Assessing and comparing performance in private foundations is far more challenging than in other nonprofits. As noted by the Center for Effective Philanthropy's executive director, Phil Buchanan: "There is no universal measure of return for foundations. Some foundations fund efforts to promote literacy, and others fund efforts to promote peace and security. The impact of these efforts cannot possibly be measured in equivalent units."
(7) For individual foundations, the challenge of performance measurement is hardly less difficult. First, the social objectives of most private foundations are broad and almost never easily quantifiable. Second, even when foundations are working toward quantifiable social improvements—for example, a reduction in the number of people lacking health insurance and access to health care—the size of the problem, the number of other players and forces at work, and the time required to achieve effect nearly always make performance attribution for any single institution impossible.
Yet the need for an overall performance assessment tool for private foundations is particularly acute. There are a number of reasons:
 | The absence of market and electoral tests, the lack of continuing and widespread media scrutiny, the severe limitations of public regulation even with regard to preventing abuses, and the private and privileged nature of these institutions leave them peculiarly vulnerable to underperformance. |
| The boards of private foundations require some form of institutional assessment if they are to fulfill their fiduciary responsibilities and justify the contribution of their time. |
| As a result of abuses by some private foundations in recent years, the sector as a whole has come under heightened scrutiny by the Senate Finance Committee and state regulators—making it even more important that private foundations demonstrate they are worthy of the tax incentives available to them. |
| In the absence of other measures, minimization of intramural expenses—loosely labeled as "administrative"—may become the "default universal measure of performance."(8) Yet, certainly for value-added foundations, intramural expenses on program development, research, and communication of results may be a defining difference between being "great" or just "good." |
| Lack of appropriately constructed performance assessment tools can discourage the risk-taking that should be characteristic of foundations, given their unique privileges. |
| Unexposed to market and other external forces, foundations especially need to be "learning organizations" if they are to be high performers, and much of that learning can be achieved by devising and implementing measures for assessing institutional performance.(9) |
Foundations are therefore well advised—whatever their mission—"to assemble a set of indicators that, taken together, are suggestive of an answer to the larger question of 'how effective are we?'"
(10) Fortunately, the "balanced scorecard" framework developed by Harvard management professor Robert S. Kaplan and consultant David P. Norton in the mid-1990s enables organizations to clarify their goals and strategy, measure performance, and use feedback mechanisms to improve performance.
(11) Now used by a wide range of corporations, public agencies, nonprofits, and a small group of foundations, the balanced scorecard was adopted by The Commonwealth Fund during the year as a means of ensuring continued high performance.
