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ACCA Strategic Professional · Advanced Performance Management · Performance improvement models and techniques

Harbor Relief, a charity, measures its performance only by the percentage of donations spent directly on programmes. Trustees argue this is a good overall measure. What is the main weakness of relying solely on this measure?

The weakness is that the ratio shows how funds are allocated, not whether the programmes achieved their mission. Effectiveness and beneficiary outcomes are ignored, and overhead cutting may even harm quality, so outcome-based non-financial measures are also needed.

  1. AIt measures efficiency of spending but says nothing about whether beneficiaries' lives actually improved, so effectiveness is ignoredCorrect
  2. BIt cannot be calculated because charities have no expenditure
  3. CIt focuses on long-term outcomes and ignores current spending
  4. DIt encourages the charity to maximise profit at the expense of donors

Explanation

A programme-spend ratio is an input-allocation measure. A charity could spend most of its funds on programmes that achieve little, so outcome measures are needed. It can be calculated, and it is not a profit or long-term outcome measure.

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