Measuring and managing societal impact
Measuring and managing impact should be at the core of social enterprises. Effective total impact measurement helps them to make better business decisions by enabling them to understand how their activities create positive and negative social, fiscal, environmental and economic impacts. However, many social enterprises are not yet measuring impact or have established impact management.
We all want growth: to sustain livelihoods, maintain employment and promote wellbeing, but not at any cost. Governments and society-at-large are increasingly demanding ‘good growth’ which creates value for all stakeholders and is sustainable over the long term. The business models of the past have shown themselves to be inadequate. New business models are needed and social enterprises have a crucial role to play. Measuring and managing impact is essential for organizations (including social enterprises) to increase the value they create for all stakeholders.
There is growing empirical evidence that organizations that are able to provide an insight into the value they create for society are viewed more positively by stakeholders, including investors. This is even more true for social enterprises, which explicitly have financial and social goals. Sometimes there is a trade off between financial and societal goals; sometimes there is a positive relationship. In both cases, organizations require information about whether they are achieving their goals — the impact they are making — and how they are doing that. This enables them to increase their impact and achieve their goals more quickly and more sustainably. Just as there can be no management without measurement, there should be no measurement without management.
Our vision on impact measurement can be summarized in four words: Total Impact Measurement and Management. Total means a holistic view taking into account social, environmental, fiscal and economic factors. Impact means understanding not just the output of your activities, but both the positive and negative effects your organization have on society. Measurement requires quantifying impact and expressing it in a language investors understand —money. Lastly, Management means using the information obtained to optimize decision-making, manage risks and increase positive impact. The figure illustrates this.
As mentioned above, measuring and managing impact provides a number of tangible benefits to an organization, whether it is a start-up or a large (social) enterprise. It helps organizations to choose between and refine their strategies, and to demonstrate their impact to stakeholders. This is particularly important for social enterprises which are looking for funding. Concrete benefits from impact measurement include:
- a better understanding of impact and operating context, beyond the boundaries of the organization;
- quantitative data which can be included in management information, enabling better decision-making;
- improved communication with both formal and informal stakeholders to develop strong partnerships.
In a recent survey by PwC, more than 90% of CEOs believed that measuring total impact would help their organization to identify and manage their risks more effectively.  More than 80% believe that impact measurement provides more insight than conventional financial reporting and helps to identify new business opportunities. As part of our partnership with Social Enterprise NL, we are currently investigating what type of information investors expect from social enterprises when it comes to reporting on their impact.
Generally speaking, impact measurement and management follows three steps, each of which provides valuable insights.
- Understand your impact. Decide on what you would like to measure and write down the organization’s inputs, activities, outputs, outcomes and impacts.
- Measure your impact. Determine indicators for each impact, collect data and calculate the impact. Where possible, try to express the impact in monetary terms.
- Manage your impact. Report your impact internally and externally. Communicate with stakeholders, identify new opportunities and take action to realize them. In doing so, it is important to integrate impact measurement and management into the organization, rather than leave it as an ‘add-on’.
Some of the reasons given for not measuring impact are that it is too costly, too time consuming or too difficult. Measuring impact can be either complicated or simple, depending on the type of organization, the available information and the type of insight desired. There is a trade off between the amount of effort required and the benefits to be gained. In each case, it is important to consider what you expect to gain and what the associated costs are. While there are major benefits to be gained from impact management, some organizations may (for example) wish to focus on qualitatively understanding their impact (step 1), while others continue to step 2 or 3.
There are several tools and methodologies available to measure impact; each with its own advantages and disadvantages. The best fit depends on the applicable circumstances and often tools can (or should) be combined. In all cases, a thorough analysis of the value chain is essential. Below are a few examples (not exhaustive):
– Difference-in-differences analysis
– Social return on investment (SROI)
– Input-output modelling
– Economic impact analysis
– Economic modelling and data simulation
– Return on investment (ROI)
– Welfare economics
– Environmental profit and loss/ natural capital accounting
– Total tax contribution
– Country-by-country reporting
Measuring and managing impact is at the core of modern organizations — even more so for social enterprises. Organizations can choose how far they want to go, depending on their specific situation. However, the major benefits are to be gained by managing impact and integrating impact into organizational strategy and processes. Effective total impact measurement helps organizations to make better business decisions by enabling them to understand how their activities create positive and negative impacts — social, fiscal, environmental and economic. In doing so, impact measurement gives organizations the ability to engage with stakeholders to attract investment and improve the way they do business.