The goals of lean manufacturing are to increase efficiency and reduce costs in a process, this is achieved through the removal of wasteful practices and the flow of value through the value stream to the customer. Nowadays, the principles of lean manufacturing have been applied to almost every industry in the world with great success such as services, retail, healthcare, construction and even start-ups. In this article, we will discuss the case for applying lean principles in nonprofits.
Why nonprofits should go lean
Unlike most other industries, nonprofits, are organizations dedicated to furthering a particular social cause and motivated by a social mission but not by profit. Therefore inefficiency is often overlooked and absorbed in overhead, or at the cost of the donors and benefactors. However, nonprofits must still bring in enough income to pursue those social goals and for sustainability and growth. Indeed, non-profits must be fiscally responsible businesses, they must manage their income (donations/grants) and expenses (salaries, legal, marketing, IT solutions etc) so as to remain a fiscally viable entity. Lean in nonprofits is highly valuable, enabling higher throughput of grants or payments, creating a greater impact factor and ultimately reaching more people in need.
Types of wasteful activities found in Nonprofits
When discussing wasteful practices in nonprofits, this can really be divided into two areas. The first area is the grant application experience and the second area is the actual internal operations of the nonprofit itself.
The Grant Application
Let’s first discuss the grant application and thus the grantee experience. Many nonprofits still rely on paper grant applications forms instead of online grant applications. When the paper application is submitted, a team will often need to transcribe the information into their system. This is wasted effort in transcription and can also lead to errors in the grant application. Even if nonprofits have an online grant application, the application itself is often cumbersome and confusing for the applicants to complete. There is often no flow in the question formats and the questions are worded difficultly for the applicant who is often already stressed when applying for a grant. The reason for this is because there is no upfront planning in the wording of the applications, often times grant applications have morphed over time with new questions added to meet certain regulatory requirements. A confused and stressed applicant may then submit the wrong expenses or documentation required for eligibility for the grant in question. This can lead to delays in the approval process and excess “chasing” by the grant reviewers for the required documentation. Another area for confusion for the applicant is the grant criteria e.g. that their particular hardship is actually covered by the grant, that the time frame for applying for the grant is in the eligibility window or that the expenses incurred by the hardship are covered by the grant. Even still when the applicant submits the grant application, they may not hear back regarding the progress of the application, whether it was submitted successfully, or approved or denied. Finally, if the grantee has been approved there can often be delays in the payment process, at a time when the grantee needs the money most.
Leaning out the grant application
So what can nonprofits do to tackle these wastes. Well, the grant application is the first step in the whole process. The information received, flows through every function in the nonprofit and ultimately is the basis for whether a person receives a grant or not. Garbage in, is garbage out, so it’s really important that the information coming in through the grant applications is complete, accurate and error-free. To accomplish this, the grant application itself needs to be simplistic, ask the right questions of the applicant and less prone to errors of submission. A first step to leaning out the process, is moving away from paper applications and instead to online grant applications. Survey monkey, Capterra, G2 are examples of online grant tools. This will save time and effort in transcribing paper applications and lead to less transcription errors from bad hand writing etc. A second step is screening applicants at the beginning of the process. There should be a list of screening questions based on the grant eligibility requirements so that an applicant cannot proceed if they are ineligible for any of the requirements, this will save time for the applicant and the grant reviewers. Asking the right questions in a simple “yes/no” format is the best way to streamline the grant application and avoids confusion. Grant coverage guidelines should be in a matrix format and easy to read so that the applicant is aware which expenses are associated with which grant they are applying for, in the case of personal hardships. Grant minimums and maximums should also be clearly stated to avoid confusion and disappointment for the applicant and wasted time for the reviewers. A standardized approach should be taken for eligibility i.e. if you experienced this hardship you will receive X cash to avoid confusion for the applicant and reviewers who must make the decision on the grant. Along with the online grant application, the grantee should receive constant automated email or text communication so they are kept aware of the progress of the grant application i.e. receipt of the application, approval of the application etc. This will also stop applicants calling or emailing asking for updates on their grant application. Once the applicant has been approved for a grant, it is best to process the payment in a designated number of days and this should be stated on the grant application so that the applicant is aware of the timeframes. Non-approval emails should be sent directly to the applicant and stating a specific reason for the denial and offering other forms of assistance with links to American Red Cross or other community programs.
Wastes in Internal Operations
Nonprofits are organizations motivated by a social cause. That might be providing grants for people who experienced a personal hardship or natural disaster, grants for students for university tuition, grants for medical care etc. The employees of nonprofits are caring people passionate about the cause. And, in general, the internal operations are often less operationally and performance focused. What you will often find is no real structured processes for the different functions. For example, there might be onboarding, grant review, grant payment but no delineated processes or ownership. There is often no or poor procedures on how to actually complete the work which leads to errors and inconsistency in the final product. This leads to constant “re-inventing the wheel” which wastes time. Additionally, since there are no procedures there are no standard times attributed to tasks, so it is hard to get a handle on how long a certain task should take and this is difficult for resource planning. There is no flow in the process, with stop-starts common place and a process that should probably take one week may take upwards of one month. This is due to a lack of milestones and cycle time targets in the process. There is commonly no visual or performance management of the overall workloads and individual workloads. Errors and issues are ubiquitous but there is no visibility on errors or issues, no error tracking and no corrective actions and re-training plans. Quality assurance is also lacking, with links for donations or grants sent to applicants that are missing or broken as there was no review set up prior to sending. Furthermore, when it comes to the review process, there is a non-standardized approach to review. This can lead to delays in the grant approval process and confusion for the applicants. Many reviewers may be unsure of eligibility requirements and it takes them longer to make decisions. There will be no targets for the time taken to review, so some applications will get through the system quickly while others may take weeks even applying for the same grant. Finally and importantly, there are often delays in the payment process and a major lack of flow from grant approval to grant payment. Multiple forms of payment may confuse both the applicant and the financial controllers.
Leaning out the Internal Operations
In order to lean out the internal operations, an assessment of the current state must be conducted. This includes data analysis of the current process, analyzing pareto, throughput time, volatility of incoming workloads (Mura) and volatility in resource loading (Muri). The next step is interviews of the department stakeholders to understand the workloads and any wastes in the processes. Finally, process mapping exercises should be completed with departmental subject matter experts to map out the current process. Once the current state is mapped, Kaizen (continuous improvement) events are conducted to determine areas of improvement, the removal of non-value added activities and wastes and to streamline the processes.
One of the most powerful tools in any lean system is visual management. Creating a visual schedule of all the work incoming, in-progress, completed work (kanban) will have a profound effect on performance. The streamlined process should be visualized using a visual schedule and set up to encourage flow in the process. A simple Excel visual schedule is a great start, this should be separated out by department e.g. onboarding, grant review and grant payment. Within each department there should be milestones to break up the process with cycle time targets for each milestone to encourage flow. For example for onboarding, the milestone flow would be: 1) Create the donation link 2) Create the grant link 3) Create the URL 4) Launch the client along with the matra “once you start you don’t stop until finished“. The same structure should be set up for grant review and structured in a way to encourage batch reviewing where possible. The schedule should encourage level-loading of resources to maximize efficiency. Once the schedule is set up and running, further improvements can be made using IT solutions including an ERP system such as NetSuite, a cloud-based system to manage all key business processes in a single system. NetSuite even offers grants and discounts for nonprofits.
Standard work and procedures are also key here, a standardized approach to tasks in every department should be set up. Documenting your best time and task managers approach to work and setting it as the standard. A standardize approach to grant review using procedures and grant decision tools to reduce subjective decision making for the reviewers. The reviewers should have standard times and target times to review e.g. grant application reviewed within X business days. There should be a QA function to ensure that the review was completed correctly. Once the applicant has been approved for a grant, it is best to process the payment directly to the vendor (i.e., mortgage lender, airline, etc.) in X days to speed up the process. For a true lean process, cross-training and training plans should be enforced so that resources can switch to different departments during down times e.g. if there is less onboarding work, the team can switch over to grant review. Performance management system with cycle time targets should be implemented to sustain the process e.g. onboarding completed within X days, grants reviewed within X hours/days, grant payments processed with X days. Daily huddle meetings around the visual board should be conducted to discuss work in-progress, performance or any issues or errors. For global teams, a virtual visual management approach will work just as well and software like Slack or Microsoft Teams that encourages constant chat will help with process flow and issues.
Nonprofits are organizations that promote and implement positive social changes, however in order to survive and even thrive, just like any other entity they need to rely on operational excellence. This article outlines how lean methodologies can and should be applied to nonprofits, if you would like more information please contact us and we will help your nonprofit grow.