- April 17, 2014
- Posted by: essay
- Category: Term paper writing
1. Choice of organization and organizational background
The purpose of this paper and next four papers is to analyze different perspectives of balanced scorecard framework in the context of particular organization or organizational unit. It is recommended to choose and organization which is familiar to the student and known from the inside. In this paper and in the next four papers, nonprofit organization called ACF International (Action Against Hunger) will be considered. I volunteered in this organization as a Program Assistant for three months, and can research relevant financial, operating, learning and growth data and other information.
ACF International is a large nonprofit organization which works to eliminate hunger and malnutrition all over the world. ACF International helps save the lives of malnourished children, encourages sustainability of communities with high malnutrition indices, provides help in conflict situations and recovery after natural disasters, and engages in various programs aimed at fighting hunger and malnutrition. Although ACF International is a nonprofit organization, the principles of balanced scorecard can be applied to this organization similarly to for-profit companies.
2. Organizational mission, vision and values
Mission statement of ACF International is formulated as follows: “Our mission is to save lives by eliminating hunger through the prevention, detection and treatment of malnutrition, especially during and after emergency situations of conflict, war and natural disaster. From crisis to sustainability, we tackle the underlying causes of malnutrition and its effects. ACF international implements programs that help families, villages, and entire communities regain self-sufficiency. By integrating our programs with local and national systems we further ensure that short-term interventions become long-term solutions” (ACF International, 2012b). The company’s vision is the world without hunger, where all children and adults have enough water and food, and have equitable access to these resources.
ACF International positions itself as a global humanitarian organization with multiple branches and departments. Key characteristics shared by all units of ACF International are: comprehensive approach, lasting solutions, community-centered activities, independency and impartiality, full transparency and accountability, efficiency and cost-effectiveness of operations. The values of ACF International proclaimed in its International Charter of Independence are Independence, Neutrality, Non-Discrimination, Free and Direct Access to Victims, Professionalism, and Transparency (ACF International, 2012a). Basing on these principles, ACF International has also developed child protection policy, which is actively used in advocating child protection worldwide.
3. Financial performance and metrics
One difference of financial perspective for a nonprofit organization compared to a for-profit company is the use of different metrics of financial position, conditioned by the different goals of these two types of companies. While the goal of the for-profit company is to maximize shareholder value and/or generate profits, the effectiveness of a nonprofit company is associated with its mission and the effectiveness of organizational activities. Financial statements of nonprofit organizations also differ from the for-profit financial reports, and include statement of financial position, statement of activities, statement of functional expenses, statement of changes in the net assets and statement of cash flows.
Among the important financial metrics which can be used to evaluate the effectiveness of operations of ACF international are the dynamics of fundraising, revenue structure, structure of assets, operational efficiency, relationship between revenues and expenses (profit margin). Common liquidity ratios such as current and quick ratio, leverage ratios, asset management ratios, profitability and growth ratios can also be used to evaluate financial position of ACF International. The difference with for-profit organizations will be the relationship between income and expenses; while for-profit companies generally tend to maximize the ratio of income to expenses, nonprofits tend to reasonably minimize this ratio because high level of remaining income indicates at certain operational ineffectiveness.
4. Objectives for improving financial position of the organization
It is possible to outline three objectives for improving financial position of ACF International: increase of operational effectiveness, improvement of the structure of assets, and improvement of the organization’s financial stability. All these financial objectives are directly related with the implementation of the mission of ACF International: improved financial stability will let the organization launch more sustainable programs with larger scope; improved assets structure will lead to improved use of raised funds and greater operational effectiveness, and better operational effectiveness will result in more effective campaigns against malnutrition.
For the first objective, appropriate measure is proportion of supporting services in the total expenses of the organization; for the second objective the measure is the share of program services with relation to net assets, and for the third objective, the measure is revenue concentration index. Table 1 contains three financial objectives, relevant measures, targets for the next financial year and actions needed to reach these objectives.
|Increase of operational effectiveness||Proportion of supporting services in the total expenses of the organization||Decrease the proportion of supporting services to 13% (now ”“ 15.18%)||Optimize service costs and outsource the most expensive supporting services|
|Improvement of the structure of assets||The share of program services with relation to net assets||Increase share of program services and reach the ratio of 1.6 for program services with relation to net assets (currently 1.31)||Launch new programs against malnutrition (South Sudan, D.R. Congo Sustainability Programs, etc.)|
|Improvement of the organization’s financial stability||Revenue concentration index||Reach revenue concentration index of 0.5 in the next financial year (currently 0.539)||Establish contacts with large for-profit companies and discuss donation opportunities; launch mobile website for individual donations|
Table 1. Financial objectives, measures, targets and actions