A Discussion Paper
Diocesan Key Performance Indicators
(“What gets measured gets managed”)
Prepared by the
General Synod Financial Advisory Group
The Terms of Reference of the General Synod Financial Advisory Group (the
Advisory Group) include the following:
(iii) To determine and recommend what additional information
should be provided by Dioceses to enable the Advisory Group
to adequately fulfill its role;
(iv) To develop further the agreed ‘benchmark’ for comparing
accounts to provide for an element of ‘early warning’ of potential
financial difficulties within Dioceses;
(v) To provide assistance at the request of Dioceses to assess their
existing financial reporting and recommend improvements
(vi) To provide recommendations to Dioceses which will assist them
in the management of their finances and assets, including when
necessary on appropriate organisational and decision-making
In August 2001, the Advisory Group issued a discussion paper on Financial
Reporting by Dioceses & The Application of Australian Accounting Standards.
Following extensive discussion with Registrars, its key recommendations
were endorsed by Bishops at their conference in Perth in March, 2002.
The practical issues associated with the application of Australian Accounting
Standards to Diocesan accounts, with the objective of ultimately receiving an
unqualified opinion on fully compliant financial statements from their auditors,
are being pursued by a Taskforce on Accounting Standards, chaired by Jim
Kropp from the Advisory Group and comprising representatives of Dioceses.
The Advisory Group is also continuing to review the annual accounts
submitted to Diocesan Synods and, at the request of a particular Diocese, has
been assisting it to restructure its financial reporting to be consistent with the
recommended ‘benchmark’ and to enable it to more effectively manage its
finances and resources.
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2. The scope of this discussion paper
The purpose of this paper is to promote discussion concerning appropriate
financial management of Dioceses, by focusing on key performance
indicators. As foreshadowed in the August 2001 discussion paper, key
performance indicators would help Dioceses to better manage their resources
and particularly to respond to significant change, on the straightforward and
realistic assumption that “what gets measured gets managed”. They would
also provide an element of ‘early warning’ of potential financial difficulties.
The main issues covered in this discussion paper are:
• The ‘Balanced Scorecard;
• Program costing and outcomes; and
• How to assess the financial condition of a Diocese
3. The Balanced Scorecard
A widely used approach in business is called the “Balanced Scorecard”. This
approach was designed in the early 1990s to integrate performance
measurement, and the key performance indicators that had been used by
companies for many years, with a company’s strategic goals and
management. It covers four key areas and groups of indicators: financial;
customers; internal business processes; and what is termed ‘learning and
growth’ - but has been extended by some users to include an additional
perspective: the community.
In order to assist understanding, a one-page summary of the concepts is
attached as an appendix to this paper. Much more information is available for
interested readers who should contact the Financial Advisory Group. .
An advantage of the Balanced Scorecard is that it places strategy, structure
and vision as the central focus of management. Some public sector and not-
for-profit organizations have applied this approach because it also provides a
way of communicating their strategy and priorities to various stakeholder
groups, although its possible use by Dioceses needs further applied research.
The Balanced Scorecard seeks to go beyond financial measures. Also,
effective use of the Balanced Scorecard approach would necessarily flow
from a Diocese’s long-term vision and strategy.
Under this approach, financial measures would not, as a general principle, be
seen in isolation from all other measures. The interconnection between the
four categories of measures within the Balanced Scorecard needs to be
articulated and communicated between users.
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What would the measures be in a Diocesan Balanced Scorecard? The table
below sets out a possible range of measures.
Financials Growth & development
− Risk-adjusted returns − Progress on key projects
− Liquidity − New Diocesan ministries
− Surplus real estate − In service training program
− Deferred maintenance − Special purpose grants
− Management Expense − Staff satisfaction/turnover
Ratio (especially salaries) − Diocesan networking
Parish/organisation satisfaction Process efficiency
− ‘Climate’ surveys − Service standards
− Market share (census) − Quality reviews
− New endowments( eg to − Resource allocation
Bishopric) − IT capital investments
This has been developed on the basis that the “customers” of the Diocese are
parishes and diocesan organisations.
Obviously, application of this approach would not only involve deciding on
several important conceptual and measurement issues, but also require
considerable time and resources within a Diocese.
It might therefore appear to be relevant only to larger and better-endowed
Dioceses, although it has been successfully applied in business to smaller
companies to set goals and priorities and allocate resources. The Balanced
Scorecard simply provides a framework, but, to be effective, requires relevant
goals and performance indicators to be identified and communicated between
the key figures in management.
4.1 Program Costing
At present many Dioceses present financial information on a traditional ‘line-
item’ basis. That is, classifications of expenditure follow [standard] accounting
practice and show categories such as:
− Electricity and water
− Printing and stationery
− Repairs, etc
These classifications probably bear little relationship to the objectives and
programs of a Diocese, and provide little assistance in understanding how
effectively those objectives are achieved.
An alternative is to use an “Outcomes and Outputs” framework. Associated
with such a framework is a ‘program’ regime with related budgeting, costing
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This approach can help to answer 3 fundamental questions:
(i) What does the Diocese want to achieve? [Outcomes]
(ii) How does it achieve this? [Outputs]
(iii) How does it know if it is succeeding? [Performance reporting]
Outcomes require specifications by ‘outcome statements’, which define the
impacts a Diocese expects. Such a statement would also delineate the
outputs /programs that will contribute to the achievement of outcomes.
In its practical application, there are 2 key aspects to ‘program’ costing:
• The need to carefully identify exactly what the programs actually are
and that they are expressed in a measurable way.
− Intent: What will the program accomplish and what change will
− Target: Who or what changes as a result of the program
− Geography: Where will the program take place and where will
the change be observed?
− Timeframe: What time frame will be necessary to produce the
− Magnitude: How much change is expected?
− Measure: How will one know when change has occurred?
• There is usually a requirement for occasional individual and detailed
time recording by all staff, including clergy. Given that the church is
people-based, its introduction would need to be handled in an
understanding and sympathetic manner, particularly if extended to
issues of performance.
There is a very substantial body of knowledge associated with Outcome
based management in the public sector (the whole of the budget and
performance measurement process for the Commonwealth Government
of Australia is built on this model) but further work would be required to
tailor this to the needs of a Diocese.
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4. Financial condition
4.1 Defining the financial condition of a Diocese
The following discussion is drawn from a paper prepared by the Canadian
Institute of Chartered Accountants in connection with the measurement of
performance by Governments and can be applied to a not-for-profit entity.
The financial condition of a not-for-profit entity such as a Diocese is its
financial “health” as measured by sustainability, flexibility and vulnerability,
looked at in the context of the overall economic and financial environment.
These terms are defined as follows:
• Sustainability: the degree to which a Diocese can maintain existing programs
without significantly increasing its debt burden or significantly reducing the
investments of the Diocese, or by making extra demands upon contributors.
[These could be defined to include Parishes, in the case of central Diocesan
functions, or the Diocese could be viewed more broadly to include Parishes.]
• Flexibility: the degree to which a Diocese can vary the application of financial
resources to respond to changing circumstances and priorities.
• Vulnerability: the degree to which a Diocese is dependent on, and therefore
vulnerable to, sources of funding outside its control or influence.
4.2 Challenges to reporting on financial condition
First and foremost is the reality that the financial condition of a Diocese is
different from the financial condition of companies. The essence of this point
goes to the very heart of the difference between the not-for-profit and the
In the private sector, the principal purpose of financial activity is to increase
the net worth of the enterprise. In other words, the organization's balance
sheet should reflect the result or consequence of all expenditure.
Dioceses are different. The benefits from their activities go, for the most part,
to their own members as well as the broader community, even though any
annual shortfall or surplus becomes part of the Diocese’s financial results.
This means that, while congregations and other stakeholders (eg, residents of
retirement villages, recipients of other support) expect the Diocese to enhance
their well being (both spiritual and social), those benefits cannot be fully
recorded in Diocesan financial statements. The statements largely reflect the
costs of providing those benefits.
This is not to suggest that Dioceses should limit their expenditure to areas
that generate a direct financial return. Rather, it is to show that, unlike in
business, many of the benefits that a Diocese provides will never show up on
its balance sheet and, consequently, will have no directly measurable effect
on its financial condition.
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[However, there may well be circumstances in which a Diocese will want
some of its “investments” to show a financial return, or at least be managed in
a way that ensures that their own financial health is sound and that there is no
underlying or contingent financial risk to the Diocese and its assets. The
failure to maintain a ‘Diocesan’ school, retirement village or nursing facility in
sound financial condition will not only have adverse implications for its ability
to maintain required standards but also potentially for the Diocese itself.]
A second reality is that financial condition is an assessment of just that - the
condition of the finances of a Diocese, not the effectiveness of individual
Diocesan spending (and revenue) decisions. Of course, outcomes are
important and information that enables their assessment should also be
prepared and provided, but this is separate to indicators of financial condition.
A third reality is that an assessment of financial condition is essentially an
exercise in accountability, which can refer to both historical and forward-
looking information. It is usually emanates from historical financial reporting,
with the analysis restricted to past financial decisions and trends, not
This does not mean, however, that forward-looking financial information,
including in annual budgets, is unimportant. On the contrary, it is vital for
assessing whether or not the strategy a not-for-profit entity plans to follow is
viable and acceptable to its members, community stakeholders and its
creditors. Of course, the ability to maintain existing programs and include
new initiatives in a budget is dependent on a Diocese’s financial condition.
4.3 Indicators of financial condition
The most appropriate indicators of financial condition will depend on the
specific circumstances of any particular not-for-profit entity. The indicators
discussed below are not an absolute list; nor are they necessarily mutually
exclusive. The aim should be to develop an integrated set of the most
relevant financial and non-financial indicators to the current operating
performance of the entity in line with its long-term goals and strategy.
In assessing and improving financial condition, the first priority is
sustainability: the degree to which a Diocese can maintain existing programs
without significantly increasing the debt burden of the Diocese, significantly
reducing its investments, or having to constantly resort to “special appeals”. If
a Diocese cannot stabilize its debt burden, for example, debt-servicing
charges will consume an increasing proportion of income, making it harder to
sustain existing programs let alone introduce new initiatives.
The inevitable long-term impact of a continually rising debt burden is the
steady erosion of standards of service. In the extreme, a Diocese may need
to restructure both its debt and programs in order to continue to meet cannot
continue to have its debt-servicing obligations.
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Sustainability measures can include:
• Deficit/surplus as a percentage of total income
• Debt as a percentage of total income.
• Debt interest payments as a percentage of total income
• The growth and composition of congregations
If a Diocese has debt obligations with specific covenants included by the
lender, they would also need to be monitored.
The second priority in assessing and improving financial condition is flexibility:
the degree to which a Diocese can vary the application of financial resources
to meet changing circumstances or priorities. The way a Diocese manages its
finances affects its future maneuverability.
This requires an assessment of commitments. For example in most, if not all
Dioceses of the Australian Church, there are significant commitments to staff
and heavy investments in real estate. The consequences of this for ongoing
expenditures (for example, employee entitlements and maintenance) may
limit the delivery of other programs in the medium term.
[Moreover, there can often be other constraints that limit flexibility. The
specific and historic nature of many church properties can severely inhibit
their sale while at the same time making renovation to accommodate
changing needs particularly costly.] Further, deferring maintenance is not an
attractive option as it not only reduces the current usefulness of a property (or
other capital equipment) - and may compromise important factors such as
safety – but also pushes off the day that the capital will have to be restored,
most likely at a higher cost. The phrase "pay me now or pay more later"
clearly applies to reducing flexibility by deferring capital maintenance.
Flexibility measures can include:
• Changes in physical assets (Depreciation can be a measure of this
but the accounting limitations of depreciation may require other
approaches especially to deal with the vexed issue of ‘deferred
maintenance’ - although a failure to at least recognize depreciation
only magnifies this potential risk.).
• Maintenance as a percentage of income.
• Longer term salary commitments as a percentage of income.
• Accumulated staff entitlements (eg, pensions, long service, sick and
annual leave), and the extent to which they need to be and are fully
This is clearly an area for which non-financial indicators can also be
important. For example, staff turnover and the associated time and costs
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devoted to recruitment and training (including retraining) can have a
significant impact on flexibility.
The third priority in assessing and improving financial condition is
vulnerability: the degree to which a Diocese is dependent on sources of
funding outside its control or direct influence.
As for companies and individuals, excessive borrowing not only reduces a
Diocese’s capacity to borrow funds in the future but also to respond to
adverse developments. Similarly, increasing income through demands on
parishes and individual donors, or user fees, can often reduce the ability to do
so in the future as the willingness of contributors becomes stretched.
Regardless of the sustainability of debt or the degree of flexibility, the degree
of control a Diocese has over its revenue sources can have an effect on its
Vulnerability indicators can include:
• Total Debt
• The percentage of debt with floating rather than fixed rates (and
hence the immediate exposure to interest rate increases).
• Foreign currency denominated debt (or other obligations).
• Capital expenditure as a percentage of recurrent operating costs.
• Special appeals (and in some circumstances even parish
assessments) as a percentage of total income.
• Investment income as a percentage of total income. (The Advisory
Group’s preliminary review of Diocesan accounts indicates an often-
large imbalance between investment income and parish
assessments, which in the context of declining congregational
growth, requires difficult and careful management.)
The underlying financial accounts and other relevant sources will need to be
restructured to provide the necessary information. Updating need not be
continuous (although some can be when the accounts and other sources are
appropriately organized) but ideally should be at least semi-annual, or when
major decisions on new initiatives or priorities are under consideration.
This discussion paper has been prepared to promote understanding of the
various issues of principle, and some of the approaches that have been
developed to enhance financial management via “what get measured gets
Good financial management requires appropriate and consistent information.
This paper therefore naturally builds on the earlier discussion paper on
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Accounting Standards and the work of the Accounting Standards Taskforce,
which was established to help extend the application of Australian Accounting
Standards to Diocesan accounts.
Some of the approaches discussed in this paper are obviously
comprehensive. If adopted, they would require considerable internal
resources and time to utilise effectively, and may not be suitable to some
Other aspects of management reporting may also need further consideration.
However, as a first step, the Advisory Group would like to facilitate the
establishment of a set of Key Performance Indicators relevant to the
particular circumstances of each Diocese as a way to monitor and improve
their financial condition (or 'health'). This would assist a Diocese to
assess the sustainability of its existing programs and its flexibility to
meet new priorities. Furthermore, by also focusing on its financial
vulnerability, relevant Key Performance Indicators would provide an element
of 'early warning' of potential difficulties.
The Advisory Group will assist individual Dioceses which may wish to explore
this further. The Group will then facilitate the interchange of information about
KPIs established and provide templates for calculation of the mainstream
indicators adopted. The Group is also willing, as a second phase in the
process, to establish a public folder where this information can reside and
be accessed by all interested parties.
The Advisory Group welcomes comments and/or suggestions from all
Dioceses, including in written form to:
General Synod Financial Advisory Group,
PO Box Q190,
QVB Post Office, Sydney,
28 November 2002
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What is the Balanced Scorecard?
Essentially the Balanced Scorecard is a set of financial and non-financial
measures relating to an organisation’s critical success factors.1It reflects the
thinking of Kaplan and Norton.2
The concepts were introduced because managers have learned that
yesterdays accounting results tell little about what actually can help grow and
organisation---things like development of people, innovative services,
advancements in research and development etc. The specific objectives of an
organisation’s Balanced Scorecard are derived from the organisation’s vision
and strategy. The objectives and measures view organisational performance
from the following four perspectives, (in the language of the Anglican Church):
Financial perspective“ To succeed
financially, what kind of financial
performance should we provide to our
Parish Internal business
“To achieve our “To satisfy our
Vision and stakeholders, at
vision, how should
we be seen by our
Strategy what processes
must we excel?”
Learning and Growth perspective“ To
achieve our vision, how will we sustain our
ability to change and improve?”
The Balanced Scorecard emphasises how organisations must enhance
internal capabilities and invest in people, systems and procedures necessary
to improve future performance, whilst retaining the financial perspective.
Innovative organisations are using the Balanced Scorecard to :
1. Clarify and translate vision and strategy
2. Communicate and link strategic objectives and measures
3. Plan, set targets and align strategic objectives
4. Enhance strategic feedback and learning.
The Balanced Scorecard can become a foundation for management.
“Applying the Balanced Scorecard to Small Companies”---Chee w. Chow, Kamal M. Haddad
and Jamie E. Williamson: Management Accounting August 1997.
See Robert Kaplan and David Norton, “The Balanced Scorecard---Measures That Drive
Performance” Harvard Business Review , January-February ,1992 pp. 71-79.
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