CIMA F3 Syllabus A. Financial policy decisions - Non-Quantifiable objectives - Notes ^{2 / 13}

Not-for-profit organisation

Its first objective is to be involved in non-loss operations to cover its costs

For example:

charities
statutory bodies offering public transport or the provision of services such as leisure, health or public utilities such as water or road maintenance.

Objectives for not-for-profit organisations

A major problem with many not-for-profit organisations, particularly government bodies, is that it is extremely difficult to define their objectives at all.

NFP objectives include:

Surplus maximisation (equivalent to profit maximisation)
Revenue maximisation (as for a commercial business)
Producer satisfaction maximisation (satisfying the wants of staff and volunteers)
Client satisfaction maximisation (the police generating the support of the public)

It is also difficult to measure the performance of not-for-profit organisations.

As already said, it is sometimes very difficult to define their objective at all, let alone try to measure their performance.

Example of NFP

One of the objectives of the local council could be ‘to provide adequate street lighting throughout the area’.

Its other objective could be to improve road safety.

How could the ‘adequacy’ of street lighting be measured?
What is the amount of money to pay for adequately lit streets and improved road safety?

Without information about what is being achieved (outputs) and what it is costing (inputs), it is impossible to make efficient resource allocations.

These allocation decisions rely on a range of performance measures which, if unavailable, may lead managers to allocate resources based on subjective judgment.

Without performance measures, managers will not know the extent to which operations are contributing to effectiveness and efficiency; when diagnostic interventions are necessary; how the performance of their organisation compares with similar units elsewhere; and how their performance has changed over time.

Government may require performance information to decide how much to spend in the public sector and where, within the sector, it should be allocated.

In particular they will be interested to know what results may be achieved as a consequence of a particular level of funding, or to decide whether or not a service could be delivered more effectively and efficiently in the private sector.

Likewise people who provide funds for other kinds of not-for-profit organisations are entitled to know whether their money is being put to good use.