Tip #31 Are Your Organization's Results Worth The Cost?
A major responsibility of a board of directors is to ensure that the results being produced by their organizations are worth the costs incurred to produce them. A public or governmental board is entrusted by the residents of the district it serves to ensure that the results or benefits their organization produces are worth the taxpayer dollars expended. A for-profit board should ensure that an expected positive Return on Investment (ROI) is realized for organizational owners. Similarly, a non-profit board needs to ensure that the benefits its organization is producing in people’s lives are worth the investment of available resources.
An important step in carrying out this critical board responsibility is determining what results or benefits are to be produced by the organization being governed and for whom those results or benefits are to be provided. The bottom line is not how many services are being provided but whether or not enough of the board-determined intended beneficiaries are receiving enough of the board-determined intended benefits (positive changes in their lives) to justify the resources expended.
A useful framework for guiding the board’s deliberations about possible benefits under consideration and actual benefits produced is cost-benefit analysis. This involves looking at the value of benefits produced versus the value of costs expended. Even if determining the value of all costs incurred may be difficult or even elusive and even if the value of some benefits seems unquantifiable, a boardroom discussion of all costs and benefits that can be identified can promote informed board decision-making about possible benefits to be pursued and then about actual benefits produced in relation to estimated and then actual costs.
While data available for cost-benefit analysis may be limited and not as complete as may be desirable, the board should make a reasonable effort to secure helpful data since it shouldn’t delegate or abdicate its responsibility on behalf of the organization’s owners or key stakeholders to make the best decisions it can make regarding the organization’s intended benefits and beneficiaries in relation to expected costs.
Towards the end of February, I had the opportunity to attend a gathering of Policy Governance® consultants in Boca Raton, Florida and to serve as co-facilitator of an all-day session on the theme of this email message: boards ensuring that the results their organizations produce are truly worth the resources expended. This theme (“at what worth”) is a major aspect of the Ends concept in the Policy Governance® system of board governance. By the way, the Florida weather was great and dining with colleagues at restaurants on the beach quite special.
For more information about the Policy Governance® system, please go to https://www.BoardsOnCourse.com/policy-governance.
To read other Tips for Effective Boards, click https://www.BoardsOnCourse.com/blog.