2 (a) In the case of a not-for-profit (NFP) organisation, the limit on the services that can be provided is the amount of funds thatare available in a given period. A key financial objective for an NFP organisation such as a charity is therefore to raise asmuch funds as possible. The fund-raising efforts of a charity may be directed towards the public or to grant-making bodies.In addition, a charity may have income from investments made from surplus funds from previous periods. In any period,however, a charity is likely to know from previous experience the amount and timing of the funds available for use. The sameis true for an NFP organisation funded by the government, such as a hospital, since such an organisation will operate underbudget constraints or cash limits. Whether funded by the government or not, NFP organisations will therefore have thefinancial objective of keeping spending within budget, and budgets will play an important role in controlling spending and inspecifying the level of services or programmes it is planned to provide.Since the amount of funding available is limited, NFP organisations will seek to generate the maximum benefit from availablefunds. They will obtain resources for use by the organisation as economically as possible: they will employ these resourcesefficiently, minimising waste and cutting back on any activities that do not assist in achieving the organisation’s non-financialobjectives; and they will ensure that their operations are directed as effectively as possible towards meeting their objectives.The goals of economy, efficiency and effectiveness are collectively referred to as value for money (VFM). Economy isconcerned with minimising the input costs for a given level of output. Efficiency is concerned with maximising the outputsobtained from a given level of input resources, i.e. with the process of transforming economic resources into desires services.Effectiveness is concerned with the extent to which non-financial organisational goals are achieved.Measuring the achievement of the financial objective of VFM is difficult because the non-financial goals of NFP organisationsare not quantifiable and so not directly measurable. However, current performance can be compared to historic performanceto ascertain the extent to which positive change has occurred. The availability of the healthcare provided by a hospital, forexample, can be measured by the time that patients have to wait for treatment or for an operation, and waiting times can becompared year on year to determine the extent to which improvements have been achieved or publicised targets have beenmet.

Lacking a profit motive, NFP organisations will have financial objectives that relate to the effective use of resources, such asachieving a target return on capital employed. In an organisation funded by the government from finance raised throughtaxation or public sector borrowing, this financial objective will be centrally imposed.