MinistryWatch 5 Star Rating System
Introduction to Ratings
Looking at Nonprofits and For Profits
The Ratings Framework
The Efficiency Score
The Model
An Illustration
THE RATINGS FRAMEWORK
The 5 Star Financial Efficiency Ratings system takes a comprehensive view of a nonprofit's activities and financial position. We base our evaluation of "financial efficiency" on how well the organization balances the elements of risk and return when addressing four fundamental financial decisions that nonprofits make as they carry out their missions. Each of these decisions focuses on one of the major organizational elements described above (inputs, outputs, throughput, and infrastructure). The 5 Star Financial Efficiency Ratings system identifies these four decisions as the fund acquisition decision, the resource allocation decision, the asset leverage decision, and the liquidity maintenance decision.
Fund Acquisition
The fund acquisition decision for a nonprofit organization addresses the question of how the organization acquires resources. It focuses on the organization's inputs.
Resource Allocation
The resource allocation decision addresses the question of how the organization spends its resources to accomplish the goals of the organization. It focuses on the organization's outputs.
Asset Leverage
The asset leverage decision addresses the question of how the organization uses its asset base to expand the activities of the organization. It focuses on the organization's throughput.
Liquidity Maintenance
The liquidity maintenance decision addresses the question of how the organization manages its need for sufficient liquid assets to ensure that it is able to meet current commitments. It focuses on the organization's financial infrastructure.
Although managers may not talk about or act with specific reference to this decision framework, their daily decision-making forms their answers to these fundamental questions.
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