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A series of blog posts highlighting an important topic or trend in the development through enterprise community. In the most recent Big Idea series, NextBillion partnered with Ashoka to showcase affordable housing innovations.

Tuesday, July 30, 2013

Measure for Measure series - Gauging Social Impact? : Here's why you might want to send a proxy

By Hannah Schiff

Editor’s note: Measure for Measure is a NextBillion series that focuses on trends, tools and viewpoints in impact measurement. Check out The Big Idea page on NextBillion for additional posts in the series.

 

What outcomes do you value?

This is the question that guides impact measurement as well as investment and funding decisions. Mainstream markets do not recognize and reward all forms of value equally. It’s easy to measure and prioritize economic value, such as profit or return on investment. Impact on environmental, or social issues such as gender equity obviously are more difficult to measure. But if we want businesses and markets to prioritize and create positive social impact alongside commercial benefits, it can be useful to value social impact in a similar way to net profits and losses on a spreadsheet. 

Proxies can help measure things that are not directly observable. For example, consider an organization that connects farmers with urban consumers. The organization values increased income to the farmers, which it can measure by subtracting farmers’ total income before and after the program. This organization might also value the health benefits for consumers who have better access to fresh food. Overall health is difficult to measure, so the organization uses the number of “healthy” meals per week prepared by families in the program, with healthy defined by the content of the meals. This proxy helps us understand the likely scale of improvements in health for participants of the program.

Financial proxies go one step further by placing a hypothetical dollar value on social outcomes such as improved health or improved understanding of food and environmental issues. Social return on investment (SROI) methodology compares this proxy to the dollar value of the investment to help understand the cost-benefit of various types of investments. SROI also considers what would have happened without the program, or organization and the percentage of the total change resulting from the specific investment in question rather than from the actions of other actors.  

Food Connect Sydney is an organization like similar to the one described above, which helps connect farmers to urban consumers. Food Connect uses financial proxies for the number of additional healthy meals prepared per week. It found that 52 percent of subscribers to the program who responded to a survey prepared two more healthy meals per week on average. The financial proxy Food Connect used to value this outcome is the cost savings on preparing two more healthy meals per week. A comparison analysis of the cost of a healthy menu versus an unhealthy menu estimated that eating healthy meals saves $2.34 a day.

The financial proxy Food Connect used to value this outcome is the cost savings on preparing two more healthy meals per week. A comparison analysis of the cost of a healthy menu versus an unhealthy menu estimated that eating healthy meals saves $2.34 a day.

One can also place dollar values outcomes as intangible as changes in family relationships. For example, an organization could use a survey that asks participants to rate the quality of their relationships before and after participation in the program, and then assign a dollar value to each step change. The organization could then estimate what percentage of that change is attributable to the program itself and simply subtract what would have happened anyway in the absence of the program. The result is divided by the total dollar value of the investment in the program or business.

Although the process of creating financial proxies is inherently subjective, such proxies can be useful for comparing double bottom lines across organizations. This comparison depends on common agreement on reasonable proxies, something the impact investing industry as a whole must work toward through sharing information and knowledge.

If you use a proxy to measure impact, recognize the assumptions you are making and select a proxy you are reasonably confident will move in lockstep with the impact you are trying to measure. This will help the industry move toward mutually agreed, justifiable proxies that can be recorded and shared.

Hannah Schiff is research director at Value for Women, where she is currently leading research on barriers to investment in women-led small and growing businesses in India and Kenya. 

 

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