What is impact measurement and why does it matter? This article is targeted specifically at charities, social enterprises, and more generally impact investors interested in creating a positive social impact. The objective of this article is not to recommend a particular impact measurement tool, but to walk you through the key stages involved in the process of impact measurement.
Impact market trends
Impact investing has captured the hearts and minds of leaders in finance, philanthropy, business, and government seeking innovative ways to help solve society’s most challenging market failures. Impact investments are those that intentionally target societal and/or environmental impact along with financial return through specific measureable outcomes.
Until recently there has been a large amount of debate on the definition of impact investing and a lack of cohesiveness towards impact measurement approaches – however, on 20 June 2014 the European Commission announced the approval by the GECES (Groupe d’experts de la Commission sur l’entrepreneuriat social) of the standards for measuring and reporting social impact.
EU Commissioner for Employment, Social Affairs and Inclusion, László Andor, said: “…the new standard will help social enterprises to access EU financial support, and sets the groundwork for social impact measurement in Europe.” The GECES standard outlines a universal five-step process towards measurement. Importantly GECES highlights that a “one size fits all” approach towards measurement is a non-starter. We continue by defining social impact and providing an overview of the GECES five-step process.
Definition of social impact
Social impact as defined by GECES is “the reflection of social outcomes as measurements, both long term and short term, adjusted for the effects achieved by others (alternative attribution), for effects that would have happened anyway (deadweight), for negative consequences (displacement), and for effects declining over time (drop-off)”.
Impact measurement is a tool to embed and integrate outcome based performances measures into the day to day activities of social sector organisations (SSOs). It should not be seen as a fringe activity. It is a powerful tool to not only quantify effects of interventions, but a tool to understand how to use resources effectively, assist with organisational planning and decision-making, and secure funding.
When considering social impact it is useful to think of it as an Impact Value Chain (IMV). The IMV has become a popular starting point for defining social impact as it clearly sets out the differences between inputs, outputs, outcome and social impacts.
As with all definitions, they are most effectively demonstrated through the use of an example. Let us look at an organisation that focuses on increasing access to personal development programmes to support young people to re-engage with learning, increase confidence and employability skills.
The theory of change for this organisation is that lack of access to such programmes is a key factor in preventing disadvantaged young people from gaining future employment or gaining qualifications. In the context of such a programme the SSO inputs the money invested and the people employed to educate the young people.
The output is the development of the personal development programme, whilst the outcome may be the change arising in confidence, self-esteem levels in the lives of the beneficiaries. The overall impact of such an intervention is the change or effect on society that follows from the change in the young person.
Five-step impact process
Impact measurement should be underpinned by a common process based on setting objectives, identifying stakeholders, setting relevant measurement metrics, measurement and validation of results and finally reporting.
STEP 1 – SETTING OBJECTIVES. Setting realistic, measurable and attainable objectives is a vital step in any impact measurement process. It is important that the social sector organisation sets realistic boundaries for the assessment based on available resources and the SSO’s overall objectives of the assessment.
STEP 2 – STAKEHOLDER ENGAGEMENT. SSOs should engage with stakeholders to prioritise the impact objectives set out in Step 1 build a hypothesis of the SSO contribution to addressing social market failures and, finally, test the development hypothesis with stakeholders.
STEP 3 – MEASURING DIRECT AND INDIRECT IMPACTS. To transform the objectives set in Step 1 into measureable results, a SSO must consider outputs, outcomes and impact. Once the SSO has set a coherent theory of change in place, the next step is to identify relevant indicators to measure the extent of the SSO impact.
STEP 4 – MEASURING AND VALUING IMPACT. In this step, the SSO should seek to verify whether the claim made on having positive impact is true, and if so, to what extent (i.e. to what value). It is during this step in the process that a system for data collection is set up. Measurement and validation is a continuous process over the lifetime of an intervention, as such data collection should be integrated into everyday operational systems and should not be considered as an afterthought.
STEP 5 – REPORT IMPACT. Reporting impact through a stand-alone impact report, sustainability report or as part of a corporate social responsibility report is a key final step towards transparent impact. Distributing impact performance coherently is an effective tool for informing stakeholders of performance. An independent review or social assurance can be carried at this point to validate impact performance.
Social change and profit
Impact investing is an evolving space, it has the power to harness entrepreneurship, unlock private capital for public good and create innovative solutions to solve some of society’s most entrenched social issues. If underpinned effectively by an appropriate impact measurement framework, philanthropists, businesses, and SSOs alike can create real social change by combining profit with purpose.
This article was authored by Leonie Kelly, one of the co-founders of Invest with Impact.