What we measure affects what we do

Inclusive Economy02 Jun 2014Marlon van Dijk

Although many organizations have developed metrics to measure and report on social impact, social enterprises and impact investors lack a standard and consistent way of measuring impact.

Social enterprises and impact investors sector cannot fully evaluate their investments on the basis of financial performance measurement data alone. Yet, if this data is combined with social and environmental impact data, a more holistic picture of the value of the investment emerges.

Why is this important?

People will make better choices if they understand the impacts of their actions. This impact should include social, environmental and economic values. Without this information, even organizations with the best intentions can fail to make a positive impact. Social impact reveals itself only after involving stakeholders and asking the right questions to better understand what will change (or has changed) for them. In the last decades, much progress has been made in terms of measuring impact on profit (financial accounting) and planet (e.g. the emissions market) , but organizations still have trouble including social performance measurements in their decision making process. This has serious consequences, especially for organizations with a mission to create social impact. Besides social enterprises and impact investors, corporations like DSM, Philips and Unilever also have missions with a social purpose. Many organizations, however, do not look beyond input (capital flow) or output (products, services and activities). Only a few have been able to include social impact (the changes they create and how stakeholders value this change). Puma, for example, launched its environmental profit and loss accounts in 2012 and is now working towards including a social profit and loss account. By understanding that social impact matters, organizations can choose the right activities to create social impact and improve their strategies. It will change the way they think, the way they work and ultimately improve their social impact.

How can this be achieved?

The database of the Traci Foundation Centre contains more than 250 different metrics, frameworks and methodologies for measuring social impact. If we look at the similarities rather than the differences, we can see that they agree on the following steps: input, activities, output, outcome and impact.

Social E-valuator™ has a software solution based on this framework. It is a web-based tool designed to measure and value social impact investments (donations, subsidies, loans, grants, equity, etc.) and what the organization’s stakeholders consider valuable. Social E-valuator™ provides users with social measurement performance data to monitor and report on impact. The tool helps investment managers, policymakers, entrepreneurs and practitioners to measure and manage their impacts, and can be used for forecasting, monitoring and evaluation. Social impact analyses can be assured with a set of seven Social Generally Accepted Accounting Principles (SGAAP):

  1. Involving stakeholders
  2. Understanding what changes
  3. Valuing the things that matter
  4. Only including what is material
  5. Not over claiming
  6. Being transparent
  7. Verifying results

If you want to measure social impact using scientific evidence, it will be time-consuming and expensive. If you allow decision-making with a lower test of ‘truth’, you will end up with estimates and assumptions. Professional judgements about the level of rigour can be made reasonable with an assurance or audit process. Any process of accountability, or gathering information to make decisions, will require time and resources.

That being said, there is sometimes a tendency to apply the principles at a level of rigour that is more than necessary for the decisions based on the analysis. Whether it is a business planning exercise or research to inform government policy, the same principles apply, but the amount of time and resources required will vary. It is important to be clear about the expected benefits of an impact analysis when considering the cost. It is possible and maybe preferable to start on the journey, learning as you go.