Trends- what are they, what do they mean.
This post is the third in a series about creating an early warning system for your organization. In the first post, I talked about how dangerous it can be to ignore the environment in which your organization operates. Small changes in rules, funding, priorities, or demographics can have a big impact- positive and negative-on your operations and sustainability.
In the second post, I offered ideas about the kinds of data to collect and a few free, easily accessible sources for it. Other essential data comes from your operations and your goals. Indicators for financial solvency, program satisfaction, or enrollment levels can provide a wealth of useful data.
This post is about transforming that data into information by understanding and tracking trends. Trends are a powerful way to assess your operations, especially when you view them in the context of your goals. They also give you insight into how fast and in what direction an external factor, such as household income or school enrollments, is changing.
First, what exactly is a trend? The Baldrige Performance Excellence model defines a trend as numerical information that shows the direction and rate of change in an indicator.
A trend is a set of AT LEAST three data points. Not one, not two, three. Why three? One data point gives you a single point in time. It can only tell you what happened or is happening at that particular moment. It doesn’t say anything about the past or the possible trajectory of the future.
Two data points only tell you what happened in a particular period – a week, a year, a semester, a program session. This is far more information than a single point, but what if one of the data points was an anomaly? Think about all the disruption of the past year: events cancelled or held virtually, programs disrupted, housing and medical crises. Even during placid periods, the world is full of anomalies.
A trend is three data points that indicate the rate of change, the direction of the change, and the possible future path of the change. Three data points can also tell you if there is NO trend. This is a huge amount of information and a strong starting point for drawing conclusions.
Put another way, three data points can be thought of as your ‘base level’ plus two time periods. If you don’t capture all three you are relying on a single event or time period to propel your decisions. Don’t let yourself be fooled by something that looks too good (or bad) based on two data points.
The power of tracking trends is easy to see when linked to an internal performance goal. For example, let’s look at the number of days of cash on hand. Your organization has set a goal of 90 days.
With one data point, Q1, clearly your organization is off target. Adding the second data point at Q2 starts to tell a story, but be careful — maybe Q1 was the anomaly. But then again, it might have been Q2.
It would be risky to form a conclusion about rate and direction. To have a more accurate impression of the direction and rate, you must collect the third data point, Q3. Adding a third data point flattens the trend significantly and sends a very different message from the prior two periods. The trend line is very flat and barely rises about the goal in the future.
By adding yet a 4th point, the story becomes even more evident: your organization is exceeding the goal, but the slope of the line is flat. A flat line indicates a slow rate of change over the period. You can anticipate that, unless something in your environment or operations changes, your organization’s position will continue to slowly improve.
As a nonprofit leader, you can use simple trend charts like this to anticipate the future and, modify your plans, and set appropriate, attainable operational goals.
There is still something missing: how does your organization compare to peers? Armed with levels and trends, you can now start to make meaningful comparisons between your performance and peers or leaders in your service area. Are you dominant, on track, or heading toward impending danger?
The next post will focus on comparisons and appropriate benchmarking, important practices for organizations that want to accelerate their performance and future proof their operations.
*Definitions thanks to John Vinyard, The Baldrige Users Guide 2019