Performance Management · Specific performance analysis issues in not-for-profit organisations and the public sector

Performance Measures for Not-for-Profit and Public Sector Organisations

Updated 11 October 2026 · Fact-checked

Not-for-profit and public sector bodies exist to deliver a service, not to earn profit. You measure them with a mix of financial and non-financial indicators linked to their objectives, usually grouped as economy, efficiency and effectiveness, then compare them against targets, past results or similar bodies.

Understand Performance Measures for NFP and Public Sector

A profit-making company can be judged by profit, ROI and share price. A school, hospital or charity cannot. Its purpose is to deliver a service to the people it serves, so profit tells you little about success.

That creates three problems. Objectives are often multiple and unclear. Outputs are hard to measure, for example how do you value an improved quality of life? And funders, such as government or donors, want to know the money was well spent.

So you build a set of indicators from the organisation's objectives. Financial indicators cover spending against budget and cost per unit of service. Non-financial indicators cover quality, access and outcomes, such as waiting times, exam results, or the share of donations spent on the cause.

A useful way to organise them is value for money: economy (spending less on inputs), efficiency (getting more output per input) and effectiveness (achieving the objectives). Some writers add equity, meaning fair access for all groups.

Finally, you need something to compare against. Options are targets, last year's results, other similar bodies (for example league tables) and the private sector. Comparison is useful but risky if bodies differ in size, location or the people they serve.

Key rules to remember

Economy: Economy = spending less on inputs of the right quality (actual cost of inputs compared with planned or benchmark cost); Example indicator: cost per nurse hour or cost per textbook bought. Cheapest is not best if quality falls.
Efficiency: Efficiency = outputs ÷ inputs (or inputs ÷ outputs for a cost per unit); Example indicator: patients treated per bed, or cost per pupil. Compare with a target or a similar body.
Effectiveness: Effectiveness = degree to which outputs or outcomes achieve the stated objectives; Example indicator: percentage of pupils reaching a set grade, or the proportion of patients recovering.
Cost per unit of service: Cost per unit = total cost of the service ÷ number of units of service delivered; Units can be patient-days, pupils taught or meals served. Define the unit carefully.
Charity fundraising efficiency: Fundraising cost ratio = fundraising costs ÷ funds raised; Lower is generally better, but heavy early investment can raise the ratio in a growth year.

How to solve Performance Measures for NFP and Public Sector questions

Use this approach for any question asking you to suggest or assess performance measures for a not-for-profit or public body.

1Read the scenario and identify the organisation's main objectives and who its stakeholders are (funders, users, staff, government).
2Pick a few key areas linked to those objectives, such as service quality, cost control, access and fundraising.
3For each area, suggest a specific indicator. Use numbers where possible, and include both financial and non-financial measures.
4Label each indicator as economy, efficiency or effectiveness if the question uses value for money.
5State what you will compare against: a target, last period, a similar body or a benchmark. Say why the comparison is fair or unfair.
6Give limits: hard to quantify outcomes, conflicting objectives, different user mix, and the risk of staff gaming targets.
7Finish with a short conclusion or recommendation that answers the question asked, for example which indicators matter most.

Quickest way: Objective, indicator, comparison

When to use it: Use this for a short written part or a Section A/B objective question that asks which indicator fits which aim.

Underline the objective in the scenario.
Ask: is this about spending on inputs (economy), output per input (efficiency) or achieving the aim (effectiveness)?
Choose the indicator that matches that label and uses the correct unit.
Add one comparison and one limitation if the question asks for a written answer.

Common mistakes in Performance Measures for NFP and Public Sector

Suggesting profit or ROI as the main measure for a charity or public body.
Students carry over private-sector habits.
Fix: Start from the service objectives. Use cost and quality indicators, and mention financial constraints like staying within budget.
Mixing up economy, efficiency and effectiveness.
The words sound similar and are used loosely in daily life.
Fix: Economy is input cost, efficiency is output per input, effectiveness is achieving objectives. Check which part of the process the indicator measures.
Listing only financial indicators.
Financial figures are easier to calculate.
Fix: Include non-financial measures such as waiting times, satisfaction, pass rates and outcomes, because the mission is not financial.
Treating league tables as fully fair comparisons.
Rankings look objective.
Fix: Point out differences in intake, location, resources and case mix, and the risk that bodies focus on ranked measures at the expense of other aims.
Suggesting indicators that cannot be measured or are not linked to objectives.
Students write generic lists from memory.
Fix: For each indicator, say what it measures, how data is collected and which objective it supports.
Ignoring the possibility of dysfunctional behaviour.
Students focus on definitions and forget human response to targets.
Fix: Mention gaming, such as treating easy cases first to hit a target, and suggest a balanced set of measures to reduce it.

Worked examples

Example 1

A public hospital treated 12,000 patients last year at a total cost of ₹30,00,00,000. Its target was 11,000 patients at a cost of ₹30,25,00,000. Calculate the cost per patient for actual and target, and comment on efficiency.

Show the solution

Actual cost per patient = ₹30,00,00,000 ÷ 12,000 = ₹25,000.
Target cost per patient = ₹30,25,00,000 ÷ 11,000 = ₹27,500.
Difference = ₹27,500 − ₹25,000 = ₹2,500 lower than target, which is about 9.1% lower (2,500 ÷ 27,500).
The hospital treated more patients (12,000 against 11,000) for slightly less total cost, so it is more efficient on this measure.
Caution: this does not show quality. Check waiting times, readmission rates and patient satisfaction.

Answer: Actual cost per patient is ₹25,000 against a target of ₹27,500. The hospital is more efficient than planned, but quality indicators are needed before concluding it performed well.

Example 2

A charity helps homeless people. Suggest four performance indicators, covering economy, efficiency and effectiveness, and explain one limitation of comparing it with another charity.

Show the solution

Economy: average cost per bed-night bought or rented, compared with local market prices.
Efficiency: number of people housed per member of staff, or cost per person supported.
Effectiveness: percentage of people still in stable housing six months after leaving the service.
Fundraising: fundraising costs ÷ funds raised, to show how well donations are being raised.
Limitation: another charity may work with people with more complex needs, in a more expensive city or with more volunteers, so its cost per person and success rate will not be directly comparable.

Answer: Cost per bed-night (economy), people supported per staff member (efficiency), percentage in stable housing after six months (effectiveness) and fundraising cost ratio. Comparisons are limited because charities serve different client groups and operate in different conditions.

Exam tips

Always tie each indicator to a stated objective in the scenario. Generic lists score poorly.
Use the economy, efficiency and effectiveness labels, and give a specific measure for each, with a unit.
In Section C written answers, give both advantages and limitations, such as league tables being easy to read but unfair if bodies differ.
For objective questions, work out which stage of the process the indicator measures before choosing an answer.
Keep calculations simple and state the comparison you are making, such as against target or last year.

Practice questions from Specific performance analysis issues in not-for-profit organisations and the public sector

Performance Measures for NFP and Public Sector in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

Performance Measures for NFP and Public Sector: frequently asked questions

What are the main performance measures for a not-for-profit organisation?

They are a mix of financial and non-financial indicators linked to the service objectives. Common ones are cost per unit of service, spending against budget, waiting times, satisfaction, outcomes achieved and, for charities, fundraising cost ratios. They are often grouped as economy, efficiency and effectiveness.

Why are league tables used in the public sector?

They let users and funders compare similar bodies, such as schools or hospitals, on the same indicators. This can encourage improvement and accountability. Their weakness is that bodies differ in intake and resources, and they can push staff to focus only on ranked measures.

Can you use ROI for a charity?

It is rarely suitable as the main measure because a charity's goal is service, not profit. Cost and outcome measures fit better. You can still monitor financial health, such as keeping within budget and having enough reserves.

How do you measure effectiveness when outcomes are hard to quantify?

Use proxy indicators that link to the objective, such as pass rates, recovery rates or the percentage of clients reaching a goal. Use surveys and follow-up checks. Accept that the measure is imperfect and say so in your answer.