As philanthropists and companies become increasingly savvy about where they donate their charitable dollars, the NGO sector has to invest heavily in improving its business systems and accountability.
Over the past five years, non-governmental organisations (NGOs) have had to implement more sophisticated performance management and impact assessment tools to meet the demands of both donors and various government departments.
While the increasing demands on NGOs to improve their accountability have been met with trepidation by the sector, some organisations are embracing the changes. Monash Business School Professor David Smith – who has carried out extensive research in the NGO sector – says smart charities are viewing the increased demand for accountability as an opportunity improve financial and management efficiency.
Professor Smith is currently researching in one of the world's largest NGOs, examining how it measures the effectiveness of its aid programs in Bangladesh. While the research is incomplete, the organisation – which cannot be named for confidentiality reasons – is leading the way when it comes to measuring the effectiveness of its aid programs. And it is using that information to improve how it operates.
"Going back even five years in the NGO space, most performance measurement and impact assessment tools were fairly unsophisticated. It basically involved writing a report with very few rules around structure. So in management accounting terms, in many cases NGOs are still relatively new to the world of accountability and measuring effectiveness," Professor Smith says.
A long-term problem
The reasons as to why the NGO sector has failed to implement sufficient accountability and impact measurement systems are complex. A lack of financial resources is a common reason for many organisations to steer away from changing their business processes. But it is more complex than simply not having the money to introduce new systems, Professor Smith says.
Even NGOs that have strong balance sheets have been slow to change and adapt to better accounting and management systems.
Department of Accounting
Accessing skills the smart way
Often NGOs find it challenging to access the skills they need to implement new management systems. However Monash's work in Bangladesh has shown that NGOs are able to access high-quality performance management and impact assessment tools by partnering with international universities and other groups.
The arrangement is mutually beneficial as it is a cost effective way for NGOs to access and understand crucial data and relay it back to stakeholders. While, on the other hand, it also provides universities with vast amounts of research material for publication.
By partnering with universities, the NGO in Dhaka is using randomised controlled trials (RCTs) to measure the impact of different interventions introduced by the organisation. RCTs are similar to field experiments, and are carried out by selecting two similar communities and giving one the intervention (for example, a new educational initiative) and the other none. At the beginning of the experiment, a base line is calculated, then, at conclusion, both communities are measures to assess the impact of the intervention.
"It is a very effective way of measuring effectiveness and whether the NGO is allocating its resources in the right way. Of course, the methodology raises interesting questions such as: 'what are the ethics surrounding giving something to one group and having a control group', but we're not attempting to answer that question."
Undertaking the right research and having the best systems in place to understand that information is helping NGOs to be more accountable and more effective at achieving their key goal – helping people. Professor Smith believes universities can play an important role in helping to modernise the way NGOs do business.
"It shows that partnering together can have a mutually beneficial impact for NGOs and universities. It's quite remarkable really."