Evaluating the Nonprofit Dynamic: An analysis of the organizational dynamics that shape PHA—a nonprofit organization devoted to community development and quality of life. By Try L. Muller

2009

Professor John Yelvington GB519-6: Measurement & Decision Making

10/27/2009

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Introduction

The Piedmont Housing Alliance (PHA) is a service-oriented regional nonprofit

organization that is federally funded by the U.S. Department of Housing and Urban

Development (HUD), Virginia Fair Housing Office (VFHO), and also receives funding

from local state and county governments. PHA’s mission is to ensure quality of life by

offering a variety of community development services that are geared towards the very-

low to moderate-income families in the region. The organization is broken down into two

interrelated divisions: Affordable Development & Special Projects and Housing

Counseling & Fair Housing.

Under the Affordable Development and & Special Projects division PHA has

numerous LLC’s that are related to various affordable housing projects and rental

properties. Each affordable housing project is a renovation, redevelopment, or brand

new development that is either completely funded by tax credits, federal grants, or a

combination of the two— supplemented by PHA’s special projects account. These

projects are strategically placed in poor neighborhoods or in close proximity to low-

income areas in efforts to improve the demographic makeup, physical characteristics,

and economic value. Subsequently, the “special projects” portion includes initiatives that

supplement affordable development such as organizing community gatherings, building

community centers, or redeveloping parks in certain low-income areas.

The services provided under the Housing Counseling & Fair Housing division are

plentiful and free of charge. Housing counseling involves in array of services. These

include a first-time homebuyers program, credit counseling, a partnership with the local

Credit Union that offers short-term loans to combat predatory lending and payday loans,

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a 2:1 match savings program, down-payment assistance, and foreclosure prevention

assistance. Subsequently, fair housing supplements these services by ensuring and

promoting fair housing awareness through education workshops, fair housing

certification clinics, testing locations for housing discrimination, and handling the

complaint enforcement process. Thus, PHA is a very well-rounded organization with an

extensive stock of services geared to enhancing quality of life.

Balanced Scorecard Evaluation

Financial (costs, segment margin, ROI): The first critical success factor for PHA

is its cost management. Cost management is vital to the organization since financial

resources must be efficiently allocated within a nonprofit setting. To mitigate segmental

costs, both divisions apply for additional grants aside from what is already allocated to

the entire organization from HUD. This allows for each segment to operate

independently without worrying about unnecessary financial impacts from other

segments. As another strategy, PHA creates partnerships with other local organizations

that have interest in a new project. For instance, PHA used tax credits and other grant

money to cover the planning costs of a brand new groundbreaking affordable housing

development but still needed to raise money to complete the land purchase. So, PHA

partnered with the Charlottesville Housing Redevelopment Authority (CHRA) and

Jordan Development Corporation (JDC) who took on the remaining financial obligation

in order to have their organization’s name associated with the community development

project. Also, fundraising activities often help with cost mitigation as donors often make

financial commitments to PHA on a yearly basis or help with bridge money on projects.

Furthermore, throughout the year, the leadership and board of directors host various

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events where community stakeholders are briefed on the outlook for PHA in the coming

years— often resulting in significant financial contribution for these endeavors. These

are all great efforts to alleviate unnecessary financial burdens.

PHA clearly makes great endeavors to effectively manage its overall costs. Each

segment seems to use its money moderately and with prudence. The housing

counseling segment often has left over money at the end of the year and the

development segment often looks for ways to flatten out its costs. However, PHA often

acts as a small loan center for other nonprofit organizations— subsequently finding

themselves in situations where moving forward is subject to the return of these funds.

The loans are problematic because the cash flow of a nonprofit organization is subject

to inconsistent grant money allocation. Since these are not typical loans— more of a

personal loan— PHA is often subject to inopportune cash flow situations that either

inhibit project flow or prevent delving into other opportunities.

Although the organization is a nonprofit, PHA has created LLC’s for certain profit-

making projects and investment-oriented projects in order to create some equity in the

organization. Over the past six years, PHA has purchased and renovated eight rental

properties, of various sizes, that it currently manages. To date, these investments have

generated a modest ROI of 28%. The ROI has suffered greatly due to poor planning

that lead to the purchasing and renovating of two properties in the beginning of 2007—

on the cusp of, and during, an economic downturn. Of these eight properties, PHA has

broken even on three, profited on three, and is at a loss on the recent two projects. The

organization’s profitability has also diminished due to a poor housing market in which

PHA tried to sell three homes— only selling one since 2007 and slowly losing value on

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the others. In the wake of an unfavorable economy, PHA undertook some risks that may

not have been properly assessed.

Customer (response time, satisfaction, product quality): Customer response time

is very important to both segments. The Affordable Development & Special Projects

division often has problems with customer response time because of project efficiency.

This is especially true in cases where PHA is renovating one of their new properties and

residents must be temporarily displaced in order to complete the lengthy project.

Though residents were very satisfied with the finished project, the process was too

drawn out and it resulted in disconcerted residents. Poor planning and strategizing as

how to effectively implement this process inhibited the response time. As for PHA’s

other division, surveys are used to judge client satisfaction, efficiency, and product

quality in the Housing Counseling and Fair Housing division. Every client is given a

survey to take so that managers understand where adjustments need to be made in

program implementation. Hence, this division always operates— in regards to the

client— at optimum levels of efficiency with high rates of response due to the

information they receive from clients about the level of quality and service. Despite

some setbacks in the development division, the quality of the organization’s service and

the relationship with its clients makes PHA a highly valued resource in both the

community and the region.

Internal Business (risk assessment, fund allocation, segment evaluation): In

order for PHA to improve its processes and overall efficiency, they must improve their

risk assessment endeavors in order to make more appropriate decisions. Putting

together a more circumspect risk assessment strategy will allow the organization to be

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more efficient in its use of time, money, and management when evaluating investment

opportunities. This will also help both the internal and external workflow because

resources (time, money, management hours) will be allocated so as to generate the

greatest returns. Furthermore, PHA’s resources will be more effective when strategically

allocated and will prove to be more valuable.

PHA does a good job of proportionately allocating funds to programs according

to how they will be utilized. Both segments are evaluated a year in advance in order to

generate financial estimations of program needs. Thus, the dispersed money is often

more than adequate for program services. Risk assessment strategies will complement

fund allocation because there will be justification for where, why, and how money is

being used. Segment evaluation is such an important factor because it is ultimately the

deciding factor for how much money each segment is awarded through their respective

grant applications. The more money a segment is awarded, the less likely it is to have

an impact on the costs of another segment— providing continuity in operational flow.

The leadership team at PHA does a very good job of segment evaluation through the

use of statistics provided by an automated system and through the surveys filled out by

clients. The Affordable Housing and Special Projects division has an explicit list of

objectives— both time and quality oriented— by which the program is assessed.

Segment evaluation also relies heavily on the scope of work report generated by each

segment’s managers— detailing objectives and goals to reach throughout the year.

However, this will be touched on in more depth about the organization’s efficiency.

Overall, PHA must improve its processes and strategies so that human and financial

resources are used more effectively.

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Learning and Growth (product innovation, skill development, communication):

The Executive Director and the leadership team do a poor job of communicating the

macro-outlook of the organization. There are multiple partnerships, projects, and

community improvement endeavors that are not consistently communicated to the

employees. This is vital to the organization’s success because the employees should

always be aligned with company objectives and strategy. This requires that

management effectively communicate this information to its employees so that

everyone is moving in the right direction. Also, PHA employees represent the

organization at various public events throughout the year— further increasing the

importance of communicating company endeavors so that employees can accurately

communicate this information to potential clients.

Employee development is vital to PHA’s success when taking into consideration

the number of certifications housing counselors and program managers must have in

order to carry out their responsibilities. Furthermore, each leadership team member is

required to complete a week-long leadership program every year. Also, professional

development is somewhat of a perquisite because employees are encouraged to

participate in any educational advancement and role-specific opportunity they find

beneficial. Hence, this past year, every employee has been involved in at least one

professional development workshop. As employees improve their business acumen,

they develop more ownership in their responsibilities and experience a higher level of

job satisfaction.

Product innovation at PHA is critical as it continues to improve the quality and

variety of its services. Creating a partnership with the Credit Union to offer an alternative

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non-predatory payday loan and creating Creciendo Juntos as an outreach initiative to

the Latino community, are just a couple of ways that PHA has changed its products to

reach its target client. These recent additions to an already extensive stock of services

are a great example of how the organization attempts to use its resources to their full

potential. When resources are available, PHA does not hesitate to create a new avenue

by which to reach its clients.

Costs & Quality PHA has four significant costs that directly relate to the quality of its products and

services: quality improvement, professional development, final project inspections, and

maintenance repairs of rental properties. Quality improvement applies to the

organization’s younger home projects. Hence, it is a prevention cost since quality

improvement measures are taken in order to avoid the incurrence of unnecessary costs

due to diminishing materials. These quality improvements are made in the project

planning process and to the affordable home projects. As a way to standardize each

affordable housing project, PHA focuses on certain sustainability practices: EcoMod

(Ecological Modular Housing), air filter replacements, floor insulation, interior storm

windows, compact fluorescent lighting, and floating wood floors. These short-term costs

provide a lot of economic value and allow for longevity and long-term cost management

because it improves the sustainability of each project.

As mentioned before, the professional development is vital to the quality of

PHA’s services. Thus, it is another prevention cost— necessary to the accuracy of

information and quality of service provided to clients. The counseling services are

geared toward prevention— foreclosure, bad credit, predatory lending, discrimination—

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and thus it is important that employees continue to enhance their knowledge to

disseminate information properly.

Sub-contracting planners to inspect the excavated project sight, and

subsequently, the finished project, are significant appraisal costs related to product

quality. The site inspections have proven to be the most significant in PHA’s quality

assurance process because some potential projects have been analyzed as being in

close proximity to over-saturated soil. These pre-construction inspections have

improved the longevity and reliability of the organization’s home projects.

External and internal failure costs are incurred when maintenance repairs must

be done in the PHA rental properties. New materials are often needed in some of the

older properties and PHA’s property management team sub-contracts people to perform

this work. Liability costs have also been incurred at PHA with the occurrence of bigger

maintenance problem such as pipe breaks that lead to flooding or ceiling busts due to

water saturation. However, these internal and external failure costs are inherent when

purchasing older properties— often leading to big renovation projects to address long-

term cost management issues.

Productivity, Efficiency & Marketing All managers, including the Executive Director, are expected to generate a

written scope of work at the beginning of each year. This scope of work details

objectives that are to be accomplished by each manager and his or her subordinates.

Property and project managers supervise workflow and provide continuity to the work

processes for their respective areas and thus can be better gauged by efficiency as

opposed to productivity. Lastly, employee productivity in the housing counseling division

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is gauged on the volume of clients and completion of their scope of work— mainly

involving community education & outreach for all housing services mentioned in the

introduction.

Productivity levels at PHA are very high because activities are always being

completed and there is rarely ever any down time where assignments must be

“created”. Also, the scope of work narrative for each manager must be approved for

both timeliness and activity substance; ensuring consistent productivity levels. A lot of

this productivity can be attributed to the extensive marketing done by both divisions.

PHA has a policy that requires each manager to get their advertising funds matched,

dollar-for-dollar, with donated advertisements from the selected media. Therefore, PHA

always gets double the amount of advertising for a fraction of the price. The effort that

the organization puts into advertising (newspaper, TV, radio, community bulletin)

ensures that the target audience is receiving the message continuously.

Unfortunately, there are no evident metrics by which the organization measures

efficiency. It is hard to gauge efficiency at a service-oriented nonprofit like PHA because

key performance indicators are not explicitly defined. This falls on the leadership team,

along with the Executive Director, to sit down and define metrics that will effectively

measure the efficiency of each program. By doing so, the organization will improve its

productivity and strengthen its work processes.

In Review

PHA has very high-quality “products”. Their devotion to the effectiveness of their

services and projects is evident. Quality is ensured through continuous skill

development, segment evaluation, and product innovation. By investing in the skill and

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intelligence of its employees, PHA shows that it recognizes the difficulty in knowledge

transfer for specialized positions and it understands that the employees are vital to its

work system. This contributes to the employee’s business acumen which is vital in

understanding the opportunity for, and implementation of, new and redesigned

products.

On the other hand, risk assessment, cost management, and efficiency are areas

where PHA can improve its processes. Risk assessment and fund allocation are directly

related because poor decision making has lead to some money squandering. A SWOT

(Strengths, Weaknesses, Opportunities, and Threats) Analysis should be a key

component in all significant decisions. It will add value to the decision-making process

and it will require that management be more circumspect in taking on certain projects.

This would also have positive long-term implications for profitability and ROI— areas

where money allocation has not shown prudence.

Lastly, management must get together to find distinct metrics that can measure

efficiency for each program activity. Productivity often overshadows efficiency, but for

nonprofits, resources are too valuable to be squandered. Hence, finding ways to

improve efficiency will strengthen the work processes and may reveal opportunities not

easily recognized before.

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References

Anderson, D. R., Jackson, S., Sawyers, R., & Sweeney, D. J. (2008). Managerial

Accounting and Statistics. Mason, OH: Cengage Learning

Armstrong, S (2006). Piedmont Housing Alliance: The Face of 10th and Page.

Charlottesville, VA: Albemarle County Housing Authority