Does what matters get measured?

The (in)famous management consultant Peter Drucker coined a phrase, “what gets measured gets managed” and this has become influential in business practice. It is widely used by charities both in investing more and broadly when seeking to demonstrate impact.

In charity investments what gets measured are investment returns, and these are usually compared to inflation, some sort of market index and usually also a peer group. Are these the things that matter? They do if you’re not currently using them, but they might not be the most important things.

If you asked a charity which questions about their investments were most important to them they would probably list:

1. How much can we lose and when will that happen?

2. Can we spend more?

3. Can we earn more?

4. How are our investments performing?

Of these four questions the only one which is being measured as part of the usual investment process is the one about how the investments have performed in the past. The much more important questions are rarely measured and managed.

Some can’t be answered, such as the first one, but you might have an expected range for which you can prepare. Others can be measured more easily, but often are not.

For example, if your portfolio was miles ahead of historic inflation, you could probably spend a lot more. But if it is not measured you will not know that is the case and will not spend. Likewise, with high inflation and poor investment returns, at what point do you reduce spending to preserve capital?

Can you make more money? Probably, but it might mean that you might no longer be ‘medium risk’ (aka medium return). What would the difference be to what you earned?

So perhaps Peter Drucker is right after all: if you don’t measure it, you won’t manage it.

If you want help overcoming the measurement of your charity's investments and reserves, Yoke would be delighted to assist you. Do not hesitate to contact us.