Measuring Social Value PDF

CHAPTER 4 Measuring Social Value The importance of measuring value Double bottom line Making ends meet (financial) Maximize social impact (mission) This makes it harder to measure But, precision is very important Good impact measures lead to good decisions about giving Measur...

CHAPTER 4 Measuring Social Value The importance of measuring value Double bottom line Making ends meet (financial) Maximize social impact (mission) This makes it harder to measure But, precision is very important Good impact measures lead to good decisions about giving Measures can include organizational health, efficiency in meeting mission, and overall effectiveness 5 -2  The components of measurement of social value Accountability Implicit or explicit social responsibility an enterprise assumes Evaluation Systematically studying quality, success, or worthiness Outcomes What were the results of enterprise activities? Effectiveness An organization’s ability to attain desirable outcomes Figure 5.1 shows these components 5 -3 Figure 5.1 Possible targets for measurement in a social enterprise INPUTS ACTIVITIES OUTPUTS OUTCOMES IMPACTS Social value 5 -4 Measuring outcomes and impact (1) Continuous measures Precise, numeric measures using quantitative data Rating scale For example, a five-point scale from “very effective” to “very ineffective” Binary A “yes or no” choice: did something occur, or not? 5 -5 Measuring outcomes and impact (2) Developmental Comparing performance to the schedule or timeline in a plan. Benchmark Comparing performance to another organization, like a leader in the field Historic Comparing performance to an organization’s own past achievements The Ashoka metrics are a mixture of binary and continuous measures 5 -6 Comparing social and commercial return Can social entrepreneurs also be commercial entrepreneurs? There are many examples of social enterprises with commercial spillover benefits: Tupelo, Mississippi (according to Robert Putnam) Grameen Bank (Bangladesh) CDI (Brazil) Certificate of Deposit Interbank Sekem (Egypt) 5 -7 Measuring “social return on investment” Social Return on Investment or SROI attempts to quantify both economic and social impacts of social enterprises REDF uses two components of SROI: Enterprise value Social purpose value Figure 5.2 shows the components of SROI 5 -8  Essay Figure 5.2 Components of Social Return on Investment (SROI) Enterprise value Social purpose value Financial return on investment Costs and savings from serving social mission Blended value Economic + socioeconomic value of enterprise 5 -9 Enterprise and social purpose values Enterprise value Net revenues (total revenues minus total expenses), measured in dollars For social enterprises, this is typically negative Social purpose value Impact of the enterprise on people’s lives This can be measured in lower welfare costs, higher tax revenues, or other ways Private donations show positive social purpose value But the costs of obtaining grants and gifts are “social operating costs” 5 - 10  Essay Table 5.1. Calculating SROI Blended value combines enterprise and social purpose values Enterprise value Value of sales - Cost of good and services sold - Operating expenses Social purpose value + Grants and gifts - Fundraising and grant writing costs + Social cost savings - Social operating costs + Increase in tax revenue - Debt carried by social enterprise = Blended value 5 - 11 REDF’s three “indices of value” Enterprise index of return Enterprise value/philanthropic investment Social purpose index of return Social purpose value/philanthropic investment Blended index of return (Enterprise value + social purpose value)/philanthropic investment 5 - 12 Measuring return on investment for social ventures A typical measure is net revenue/total assets (which could also be called return on assets) Social enterprises appear inefficient under this measure when compared with commercial enterprises Table 5.2 shows ROI for six sub-sectors and for all nonprofits 5 - 13 Figure 5.3 The relationship between net revenues and mission adherence The greatest adherence to Mission adherence mission Mmax is at some point R *where net revenues are greater than Mmax zero but less than their maximum Net revenues M=0, R=0 R* Rmax 5 - 14  Social enterprise managers choose between delivering The services and raising funds tradeoff Neither can be the sole purpose of the enterprise between fundraising The optimum amount of mission (at Mmax in Figure 5.3) is where the last or marginal dollar spent raising and revenue equals the amount of revenue produced delivering The two purposes must be in balance: services Use resources for fundraising to optimize net revenues Then, use those revenues to maximize mission delivery 5 - 15 How can enterprise managers use these insights? Be aware of the relationship between fundraising costs and fundraising revenues Maximize net revenues by looking at the returns from the last dollar of investment in fundraising Avoid the tendency not to spend enough Target donor segments that will produce the highest returns on fundraising investments 5 - 16 Organizational effectiveness Overall effectiveness includes five dimensions: Satisfaction of constituents Adequacy of funding Efficiency of operations Attainment of enterprise goals Ability to adapt to a changing environment Each of these dimensions affects the others Figure 5.5 shows how the dimensions relate to each other and to overall effectiveness Each of the dimensions can be measured in several different ways 5 - 17