiveness of nonprofits, asserts Phil Buchanan, CEO of the Center for Effective Philanthropy.

Just because you can gather measurable data does not mean that particular mass of data is relevant to the nonprofits’ real mission.

Buchanan explains further why common financial metrics might not be the right fit for nonprofits in this Q&A conducted by Worth:

Q: You make the case that the metrics of the financial world are not the best way to measure nonprofits. What’s wrong with that approach?

A: The biggest and most obvious difference is that ultimately you can gauge investment performance by common metrics. Even when you’re investing in wildly different companies in wildly different industries, you can still look at the returns or the profitability of the companies and compare them. When you’re looking at nonprofit organizations, that’s typically not the case. People try to create common units of measurement, but they’re counterproductive. To gauge the performance of the organization that works on increasing graduation rates against the performance of the organization that works on decreasing CO2 emissions, what’s better? You can’t put them into a common unit.


Q: How do people in the financial world view nonprofits differently?

A: There is a mindset that assumes that nonprofits are not well led relative to business and that what’s needed are hard headed investors to hold these sleepy nonprofits’ feet to the fire. But nonprofit leaders are very often some of the most amazing leaders. It takes everything it takes to run an equivalent size business and a ton more because they’re often working on the very toughest challenges: the ones that have defied market solutions.

Q: What are some of the negative results you’ve seen from that attitude?

A: One is that funders often demand data that would be useful to them but isn’t useful to the nonprofit and is costly for the nonprofit to gather. It’s just like a dance of satisfying different funders with different data needs but not actually answering the important question, which is what does the nonprofit need to do its work better in their view, because they ultimately are the experts.