Tools for Measuring Impact of a Social Enterprise

 

 

The social Enterprise or entrepreneurship is relatively a new terminology with an old discipline and practice. Social enterprise is led by an entrepreneur and affiliated alliances with a social mission. Social entrepreneur is a value creation, who is relentlessly pursuing new opportunities to solve incorrect system or practices that will lead into a social change and impact.  

 

The social entrepreneur focuses on transforming systems and practices that are the root causes of poverty, marginalization, environmental deterioration and accompanying loss of human dignity with a  primary objective of creating sustainable systems change (source: Skoll Centre for Social Entrepreneurship)

Since measuring impact of a social enterprise embodies on a lot of challenges, i have made research on measurement tools available and listed them here for the easy use of the social enterprises and entrepreneurs.

 

 

 

Rationale of Measurement & Reporting:

 

The needs for measurement and reporting are varied, such as social need, cash constraints, legislation, evolving thinking, changing delivery or funder landscape and policy making requirements (Clifford, Markley & Malpani, 2013). All registered organisations are obliged by law to carry out regular financial accounting; however, financial accounting does not include areas of responsibility which many not-for-profit organisations have to consider as part of their normal operations (Spreckley, 2008).  As a result of the changing landscape and changing expectations, it is no longer sufficient for non profit simply to assert their value in the absence of evidence (Dees & Economy, 2002). The striking lack of rigorous reporting practices across much of the social sector can be explained by a number of factors: first, there is the question of what is to be measured and reported, second, there is the question of how to measure what is to be reported, third, there is the issue of what is the purpose of measurement and reporting (Nichols, 2009).  In a survey on UK’s charities in 2012, the findings were 75% of charities measure some or all of their work, 52% of charities have increased their measurement efforts to meet founders’ requirements and 25% of charities UK do not measure their work at all (Ogain, Lumley & Pritchard, 2012). 

 

Challenges of Measurement & Reporting:

 

Overall, no single group of third sector organizations approved particularly adept in measuring and communicating social value. Most third sector enterprises were struggling to come to terms with identifying, measuring and evaluating outcomes and relying instead on outputs which is poor and inaccurate substitute(Wood & Leighton, 2010).  Nonprofit organizations have no equivalent metrics by which to lay claim to the value created through their labor (Emerson, Wachowicz & Chan, 2000). The practical challenges faced by social enterprises in evaluating performance and by implication organisational legitimacy, is contrasted with measures such as SROI which are resource intensive, have inherent methodological limitations (Luke, Belinda, Barraket, Jo, Eversole & Robyn, 2013). Social Impact Investment Taskforce has defined some challenges in measuring impacts, such as difficulties to measure and limited consensus around best practices. In a conducted survey on UK’s charities, it was found that most charities believe the main barrier of measurement  is a lack of funding to measure results, a lack of staff skills and knowledge of how to measure (Ogain, Lumley & Pritchard, 2012). This lack of transferable metrics underlies an array of issues confronting the sector, ranging from difficulties in fundraising to an inability to provide personnel with adequate compensation (Emerson, Wachowicz & Chan, 2000).

 

Tools of Measurement & Reporting:

 

Qualitative Tools:

  • Blended value (Emerson 2003)
  • Triple bottom line (Elkington 1997)
  • Balanced scorecard (Kaplan & Norton 1992)
  • Social reporting (Zadek 1998)
  • Public value ethos (Moore & Khagram 2004)
  • Experimental methods ( NEF 2008)
  • Stakeholder approach (Freeman 1999)
  • Social audit & accounting ( Pearce 1993)
  • Value chain approach (Porter 1985)
  • Logic model- change theory ( Zappa 2009)

Quantitative Tools:

  • Social return on investment SROI (Emerson 2000)
  • Organizational-based approach (cost effective, cost benefit analysis, etc)(NEF 2008)

Tool (1)- The Social Return on Investment:

 

 

Social return on investment (SROI) is a quantitative-based method for measuring socioeconomic value (benefits) (i.e., financial, social & environment) relative to investments (costs). It is widely used among social enterprises; however, it is not a standardized metric based on certain assumptions which differ between various users. SROI was originally developed by the Roberts Enterprise Development Fund and it aims at translating social impacts into financial values (Ridley & Bull, 2011). SROI rate is an internal rate of return IRR, which is calculated on net present value NPV of the enterprise (Emerson, Wachowicz & Chan, 2000)

Steps of calculating SROI are (Emerson, Wachowicz & Chan, 2000):

  • Examines a social service activity over a given time frame(usually five to 10 years)
  • Calculates the amount of “investment” required to support that activity
  • Identifies the various cost savings, reductions in spending and related benefits that accrue as a result of that social service activity
  • Monetizes those cost savings and related benefits and economic value
  • Discounts those benefits & economic value back to the beginning of the investment timeframe (referred to as “Time Zero”) using a net present value and/or discounted cash flow analysis
  • Presents the Socio-Economic Value created during the investment time frame, expressing that value in terms of net present value and Social Return on Investment rates and ratios.

limitations & challenges to SROI are:

  • Not all benefits can be meaningfully quantified (Arvidson et al., 2010).
  • It did not address the challenge of using traditional means of calculating an appropriate discount rate (Emerson, Wachowicz & Chan, 2000).
  • Social impact can either be viewed from a personal perspective or used as a political measure (Gibbon & Dey, 2011) .
  • There are obvious challenges in attributing monetary values on outcomes and impacts (Arvidson, Lyon, McKay, and Moro, 2010).
  • SROI is not a comparable measure across organisations (Nicholls et al., 2012; SVA, 2012).
  • Further methodological concerns relate to the bias inherent in different stakeholder perceptions (Arvidson et al., 2010).
  • Carrying out a comprehensive SROI analysis has considerable cost implications in terms of costs of training and labour required to carry out such specified work (Leighton and Wood, 2010).
  • For a credible SROI assessment, organisations will need access to evidence based on both quantitative and qualitative data, some of which is quantifiable and some of which is not (Arvidson, Lyon, McKay and Moro, 2010).
  • Challenges of using SROI are poor understanding, complex and resource intensive, as an alternative tool is cost based approach (Wood & Leighton, 2010).

Tool (2)- Organizational-Based Practice (Cost analysis tools):

 

 

The Gate Foundation have made a survey on some organizational practice-based tools, as listed below (Melinda- Gate Foundation, 2008):

  • ‘’Cost-Effectiveness Analysis:

Involves the calculation of a ratio of cost to a non-monetary benefit or outcome (e.g. cost per high school graduate, cost per child cured of malaria). Measures of cost-effectiveness can only account for one area of program impact at a time.

  • Cost-Benefit Analysis (CBA):

Monetizes the benefits and costs associated with an intervention and then compares them to see which one is greater.

  • SROI by REDF:

REDF is a nonprofit philanthropic social venture fund founded in 1997 in San Francisco, CA. REDF developed its SROI framework in the late 1990‘s culminating in the publication of the SROI Reports and several SROI methodology documents and tools in 2000.

 

  • Robin Hood Foundation (Robin Hood) Benefit-Cost Ratio:

 

Robin Hood is a nonprofit founded in 1988 to target poverty in New York City (NYC). Robin Hood developed its Benefit-Cost Ratio methodology in 2003 to capture the best estimate of the collective benefit to poor individuals that Robin Hood grants create per dollar cost to Robin Hood.

 

  • Acumen Fund (Acumen) BACO Ratio:

 

Acumen Fund is a nonprofit global venture fund founded in 2001 in New York City. Acumen developed its Best Available Charitable Option (BACO) Ratio methodology in 2004 to quantify a potential investment‘s social output and compare it to the universe of existing charitable options for that explicit social issue.

 

  • William and Flora Hewlett Foundation (Hewlett) Expected Return:

 

The William and Flora Hewlett Foundation was founded in 1966 to solve social and environmental problems at home and around the world. Hewlett developed its Expected Return (ER) methodology in 2007 to evaluate potential charitable investments through a systematic, consistent, quantitative process.  

 

  • Center for High Impact Philanthropy (CHIP) Cost per Impact:

 

The Center for High Impact Philanthropy was established in 2006 to guide philanthropists and their advisors as they decide where to allocate their philanthropic dollars. Since 2006, CHIP has been developing its Cost per Impact methodology and intends to promote it as a measure critical to high impact giving.

 

  • Foundation Investment Bubble Chart:

 

Some nonprofits are using a bubble chart to display comparative information regarding multiple organizations. The purpose of the bubble chart is to illustrate a set of reporting metrics at the organizational or program level that are common across the programs of a nonprofit or a segment of a foundation portfolio. Sample measures include number of people reached with bed nets vs. percentage of bed nets utilized.

 

Tool (3)- The Triple Bottom Line Value:

 

Triple bottom line is a phrase introduced in 1994 by John Elkington and later used in his 1997 book “Cannibals With Forks: The Triple Bottom Line Of 21st Century Business,” which seeks to broaden the focus on the financial bottom line by businesses to include social and environmental responsibilities. A key challenge with the triple bottom line, according to Elkington, is the difficulty of measuring the social and environmental bottom lines, which necessitates the three separate accounts being evaluated on their own merits (Investopedia).  It aims at measuring the financial, social and environmental performance of the corporation over a period of time.  

The TBL is a qualitative and visionary tool of measuring corporate sustainability but it lacks of a unified metric of measurement and thus it is subjective which loses the qualities of its purposes. TBL embeds with a lot of challenges that weakened the quality of it and therefore it is not considered a practical tool of measurement.

 

Tool (4)- The Blended Value:

 

Blended Value refers to an emerging conceptual framework in which non-profit organizations, businesses, and investments are evaluated based on their ability to generate a blend of financial, social, and environmental value. Blended value suggests the true measure of any organization is in its ability to holistically perform in all 3 areas.

Five distinct silos have been identified in maximizing blended value (Emerson, J. & Bonini, S. 2005):

  • Corporate Social Responsibility
  • Social Enterprise
  • Social Investing
  • Strategic/Effective Philanthropy
  • Sustainable Development

Three main challenges for maximizing the blended value are lack of accountability, inefficiency of raising capital and current policy and tax structure (Emerson, J. & Bonini, S. 2005).

The Blended Value Map includes an extensive discussion of issues affecting the creation of a sound approach to metrics, such as the lack of consistently effective approaches and tools for measuring and reporting social value, the lack of consensus regarding the focus of measurement, and the problem of many peoples’ disbelief or lack of confidence in what is actually measured and then reported to external parties (Emerson, J. & Bonini, S. 2005) .

 

Tool (5)- The Balanced Scorecard:

 

The balanced scorecard concentrates on measures in four key strategic areas – finance, customers, internal business processes and learning and innovation – and requires the implementing organisation to identify goals and measures for each of them. The balanced scorecard can be seen as the latest in a long line of attempts at management control, starting from work measurement systems, quality assurance systems and performance indicators( Kaplan & Norton, 1992).

Steps to implement the balanced scorecard ( Kaplan & Norton, 1992):

  • Preparation: Select/define the strategy/business unit to which to apply the scorecard.
  • Conduct internal interviews: define vision, goals, measures and targets to strategy.
  • Implementation: communicate the scorecard information throughout the organisation.
  • Periodic review: Balanced scorecard measures can be prepared for review by senior management at appropriate intervals.

The Balanced Scorecards has resulted into several positive developments, such as  increased employee understanding about their organization as a business, the usefulness as a business planning tool for social enterprises; the natural fit of the existing UK quality accreditation scheme of Investors in people and helping to redress the balance between purely financial gains and social purpose (Somers, 2005).

 

Tool (6)- The Social Audit and Accounting SAA:

 

The original SAA manual developed by Pearce has been gradually developed by the Social Audit Network to simplify the approach and encourage increased usage of the technique (Pearce and Kay, 2008).  The social accounting is the preparation and publication of an account about an organisation’s social, environmental, employee, community, customer and other stakeholder interactions and activities and, where, possible, the consequences of those interactions and activities ( Gray, 2000). As Social Accounting examines the social, environmental and economic performance and impact of an organisation, it can offer an organisation a method for obtaining a holistic and regular process of examining both how it is doing (performance) and what its effects are on people, communities, and the environment impact ( New Economic Foundation).

The process of SAA is to develop the internal data collection and analysis procedures (social accounting) followed by an independent audit of the results (social auditing) before finally disseminating the outcome more widely (reporting) (Gibbon & Dey, 2011). The SAA is a qualitative approach to measure and evaluate the impact of a social enterprise and it consists of the governance statement, view of stakeholders and social accounting & verification (Ridley & Bull, 2011).

limitations & challenges to SAA:

  • Social accounting can be quite labour intensive, especially the first time( New Economic Foundation).
  • The failure of the profession to educate and train accountants is striking in the field of social, environmental and sustainability accounting reporting and auditing (Gray, 2000).
  • It must be comprehensive, independently audited and multi perspective views from key stakeholders (Ridley & Bull, 2011).
  • Social accounting is not explicitly recognised by funders and lenders (New Economic Foundation).
  • It should compare results over times with similar organizations and social audit should be undertaken regularly (Ridley & Bull, 2011).
  • The social accounting process is not particularly useful for benchmarking and it is left to the discretion of each individual organization (New Economic Foundation).

 

Tool (7)- The Logical Model- Theory of Change and Chain Value:

 

Logic models are a systematic and visual way to present and share your understanding of the relationships among the resources you have to operate your program [inputs], the activities you plan to do [strategies], and the changes or results you hope to achieve [outcomes and impact] (Zappa, 2009). A theory of change is the articulation of the underlying beliefs and assumptions that guide a service delivery strategy and are believed to be critical for producing change and improvement (International Network, 2005). If used correctly Logic models can provide a theory of change, namely, a description of how a series of activities can lead to a series of outcomes (short, intermediate and long term) over a specific period of time (Zappa, 2009).

Theory of Change Development Tool Steps (International Network, 2005):

  • What is the problem, causes and impact  that you want to address?
  • what are the means of impact?
  • What resources (financial, time, skills and knowledge) would you need to employ these tools and processes to effectively influence the target groups?
  • Can you/do you want to work in partnership with others? Which skills and resources could you ‘borrow’ from others?
  • What are the KPIs of success?
  • Implementation, monitoring, control and reporting.

A value chain refers to the full life cycle of a product or process, including material sourcing, production, consumption and disposal/recycling processes (WBCD, 2011). The idea of the value chain is based on the process view of organisations, the idea of seeing a manufacturing (or service) organisation as a system, made up of subsystems each with inputs, transformation processes and outputs (Porter, 2005).

 

Munther Al Dawood- Lean Startup Professional

http://www.growenterprise.co.uk

maldawood@growenterprise.co.uk

Categories entrepreneurship, social enterprise, startup

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