Bill Gates 2013 Annual Letter – A Focus on Measurement….It’s the New Black

 I have always been an observer of Bill Gates.  He is a unique combination of nerdiness, smarts, innovation, commitment and effectiveness.  I think it is the blending of these traits that has made him so successful as a leader in business, technology and philanthropy.  He has brought something much more important than money to philanthropy he has brought his genius and discipline in knowing how to get things done right.

Getting a closer look at charts documenting rural health progress at the Germana Gale Health Post in Ethiopia. Over the past year I’ve been impressed with progress in using data and measurement to improve the human condition (Dalocha, Ethiopia, 2012).

In the last year Beth Kanter has been talking about the importance of measurement to the networked nonprofit.  Now Bill Gates opens his 2013 Annual letter talking about it with a quote from William Rosen’s  “The Most Powerful Idea in the World."  Bill writes: “Without feedback from precise measurement, Rosen writes, invention is "doomed to be rare and erratic." With it, invention becomes "commonplace."……..But in the past year I have been struck again and again by how important measurement is to improving the human condition. You can achieve amazing progress if you set a clear goal and find a measure that will drive progress toward that goal-in a feedback loop similar to the one Rosen describes. This may seem pretty basic, but it is amazing to me how often it is not done and how hard it is to get right.  

In previous annual letters, I've focused a lot on the power of innovation to reduce hunger, poverty, and disease. But any innovation-whether it's a new vaccine or an improved seed-can't have an impact unless it reaches the people who will benefit from it. That's why in this year's letter I discuss how innovations in measurement are critical to finding new, effective ways to deliver these tools and services to the clinics, family farms, and classrooms that need them.”

Measurement is officially the new black and you will hear even more about it this year so it is time to get on board. In my 30 year career in the communications technology business, I learned the importance of measurement as a key element of our quality program.  I found that just by having a measurement posted, it motivated people to see it as important and do what they could to improve it.  And celebrating the contributions to the success of all and being able to measure that success adds fuel to the fire for future successes.  These are lessons that nonprofits are ready for.   

Now back to more of what Bill Gates has to say.  I particularly identify and agree with this,  “Given a goal, you decide on what key variable you need to change to achieve it-the same way a business picks objectives for inside the company like customer satisfaction-and develop a plan for change and a way of measuring the change. You use the measurement as feedback to make adjustments. I think a lot of efforts fail because they don't focus on the right measure or they don't invest enough in doing it accurately.”  Bill Gates goes on to use the example of how UNICEF set of a goal of reaching 80% of the world’s children with lifesaving immunizations and how they used measurements to identify progress and setbacks and make adjustments.  Too often nonprofits think that measurement is just about reporting successes to foundations.  Measurement needs to be about how you can determine what is working, what is not and what adjustments you need to make.  Foundations need to learn this lesson too.

Eradication of polio remains a top goal for Bill Gates and the Gates Foundation. Bill always talks about this goal passionately.  The number of polio cases globally has dropped from 350,000 in 1988 to less than 500 last year and on of the last bastions, India, has been polio free since 2011.  The goal remains to be zero – total eradication and the steps being taken are truly impressive.  Bill identifies Nigeria, Pakistan and Afghanistan as the three places where polio persists.  In Nigeria they invested n an independent detailed quality assessment and learned this.  The hand drawn local maps that were prepared were inaccurate for distances and did not include all village settlements so field polio vaccination workers were missing whole settlements and did not get to all the settlements they were assigned.  They are now using satellite maps to locate all settlements and equipping field workers with GPS which records the locations they visited.  They have incorporated measuring results, quality assessments and technology enabled actions along with on the ground vaccinating one child at a time techniques.  I’m impressed.  Bill goes on to acknowledge as heroes the nine polio vaccinators who were killed in Pakistan and notes that Pakistan and Afghanistan present difficult obstacles for this goal.

Bill also talks about the Millennium Development goals and the progress made towards them.  He is proud of the Gates Foundation commitment and contribution to them and concerned that new goals being developed for 2015 and beyond may not have the same universal support.  His letter is a call to caution here and I do agree with him that for these goals to continue to have universal commitment, they need to not be controversial.

                            Millennium Development Goals

Bill always includes a section on the Gates Foundation involvement in the United States and this year he discusses Measures of Effective Teaching, or MET a program funded since 2009.  They worked with 3,000 classroom teachers to better understand how to build an evaluation and feedback system to help teachers improve.  They have just announced the final results of the MET project and the report concluded that there were observable, repeatable, and verifiable ways of measuring teacher effectiveness.  MET highlighted several measures that schools should use to assess teacher performance including student surveys and reports from trained evaluators who observe teachers at work.  He reports on the results and teacher acceptance of the program versus the test results only measurements so frequently touted.

I strongly suggest that you read the whole annual letter. Bill does an excellent job of blending objective analysis with personal storytelling and it is a great read.  You can download it here:

http://annualletter.gatesfoundation.org/2013.aspx?cid=fb__GF#nav=intro

Does Your Strategic Plan Have a Financial Strategy – It’s Crucial

Does your organization have a strategic plan?  And what is the associated financial strategy?  If there isn’t a realistic financial plan to go with your strategic plan, it may wind up on the shelf as a nice report that didn’t go anywhere. 

Large nonprofits have fiscal experts on the staff, but smaller nonprofits usually do not.  The lack of understanding by Board and Executives of the fiscal health and financial details of smaller nonprofits is at a crisis level.  Certainly, they recognize that their finances are tight and that they may have had to cutback, but many have not looked strategically at their fiscal health and don’t have the skills to do it.  It is time for small nonprofits to look beyond the next payroll – you know who you are – this is what financial management means to many small nonprofits.  Reducing staff but trying to do the same things or reducing salaries and benefits may not constitute a sound financial strategy.

A typical scenario for a small organization could be this: the finance department consists of a bookkeeper, the executive director’s background is as a program manager and there are no accountants on the Board.  This is not far-fetched.  It is not uncommon in nonprofits with less than a $1 Million operating budget.  Many of these organizations are constantly at the cusp of their own fiscal cliff and only one wind gust away from going over it.  The loss of or reduction from a big funder, under insured property damage, competition that erodes demand for its services, loss of a favorable lease or many other possibilities can be a death knell.  Operating everyday with these possibilities hanging over head adds to the stress but not to the solutions.  I know more than one organization dependent on an unrealistic lease or otherwise unprepared to deal with their own fiscal cliff.

What’s a small organization to do?  Actually, lots of things.  

First of all develop more financial management understanding.  The Executive Director should take courses and workshops and develop as much financial management expertise as possible.  The Nonprofit Finance Fund has chapters throughout the country and offers excellent workshops.

Recruit accountants and financial managers to be on the Board and get them on the finance committee.  Develop a list of things for the finance committee to tackle besides developing a budget.

Look at your expenses by program and assess financial viability, effectiveness and relationship to your core mission.  I’ve seen several organizations with programs that outlived their viability and only when reviewed in depth were they eliminated. 

Understand risk.  Understand your insurance policies.  Evaluate in terms of cost and coverage.

Develop a reserve and a line of credit.  There isn’t a simple answer to what is the right reserve level.  It depends on your vulnerabilities and accepted risk levels.  That’s why you need someone with some financial prowess on your Board.  Don’t abuse a line of credit – use it only as intended.

Real Life Case Study

Sometimes you have to dig to get the truth.  Physical observation is always my favorite approach.  This is a real life example that I am personally familiar with.  Myth believed by the Board: “Our training center serves 60 students in four classrooms and the county pays for the full cost.”  Truth:  County pays based on daily attendance and does not pay at all if students drop out in first three weeks.  Our dropout rate is 30%.  “County pays full cost” is based on having 90% capacity and we operate at about 60% capacity.  The cost does not cover overhead which is a real cost.  Nobody was lying about this.  When the plan was initially presented and approved it was developed on the 90% model and the myth that it was “paying for itself” perpetuated even though it was far from the truth.  That’s the financial picture.  It gets worse.  The Board was told that as a “back to work” government program, they could expect that mothers leaving their kids at the pre-school operated in the same building would be users of the training programs.  It sounded like a perfect fit with the mission.  Reality – most county referees were on parole and just out of jail.  That didn’t seem like as good a fit to be co-located with a pre-school.  The issues were financial, mission appropriate, effectiveness of the program and infrastructure appropriateness.  What happened?  The training center was closed.  It wasn’t a good fit and it wasn’t financially viable.  It took a Board member to visit, look around, count the students, read the government contract and ask a lot of detailed questions of the program manager to understand the facts.

I have seen many programs that were supposed to pay for themselves that didn’t.  They were a drain on the infrastructure and management and sometimes not closely aligned with the mission.  And without program by program financial analysis the myth of the health of these programs stays alive.

I have grown a little bit hardened I must admit by seeing some of these programs up close.  If a program is underutilized, what is the reason?  Are there better options in the community or have you just not marketed it properly?  Has a program outlived its value?  Undertaking financial analysis should be only one component of an overall analysis – but make sure it is an accurate one and not a mythical one.  It is more important to have high quality for the programs you offer than to keep all of your programs operating.  That’s strategic.  And being strategic means keeping an open mind about change.

Resources

Financial Scan – Guidestar and the Nonprofit Finance Fund have partnered to develop this software tool that can help you understand your financial health, provide comparisons with your peer group and offer the base for doing real financial strategic planning.  Find out more about Financial Scan here.  

The Nonprofits Assistance Fund has excellent resources with a variety of articles on financial topics.  Check out the resources here.

Excellent Book Resources:
Nonprofit Sustainability - Making Strategic Decisions for Financial Viability by Jeanne Bell, Jan Masaoka and Steve Zimmerman

The Nonprofit Business Plan