As a nonprofit organization grows, changes or expands program focus, or has staff turnover, they often experience one of four issues:

  • Losing sight of vision and mission.
  • Blurring the line between day-to-day activities and long-term mission.
  • Feeling overwhelmed with the long list of tasks and goals to achieve.
  • Forgetting the last time they spoke about long-term goals and objectives.

A strategic plan without numbers is just noise.

-Phil Clements (Founder)

Situations like these are threatening to the organization and require a strategic planning process to maintain the sustainability and growth. Developing a strategic plan will help to refocus the organization on what is truly important and provide a way for people to execute the basics while looking ahead to the future.

This Topic of the Month will address the nonprofit strategic plan – purpose and use, creation and content, and the need for communication and ongoing review.

Purpose and Use

Strategic planning empowers and enables an organization to focus on its core mission, and restrains it from diverting attention and resources to program initiatives inconsistent with its strategy. In order to provide focus to its strategic planning, nonprofit organizations should start with their vision and mission statement. It is the vision and mission statement that should provide clarity and focus to all activities – defining the purpose of the organization, its values, the beneficiaries, and the results they hope to achieve. The strategic plan is the means by which the nonprofit organization can accomplish its mission. In particular, the strategic plan:

  • Provides nonprofits with a means to ensure alignment of staff and mission and how best to focus resources on desired outcomes.
  • Establishes clear objectives for organizational development and the timing for expansion, as well as an understanding of logical next steps for the organization to progress.
  • Establishes qualitative and quantitative goals and key objectives to measure performance over an extended period of time – e.g., five years.
  • Gives the organization a practical direction as to how staff and volunteers should allocate their time and ensures that their daily tasks flow into an effective plan to achieve desired outcomes.

Effective strategic planning encompasses a “rolling approach” that provides a fresh look at a twelve-month plan, and is created each year to guide near-term efforts toward achieving long-term goals, typically five years. Effective short-term planning, essentially the tactical plan, breaks down the extensive strategic plan to create achievable milestones for the coming year.

Creation and Content

The Executive Director is usually responsible for the creation of the strategic plan for a nonprofit organization. The method of creating the plan and the particular participants involved in the process will vary depending on such factors as: the size and complexity of the organization, the composition of its leadership team, the degree of participation of the Board of Directors (or its committees) in the operations of the nonprofit, whether the nonprofit is a start-up or more mature organization, and the financial and business acumen of the leadership team. The degree and level of input into the planning process will be influenced by the culture of the organization, but may include various levels of staff, particular volunteers, or even major donors as or when appropriate. It is important that the organization’s Board of Directors approves the plan and that there is broad-based support for the strategic plan within the organization.

In order to keep the nonprofit’s strategy brief and well organized, we recommend that all organizational activity be broken down into three categories: Program Services, Fundraising and Development, and Management and General Operations. With this in mind, the key steps to developing a strategic plan for a nonprofit organization are:

1. Establish your objective.

That is, what do you see the nonprofit achieving in five years? Broadly speaking, this should include number and/or scope of programs, level of revenue forecasted, level of administration/operations to support the program, and development initiatives.

2. Analyze the “Gap.”

Compare the current state of the nonprofit organization to where you want it to be in five years’ time. This difference or “gap” of where the nonprofit is at now and where you want it to be in five years must be analyzed to determine what changes need to be made to achieve your objective.

A SWOT analysis (Strengths, Weaknesses, Opportunities, and Threats) is helpful in determining the nonprofit’s current position. Building on strengths and opportunities, while addressing the other factors, provides a solid foundation for identifying the necessary steps to be taken each year to reach the desired objective. In the context of performing a SWOT analysis, it may be helpful to consider a brief environmental scan – i.e., reviewing the demographics of your community, speaking with other organizations that do similar work to ascertain how your organization complements or competes with them, and so on.

Proposed organizational changes need to be written down and the necessary steps to accomplish each one described briefly. One visual way that future growth can be charted is by showing the changes in an organizational chart year by year. Without framing the necessary steps for each goal, the objective is unlikely to be reached.

3. The Financial Model.

Once the components of the strategy are identified, the next critical step is the development of the financial model for the next five years. The model brings the strategy to life.

A good model will follow the standard financial statement format: Statement of Financial Position, Statement of Activities, and Statement of Cash Flows. The level of detail in the financial model will vary depending on the size of the nonprofit organization and the financial acumen available. For most nonprofits, it is useful to follow a simplified approach focusing first on revenue and the Statement of Activities. For example:

  • Revenue, Support and Gains for the year
  • A sub-schedule showing the sourcing of the revenue or funds to be raised is helpful – e.g., contributions by donors, grants, government contracts, fee-related services, memberships, investment income, legacy income, etc.
  • Program Services Costs
    • All program-related costs will be included here. Note that if a nonprofit’s desired number and/or scope of programs (and the attendant costs) exceed the organization’s fundraising capacity, reductions to program scope may be necessary.
  • Fundraising and Development Costs
    • This will include the cost of direct mail, special events and all other fundraising initiatives, as well as increased development staff costs.
  • Management and General Operations
  • Consideration should be given to whether any other resources,
    expanded facilities, or additional administrative support will be
    necessary for the forecasted level the growth.
  • Change in Net Assets
    • Any excess of revenue over expenses for the year will increase net assets or reserves, as the case may be. Where expenses exceed revenue, a determination must be made as to how the excess is to be funded (i.e., by taking on debt, drawing down reserves, etc.).

The Statement of Activities then flows through the Statement of Financial Position and the Statement of Cash Flows. The key here is to identify what added investment (both amount and timing) is required to support the growth in the organization. Even without added facilities, additional working capital investment may be required and the sourcing of this should be considered in the model.

4. The Annual Budget.

The first twelve months of the five-year financial model should then form the basis of the organization’s annual budget. That is, the revenue necessary to support operations and capital investment is a quantifiable amount for each year of the plan, as are the program, fundraising and other expenses for each year. Achieving the annual budget in each of these years will be important in order to achieve the organization’s desired objective or strategic plan by year five. Since the strategic plan is a dynamic document, modifications to the plan can be made as and when required each year to reflect changes in the market or issues encountered in executing against plan objectives.

Communication and Review

The nonprofit’s “strategic plan” must be communicated to the staff, reviewed regularly for progress against the plan, used to evaluate program opportunities and initiatives, and adapted or modified as conditions change.

A strategic plan can become nothing more than an exercise of “wishful thinking” if no one in particular is responsible for achieving the plan, or if the plan is not communicated to the staff (and selected volunteers if appropriate). The strategic plan should be developed with input from key members of the nonprofit’s leadership team because they, together with the Executive Director, will ultimately be responsible for the execution of the plan and should be accountable for achieving (or not achieving) the plan. While most of the organization’s staff and volunteers are focused on day-to-day job responsibilities, they too need to understand the strategic plan and their role in the execution of the plan. Most organizations find that there tends to be more “buy-in” to the strategic plan if a component of leadership and staff remuneration is tied to reaching specific goals embedded in the plan.

The strategic plan should be reviewed on a regular basis. Based on the size of the organization and scope of operations, this review should be performed quarterly, semi-annually, or annually as appropriate in the circumstances. The progress and success of each of the embedded goals should be monitored and measured. Furthermore, the Executive Director should meet with the leadership team (and they in turn with their staff) on a quarterly basis to determine the following:

  • Whether organizational activities and initiatives are within the parameters of the agreed goals and objectives of the strategic plan (and annual budget),
  • Whether activities are consistent with the organization’s vision, mission and values, and
  • Internal and external changes that need to be made to achieve the objectives outlined in the strategic plan.

Articles for Further Reading:

  • Strategic Planning for Nonprofits.
  • Robert S. Kaplan and David P. Norton, The Balanced Scorecard: Translating Strategy into Action (Cambridge, MA: Harvard Business Press, 1996).
  • David O. Renz & Associates (Eds), The Jossey-Bass Handbook of Nonprofit Leadership and Management, 3rd Edition (San Francisco, CA: Jossey-Bass, A Wiley Imprint, 2010).
  • David Parmenter, Key Performance Indicators for Government and Non Profit Agencies: Implementing Winning KPIs (Hoboken, NJ: John Wiley & Sons, Inc., 2012).
  • Strategic Planning for Public and Nonprofit Organizations.

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