By Jon

This is a bit more esoteric than other posts you’ll find on BC. Normal service will be resumed when I post next on the value of books, but prompted by Dawn’s post on KPIs a couple of days ago, I thought I’d write something myself.

FYI ACE NPO KPI

The funding agreements for Arts Council England’s new National Portfolio Organisations (NPO) contain a number of KPIs, and one in particular has been attracting attention:

Achieve an increase in the proportion of your income generated from non-Arts Council funding of x% in 2011/12 to x% in 2012/13, X% in 2013/14 and x% in 2014/15

I think there are two reasons this KPI is attracting attention.

What does it all mean?

First, the exact scope of the KPI isn’t clear, and NPOs want to understand what they are signing up for.

For example, does the % of funding received from ACE over the period have to decrease year on year, or across the period as a whole? This is important to festivals, organisations with cyclical programmes, and anyone whose three-year plans include a period of increased activity, such as an anniversary year.

Does the % refer only to NPO grants or will it apply to all Arts Council funding? NPOs can no longer apply to Gfta, but many orgs are likely to receive large capital awards or strategic funds at some point over the next few years. If these monies are included in Arts Council funding, you’ll see large spikes in the % in some years. If they are excluded, then receiving a non-NPO award from ACE would actually reduce the % in the relevant year, which would be very odd.

There is a related point to make about grants made to orgs working in partnership, which are increasingly common. Dawn blogged a week or so ago about Common Practice, a group of several small London visual arts organisations. Common Practice has been supported by ACE funds in the past couple of years, but for practical and legal purposes, the money is channelled through the Chisenhale Gallery. As I read the KPI, the grant would greatly distort Chisenhale’s %. Perversely, it will probably making it easier for them to achieve the objective, since their % will drop significantly when Common Practice’s current funding runs out.

I’m also interested in how the %s are to be measured. In all other KPIs, ACE has left the basis for calculation to organisations to suggest, and one might assume that is the case here. But with other KPIs the wording is open to negotiation, so with a KPI mandatory ACE may have a fixed basis in mind. Yet nothing is set out, so while the obvious basis is to take a calculator to the financial statements, I think it’s open to interpretation whether management accounts or ACE’s own annual submission can be used.

Bigger is better?

A lack of detail is one thing – it can and probably will be tidied up in discussions and supplementary guidance. But a second and more significant issue is the message that the KPI sends & the potentially distorting incentive it provides. As Dawn hinted, there is only one strategy NPOs can adopt if they want to achieve the KPI – growth.

Its easy to see why with some numbers.

Let’s assume org x gets 100k NPO grant and 100k from non-NPO funds. The following year it receives 105k in NPO funding (a 5% increase). The organisation needs to raise at least 106k (a 6% increase) from non-NPO sources in year 2 in order to achieve the KPI. Overall, the NPO has to grow by 11k (5.5%)

ACE has awarded a significant majority of NPOs year-on-year uplifts, meaning NPOs must adopt a strategy of increasing non-ACE funding sources by a higher % year on year.

Why bother?

By making this and only this KPI mandatory, ACE have signalled that they attach special significance to growth in NPOs over the next 4 years. This is causing comment for several reasons.

First, it marks a policy shift for ACE. I’m happy to be proved wrong, but I think the KPI represents a greater level of direction for funded organisations than at any time in the past. Yet, NPOs are independent from ACE and both sides rightly cherish this about the relationship. An NPO is run (in most cases) by a Boards of Trustees whose role is to set strategy and secure the organisation’s future. These Trustees may well disagree with strategy the KPI requires.

Second, again as Dawn suggests, growth is very difficult for nations, supermarkets and investment banks at the moment, let alone arts organsiations. Standing still is a significant achievement in the current economic climate, and a contraction may be an organisation’s best strategy. So, it seems odd to include a requirement for all NPOs to grow at this time.

Third, while the KPI reflects the Secretary of State’s priorities and the goals set out in ACE’s 10 year strategy, the wording used means this is not simply a case of ACE passing on requirements from DCMS. The wording of DCMS’s own indicator (see #2) shows this, as it clearly refers only to charitable giving. The assumption is, therefore, that the KPI reflects ACE’s own focus or policy.

Finally, if you play with the numbers a bit more (which I won’t try to do here), it is likely to be harder to achieve for organisations who depend on income from a limited number of sources. Small organisations more often fall into this category, and a drop in (say) local authority funding will require a disproportionately high increase in funding from other sources in order to hit the target.

So, all in all, it’s hard to know what conclusions to draw.

Where once I would have asked for answers on a postcard, do write any thoughts you have in the comments. We have received some private correspondence from readers since Dawn’s post, but it would be nice to share them more widely.

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