We’ve gotten a great response to my colleague Matt Forti’s guest post earlier this week on the challenge and opportunity of performance measurement for human service nonprofits. Today I’d like to riff on one of his themes and highlight three reasons why it is essential for these organizations to specify and measure their outcomes amidst the ongoing tightening of government funding for their work.

1. Rally the troops to focus on what the work is all about. All too often, performance measurement is something nonprofits feel obliged to do for reporting to external parties about their past performance. The real power of measuring outcomes and the appropriate starting point for nonprofits is to drive internal reflection and learning about how the work is going and prospective planning about how it can be improved. Viewed in this way, rather than being a burdensome quarterly or annual fire drill to comply with funder reporting requirements, outcomes measurement can become an ongoing and powerful way for leaders and staff to connect with and work together to advance their organization’s mission.

2. Identify where and how you can do more with less. Measuring and using outcomes data is also essential for improving productivity (vs. simply cutting costs). There is a real risk that in squeezing too much on the resource side of the equation, e.g., by increasing the number a youth a case manager is serving, you can inadvertently cross a threshold where you actually end up lowering productivity by undermining outcomes for all the youth in the stretched case load. As one executive director recently told us: “You end up hurting your business and hurting families by providing poor quality service. We have to be mindful that we have to be flexible in terms of delivering the service. But there is a line that we won’t cross that everyone knows here.” Outcomes measurement is essential for a nonprofit to be able to identify where that line really is.

3. Compete for—and manage the downside risk in—performance-based contracts. However much performance-based contracting has yet to realize its promise (we will explore why in a future post), more and more government agencies are using it. A nonprofit organization with the capability to define, measure and understand its outcomes will be in a stronger position to compete for such funding. Outcomes measurement is also critical if nonprofits are to assess the financial risk they will be exposed to under performance-based contracts. They need to know what outcomes they are actually in a position deliver before signing on the dotted line and having their funding be contingent on their doing so.