Measuring and Improving Social Impacts: A Guide for Nonprofits, Companies, and Impact Investors

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Philanthropic NGOs, foundations, and corporations face endlessly competing needs when deciding to invest or donate for maximum social impact. This book fills an enormous gap by providing a system to measure, operationalize, and improve any organization's impact investments.

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1 The Social Impact Creation Cycle

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Every nonprofit, every company, and every investor creates social impacts. If you’re reading this book, you are likely among those looking for ways to increase their impacts in order to contribute to social change. When you decide to invest in social impact, you are embarking on a journey that is uniquely your own—no two individuals or organizations begin or end up at the same point, for reasons you’ll soon see. This book will serve as your companion and guide, leading you through the complex maze from the initial investment to the changes you seek.

The book is organized around the concept of a cycle, which helps you maximize your social impact by making deliberate and well-informed choices at every step in the journey from investment to impact. We will guide you through these steps and the factors you’ll need to think about as you move through each one. Whether you are new to investing in impact or have been doing it for decades, it’s important to make sure that the decisions you make are consistent with both your rational beliefs about how impact is most effectively created and your emotional feelings about which impacts have the greatest value. The method we present here provides you with a way to integrate the important components of your interests into a logical and cohesive whole.

 

2 Understanding the Investor

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What will you invest and what social impacts and other returns do you expect from those investments? Investors face these two key initial decisions when planning their social investments. By thinking carefully about these issues at the beginning of the impact creation cycle, you can maximize the range and depth of your investments and the returns those investments can generate.

A number of organizations recognize the importance of returns to investors and have developed ways to deliver them. For example, some organizations working on behalf of the poor in remote regions show investors firsthand how the resources they provide can change lives. Investors are invited to visit project areas and talk with the people who have directly benefited from their investments. When Sinapi Aba Trust of Ghana began making loans to increase capacity in schools for the poor, the organization invited donors, consultants, volunteers, and office staff to visit the field and see how the investments were working. For many of these visitors, the experience changed their lives. Seeing bright, engaged children in their safe new classrooms gave visible evidence that their investments were indeed making a real difference in the lives of these children. The trip thus gave them an unforgettable personal and emotional experience that forever changed their perceptions of the good that can be done with very small investments.

 

3 Understanding the Problem

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We don’t always invest in causes based on a systematic, thoughtful process. But by thinking carefully about which issues matter most to us, we can direct our resources to initiatives that best address the issues we care about. John, a physician who was also an avid hiker, regularly donated money and time to outdoor programs and volunteered every summer to build and maintain wilderness trails. One summer, however, his focus changed. While he was traveling in rural Mexico, a massive flood cut villagers off from access to medical care. He immediately went to work providing the emergency medical care people needed. He bandaged wounds, splinted broken bones, and even delivered a baby. This experience changed his thinking about the kinds of impact he would work toward in the future. Today, he spends time every summer traveling to villages that lack medical care to deliver medications and medical services to people who need them.

This physician faced the same range of issues we all face. Investment is needed in every social sector. Education, environmental causes, foreign affairs, religion, the arts, and many more causes can benefit greatly from increased investment. So which issue is most important? Organizations and advisors provide their own rankings, but ultimately the choice is determined by our values. As a result of our culture, belief systems, interests, and experiences, we may hold very different views about which issues are important and about how to best address those issues. While there have been countless efforts to develop a universal set of social impact indicators, the fact is that our views of social impact and how to achieve it may not be consistent. Even if two people have community safety as their most important goal, one may seek to enhance safety through gun ownership rights while another may seek safety through gun control—and they would be unlikely to invest in the same organizations or programs.

 

4 Understanding the Investment Options

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Social investors have many factors to consider when deciding where and how to invest. Here we’ll focus on how. The basic choices facing the investor are:

1. How should I structure the investment—as a gift, a loan, or as capital?

2. What kind of organization should I invest in—nonprofit, social enterprise, fund?

3. What role should I take as an investor—hands-off investor, advisor, board member?

A critical challenge in determining where to invest is identifying specific organizations, projects, and initiatives that align with your investment objectives. While there are numerous rating systems that can provide generic evaluations of organizations, none of these ratings can ensure that an investment opportunity aligns with the unique goals of a particular investor. Thus, to make sure that each investment is capable of producing the desired social impact and associated goals, you must determine for yourself or your organization whether there is a good fit between investment objectives and opportunities.

 

5 How Social Impacts Are Created

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There are many approaches organizations can take to generate social impact, and different types of organizations create impacts in different ways. These variations are particularly noticeable in the way nonprofits and for-profits produce impacts. Nonprofits and social enterprises focus on the impacts they make through their products and services, while for-profit companies mostly focus on impacts they make through their operations. Some nonprofits thus consider their primary social impacts to result from consumers or beneficiaries using their products, while companies tend to see their primary social impacts coming from the way they source and produce products.

In general, social purpose organizations take a narrow view of their impacts by focusing on their primary areas of influence—the impacts they manage directly and carefully. But all organizations produce secondary impacts as well. The resources they consume, the people they employ, the procedures they carry out, and the products and byproducts they produce can all yield both positive and negative social impacts.

 

6 Linking Actions to Impacts

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Why are you here? What is your organization’s reason for existing? What does success mean to you? What would it take for you to be able to say, “Because of our investments, the world is a better place”? It is surprising how difficult these questions are to answer for many social purpose organizations. But if creating social change is important for you, it is essential to envision and describe exactly what changes you seek.

Even if you operate in dynamic environments and have rapidly changing goals, it is important to think about these questions on a regular basis. Without them, you may end up fighting fires or solving the problems that seem most salient at the moment, or you may be pulled to and fro trying to serve the interests of powerful stakeholders. Only when you are clear about the changes you hope to make can you start planning and executing the actions that will bring about those changes.

A good investment program begins with clear thinking about the desired social change. All of the key investors should understand, and ideally agree on, the organization’s ultimate mission. For companies, the mission often specifies the products or services to be delivered, the target market, and/or the specific set of customers they would like to see using these products and services. The strategy defines how the organization will deliver products to customers and, in competitive environments, how they will differentiate themselves from competitors in order to capture market share.

 

7 Measurement Basics

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Are we really making a difference? This is the question that all social impact investors ask themselves. Yet in a recent survey of nonprofit executives, only half said that their organizations were collecting data on client outcomes.1 In another study, more than 70 percent of grant makers agreed that foundations lacked the data they needed to effectively assess their performance.2 Only about one-fifth of nonprofits report working with professional evaluators, whether internal or external, to evaluate their performance.3 Many of those that do measure their impact do so only to meet the requirements of funders. And many that don’t measure impact mistakenly believe that measurement can only be done quantitatively—an approach that can separate measures from their context and reduce their value. However, those organizations that do measure impact, whether because they choose to do so or because they are required to do so, believe that the services they offer and the impacts they create are improved as a result.

 

8 Measurement Approaches

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It is easy to become confident of program success even before any research on measurement begins. Day-to-day involvement and observations of activities in the field—seeing patients being vaccinated, full recycling bins, or a well-executed opera—can make it appear that the project is effective. Decision makers evaluate success, and they modify programs based on these evaluations. They often believe that success is so obvious that devoting resources to measurement to prove success to an outside funder or other stakeholder would be a waste of resources. But it’s hard to write a success story if the program actually fails.

The Social Impact Creation Cycle outlines the steps to take to create social impact. In this chapter, we review some of the most commonly used approaches to measure that impact. This review is not comprehensive—there are hundreds of measurement approaches to choose from. But it will provide you with a good foundation for understanding the basic measurement strategies available and the situations for which each approach is most useful, along with sources for additional information.

 

9 Measuring Your Impact

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You’ve laid the foundation for understanding and improving your social impacts. You’ve defined your social impact goals, and you’ve clarified your understanding of the chain of actions and results needed to achieve those goals. You’ve bought in to the idea that measuring impacts will help you learn and progress, and you’ve reviewed the basic approaches that organizations use to measure their impacts. Now you’re ready to develop your own system for measuring impacts. It’s time to stop hoping that you’re making an impact, and it’s time to stop guessing which investments have been most effective.

The easiest way to develop your impact measurement system is to start from the beginning. No matter what you’re currently measuring and how you’re using those metrics to manage your work, we’re asking you to let go of your existing approaches and assumptions and start your thinking process with a clean slate. In the end, you’ll keep some elements from your current system and add some new ones. If you start by considering a full range of possibilities, you won’t be constrained by choices you’ve made in the past or by attempts to recoup the value of your sunk costs. Table 9 summarizes the steps you’ll work through in developing or refining your impact measurement system. We’ll walk you through the activities involved in each step and give you extra guidance where it’s needed.

 

10 Social Impact Measurement Maturity

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Ultimately, the goal of performance measurement is to increase your impact. The most effective way to do this is through careful measurement and management of your organization’s projects. If your social impact measurement system is mature, it can provide you with a better understanding of how you are investing your resources and the specific results they are producing. And it can provide the information you need for careful and dynamic management of activities that is responsive to outcomes, needs, and changes in the environment. In this chapter, we introduce a five-level model that you can use to describe and evaluate your current social impact measurement system and to generate ideas about how you could improve that system.

Our model, shown in Figure 23, uses a stepwise or maturity-stage format that highlights the characteristics of impact management systems. The model has five categories, which represent general profiles of organizational capability, though your organization may find it has characteristics of two or more levels. Organizations usually move through the levels as they become more experienced in evaluating impact and in using this information to make decisions. Each level encompasses the capabilities of all the categories below that level.

 

11 Amplifying Your Impact

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Increasing the efficiency and effectiveness of your organization is the key to maximizing impact from the resources at hand. With a clear understanding of the links between actions and impacts and a well-designed measurement program, you’re on your way to meeting your impact goals and logging successes year after year. But what if that’s not enough? Social and environmental problems will always be greater than our ability to address them. Once you’ve developed the ability to be consistently successful in creating social change, you may feel that it’s time to take on bigger challenges.

For-profits or nonprofits operating in competitive markets have no choice of whether to strive for continual improvement and reinvention. As soon as they reach a level at which they’re comfortably profitable, some other organization will attempt to copy or compete with them for customers and profits. However, many nonprofits lack the market pressure that requires diligent management to avoid losing competitive advantage. As long as funding sources are accessible, nonprofits can survive for decades without making significant gains in impact.

 

12 Call to Action

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Investing in impact is not easy, but the world needs you. The social and environmental issues we face today are tremendous. But investors like you are making great strides in many areas, and there has never been more interest in solving the big problems. Tackling the challenges that lie ahead will require all of us to invest our scarce resources in the most strategic and effective ways possible.

You’ve already chosen to devote your time, money, and other precious resources to help others by promoting positive social and environmental changes. And now you’re making the decision to manage your investments in new ways to create the maximum possible benefits. We’ve all heard about well-meant projects that have languished or failed, and none of us wants to waste resources or fall short of the promises we’ve made to our beneficiaries and ourselves. With good intentions, deep thinking, and careful management, every investor can create better outcomes.

The time is right to focus on impact. Virtually all stakeholders involved with social impact—investors, regulators, community members, trade partners, and beneficiaries—are more interested than ever in making sure that these investments make a difference. While this puts pressure on investors to deliver, it also leads to a great deal more attention toward providing support and resources that can help deliver impact.

 

Social Impact Self-Assessment

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To help you evaluate your progress on the social impact creation journey, we have created a Social Impact Self-Assessment companion product, which can be found at

www.bkconnection.com/socialimpact-sa

The assessment allows you to think about impacts from the perspective of both the investors who contribute money and energy and the operating organizations that directly create the impact. If you’re taking the assessment as a way to better understand your investors or if you are an investor, the assessment will help you understand investment goals, priorities, resources, as well as how investors select causes and investment opportunities. If you’re taking the assessment to better understand organizations that are working directly to create social impact, the assessment will help you identify the desired impacts and processes for creating them, and will help you determine the preferred characteristics for a system that can measure impacts and help improve them.

You can work through the assessment on your own, either one time or at multiple points as you work toward creating greater impacts. You can ask a group of your organizational peers or board members to take the assessment, and then use your results to understand differences in perspectives and goals as well as to increase alignment within the group. If you’re an investor, you can share your assessment results with your investees, and if you’re an operator, you can share your results with investors. Making assessment part of your learning about impact will be useful for ensuring that you’re maximizing the value of both the resources invested and the impacts generated to make the greatest possible changes in the social issues that matter to you. Bulk-order discounts are also available for organizational programs.

 



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