Presentation on theme: "Survey of international innovations and best practices"— Presentation transcript:
1 Survey of international innovations and best practices Economic impact researchSurvey of international innovations and best practices
2 Economic impact 101Focus: The full effects of a spending action on the commercial activity of a given areaEg. For each dollar invested in youth sport Ontario, how many dollars of knock-on economic activity are generated?Scope: Not just direct impact, but also follow- through (effects on suppliers and consumers)Limitations: Economic impact is NOT social impact; Economic Impact Analysis (EIA) does not measure effectiveness and is only one half of the value-for-money equation
3 Priority questionsHow can OTF measure the economic impact of its community investments?How can OTF demonstrate the economic impact of the Not-for-profit (NFP) sector in Ontario?How can OTF provide leadership and vision to facilitate development-oriented commissioning and evaluation throughout the Ontario NFP sector?
4 Where EIA fits in the big picture What do we want to change / do?Who can change / do it?How much do they need / get?What happened?What is the new reality?EvaluationApplicationWhat is that change worth?
5 1. Economic Impact Analysis: tools, options, and best practices
6 The economic impact equation Goods with market pricesGoods with no market priceTotal Economic ImpactDirect ImpactInitial investmentIndirect ImpactPurchasing / supplier value addedInduced ImpactValue added to products / consumers
7 1a. Measuring the Economic Impact of Goods with Market Prices
8 Goods with market prices Input-Output: The Whole EconomyAggregated Spend Analysis:1 VerticalROI: 1 firm, 1 product
9 Goods with market prices Return on Investment AnalysisMeasures profits as a percentage of total costs–Eg. $50 revenue on $25 investment = 100% ROIMany firms set ROI threshold ranges for making investment decisions–Eg. 0%>10% = “No”, 10%>25% = “Maybe”, 25< = “Yes”Static indicator / snapshot of one moment in timeOne Stakeholder: only values benefits to investorROI is a good starting point for evaluating the monetary impact of a single investment to one stakeholder at one point in time
10 Goods with market prices Aggregated Spend Analysis (current OTF practice)Measures expenditure information for comparable agencies to discern direct economic impactsPRO: Simple, low-cost approachLow compliance costs, highly flexibleCON: Non-standardized, unreliable, limited in scopeSome stakeholders: measures benefit to investor and agency, touches on some benefits to some suppliersAggregate Spend analysis is an easy, inexpensive way for OTF to approximate the direct (1st order) impacts of its spending
11 Goods with market prices Input Output Modelling (IO) (Ministry of Finance standard)Comprehensive analysis of how shocks to one sector of the economy affect all other sectorsPro: Standardized, comprehensive approach–Rigorous, reliable, and highly instructiveCon: Compliance enforcement–Requires accurate, uniform expenditure and production infoAll Stakeholders: IO modeling accounts for all value added to all stakeholders, directly and indirectlyIO Modelling is the international governmental standard for Economic Impact Analysis, multiplier calculation, FTE equivalency
12 Basic Input Output Model Goods with market pricesBasic Input Output ModelGoods / services bought & usedGoods / services made & soldSource: Input-Output Economics, 2nd Ed., By Wassily Leontieff (Oxford, 1986)What one sector makes, another sector uses to make something elseWhen goods are discounted or given away, their true value is not reflected in these tables; Most NFP sector output DISAPPEARS!
13 1b. Valuing the Economic Impact of Goods with no market price
14 Goods with no market price We know that good health and clean water have high intrinsic value, but how can we measure this value when they are seldom bought or sold?
15 Market v. non Market valuation Can only be applied to goods bought and sold at equilibrium ratesCan be applied to goods bartered, discounted, or given awayValue determined by price (revealed preference)Value determined by possession or deprivationTells only half of the story (ie. Value of commoditised goods only)Tells only other half of the story (ie. Value of non-commoditisable goods only)Value Determined by Willingness to pay, as reflected in priceIn absence of price, how do we determine value?
16 Market v. non Market Valuation Q: What’s it worth to you?A: Revealed preference (the price you paid)A: Contingent Valuation (eg. replacement cost)Simple Economic ValueBlended Economic ValueQ: What’s it worth to the economy?Q: What’s it worth to society? (mkt + non-mkt)A: Net added value of outputs over inputsA: Net value of all desirable outcomes over all inputs for all stakeholders
17 Valuing Social Goods Social Return on Investment (SROI) We live in societies, not just economies (Profit, People, Planet)Social goods have intrinsic value – ALL value is measurableSocial goods carry different value to different peopleSocial goods like volunteer time are not only outcomes of community investments, they are also inputsSROI is a robust methodology used by governments (eg. UK), and respected by Nobel Prize-winning economistsIn commerce, value = price; SROI values stakeholder inputs and outcomes by deducing price information without transactions
18 Valuing Social Goods Social Return on Investment (SROI) – How to Identify all stakeholdersDetermine what each stakeholder puts into a project, and what they get out of itDetermine what inputs and outputs are worth to each stakeholder (“Contingent Valuation”: replacement value, willingness to pay, proxy value, substitution premium, etc.)Determine degree of change you can take credit forCalculate net benefit (degree of positive change)Calculate SROI (apply values to net benefit)SROI is an international standard for measuring the intrinsic value of social goods, which are valuable but not commoditised
19 Valuing social goodsSome examples of Contingent Valuation (CV)Are there any market-priced goods that can serve as accurate proxies for the value of social goods?What is the replacement cost of a social good?How much would you pay to continue enjoying the benefits of a given thing?What would you pay to avoid giving something up?At what rate do you value your time?In 1993, Nobel-winning economists Robert Solow and Kenneth Arrow used a primitive CV approach to estimate the cost of the 1988 Exxon Valdez oil spill. Using a Willingness to Pay framework, they valued the costs of the spill between $2.8 - $4.2 billion, based on the price the average American was willing to pay towards programs that would prevent a future spill. Current methods are far more sophisticated.
20 Sample SROI Analysis: I Source: A Guide to Social Return on Investment, (2012) The SROI Network:
21 Sample SROI Analysis: II Source: A Guide to Social Return on Investment, (2012) The SROI Network:
22 Blended valuation = Value of commoditised goods + Value of social goods
23 Blended valuation For all stakeholders / sectors Direct Impact Initial investmentIndirect ImpactPurchasing / supplier value addedInduced ImpactValue added to products / consumersMarket value createdSocial / contingent value createdTotal Economic ImpactFor all stakeholders / sectors
24 2. Social and Economic Indicators of vibrant and resilient communities
25 Why resilience?Resilience = The capacity to recover quickly from difficulties, challenges, and unexpected changes of circumstanceResilience-oriented community developers commission projects that remediate specific areas of vulnerability so that communities become empowered to take care of themselves, come what mayResilience analysis is at the cutting-edge of needs-based commissioning, providing focus, detail, performance targets and measurement indicators for effective community development
26 Recipe for resilience Warning system Assets (vulnerabilities) Resilient CommunityLevel of Objective WellbeingLevel of Subjective WellbeingChanges / Trends in Levels of WellbeingSustainability of Level of Wellbeing / Probability of ContinuityWarning systemAssets (vulnerabilities)
27 Relating wellbeing to resilience Is absolute level of wellbeing high?Is this level stable/ sustainable?YesVulnerable to shocksResilient CommunityNoDevelop resilience capacityCan community adapt / respond / rebound?
28 Example: Canadian Index of Wellbeing – University of Waterloo, Ontario Choosing indicatorsTop-Down (theoretical model)Bottom-Up (empirical model)Identify people reporting highest levels of life satisfactionIsolate objective and subjective indicators of wellbeing with strongest statistical correlation to life satisfactionIdentify local threats to wellbeing and local assets that could mitigate effects of unexpected shocksCommission projects that bolster existing defences or build new onesAsk people what the most important characteristics of wellbeing areDevelop indicator set that suitably captures these characteristics and is capable of accurately tracking them over timeIdentify areas which perform well against the set and those that don’t, broken down by indicatorCommission projects to address poor indicator outcomesExample: Wellbeing and Resilience Measure (WARM) – Young Foundation, UKExample: Canadian Index of Wellbeing – University of Waterloo, Ontario
29 Top-Down approaches Regression / Sensitivity Analysis Indicator SetCorrelates of WellbeingRegression / Sensitivity Analysis(Discern which indicators have highest impact on life satisfaction)
30 Public Input / Definition of Wellbeing Bottom-Up approachesPublic Input / Definition of WellbeingIndicator SetFind / develop indicators for tracking priorities
31 Sample indicators: objective Living Standards: Income differential, wages vs. cost of living, number of vacancies, number of workless households, incidence of persons with low income, etc.Health: Life expectancy, infant mortality, percent obese / smokers, physicians/10,000 people, etc.Community: Crime rate, volunteerism, proximity to relatives, commuting distance, proximity to leisure, etc.Governance: Voter turnout, ration of registered to eligible voters, newspaper subscription, number of public consultations, etc.NB: Some indicators are positive (as they increase, so too does wellbeing) while others are negative (as they increase, wellbeing declines)
32 Sample indicators: subjective Living Standards: Feeling of economic security, job satisfaction, empowerment, inflation expectations, marital status, caring for disabled, etc.Health: Ability to perform regular tasks, self confidence, incidence of depression or anxiety, perceived availability of care or assistance, etc.Community: Perceived safety, amount of contact with neighbours, degree of social integration, gentrification, volunteerism, etc.Governance: Responsiveness, representativeness, opportunities for input, etc.
33 Canadian Index of Wellbeing (composite) Bottom-up trackingFrench Composite:IndicatorCommunity Vitality IndicatorCanadian Index of Wellbeing (composite)Source: Canadian Index of Wellbeing, Community Vitality IndicatorSource: Canadian Index of Wellbeing, Composite Index,
34 Top-down tracking Wellbeing and Resilience Measure Source: Taking the Temperature of Local Communities, The wellbeing and resilience measure, Authors Nina Mguni and Nicola Bacon, The Young Foundation, (2010 )http://www.youngfoundation.org/publications/reports/taking-temperature-local-communities
35 Systems and structures (environment) Resilience mandalaIndividualSupports (networks)Systems and structures (environment)
36 Overall wellbeing of whole population Analyzing wellbeingUniversal levelDomain levelTargeted levelOverall wellbeing of whole populationFocus on one area of wellbeing / aspect of life experience for whole populationMeasures wellbeing of specific groups and sub-groups within an area or population
37 International Variations CountryThought LeaderTypeMissionCanadaCanadian Index of WellbeingBottom-Up, some top-downNational Indicator development and tracking effortGermany, Spain, NetherlandsParliamentary CommitteesBottom-UpRoundtable exercise to determine most appropriate measurement systemsUKNEF/Young Foundation/ Office of National StatisticTop-down and bottom-upPolicy Focussed scanning, development and evaluation schemaFranceInstitut national de la statistique et des études économiques / OECD / Stiglitz CommissionResolve tension between GDP and quality of life indicatorsUSNational Academy of SciencesTop-downKey National Indicators System (KNIS)AustraliaAustralian Bureau of StatisticsBottom-Up and Top-downMeasures of Australia’s Progress (MAPS)