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Economic impact research Survey of international innovations and best practices.

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Presentation on theme: "Economic impact research Survey of international innovations and best practices."— Presentation transcript:

1 Economic impact research Survey of international innovations and best practices

2 Economic impact 101 Focus: The full effects of a spending action on the commercial activity of a given area –Eg. 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 2

3 Priority questions 1.How can OTF measure the economic impact of its community investments? 2.How can OTF demonstrate the economic impact of the Not-for-profit (NFP) sector in Ontario? 3.How can OTF provide leadership and vision to facilitate development-oriented commissioning and evaluation throughout the Ontario NFP sector? 3

4 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? Where EIA fits in the big picture 4 ApplicationEvaluation What is that change worth?

5 1. Economic Impact Analysis: tools, options, and best practices 5

6 The economic impact equation Goods with market prices Goods with no market price Total Economic Impact Initial investment Direct Impact Purchasing / supplier value added Indirect Impact Value added to products / consumers Induced Impact 6

7 7 1a. Measuring the Economic Impact of Goods with Market Prices

8 Input- Output: The Whole Economy Aggregated Spend Analysis: 1 Vertical ROI: 1 firm, 1 product Goods with market prices 8

9 Return on Investment Analysis Measures profits as a percentage of total costs –Eg. $50 revenue on $25 investment = 100% ROI Many 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 time One Stakeholder: only values benefits to investor 9 Goods with market prices ROI is a good starting point for evaluating the monetary impact of a single investment to one stakeholder at one point in time

10 10 Goods with market prices Aggregate Spend analysis is an easy, inexpensive way for OTF to approximate the direct (1 st order) impacts of its spending Aggregated Spend Analysis (current OTF practice) Measures expenditure information for comparable agencies to discern direct economic impacts PRO: Simple, low-cost approach Low compliance costs, highly flexible CON: Non-standardized, unreliable, limited in scope Some stakeholders: measures benefit to investor and agency, touches on some benefits to some suppliers

11 11 Goods with market prices IO Modelling is the international governmental standard for Economic Impact Analysis, multiplier calculation, FTE equivalency Input Output Modelling (IO) (Ministry of Finance standard) Comprehensive analysis of how shocks to one sector of the economy affect all other sectors Pro: Standardized, comprehensive approach –Rigorous, reliable, and highly instructive Con: Compliance enforcement –Requires accurate, uniform expenditure and production info All Stakeholders: IO modeling accounts for all value added to all stakeholders, directly and indirectly

12 Basic Input Output Model Goods with market prices Goods / services made & sold Goods / services bought & used What one sector makes, another sector uses to make something else When goods are discounted or given away, their true value is not reflected in these tables; Most NFP sector output DISAPPEARS! 12 Source: Input-Output Economics, 2 nd Ed., By Wassily Leontieff (Oxford, 1986)

13 13 1b. Valuing the Economic Impact of Goods with no market price

14 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 Market valuation Can only be applied to goods bought and sold at equilibrium rates Value determined by price (revealed preference) Tells only half of the story (ie. Value of commoditised goods only) Non-market valuation Can be applied to goods bartered, discounted, or given away Value determined by possession or deprivation Tells only other half of the story (ie. Value of non- commoditisable goods only) 15 Value Determined by Willingness to pay, as reflected in price In absence of price, how do we determine value?

16 Market v. non Market Valuation Market valuation Q: Whats it worth to you? A: Revealed preference (the price you paid) Simple Economic Value Q: Whats it worth to the economy? A: Net added value of outputs over inputs Non-market valuation Q: Whats it worth to you? A: Contingent Valuation (eg. replacement cost) Blended Economic Value Q: Whats it worth to society? (mkt + non-mkt) A: Net value of all desirable outcomes over all inputs for all stakeholders 16

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 measurable Social goods carry different value to different people Social goods like volunteer time are not only outcomes of community investments, they are also inputs SROI is a robust methodology used by governments (eg. UK), and respected by Nobel Prize-winning economists 17 In 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 1.Identify all stakeholders 2.Determine what each stakeholder puts into a project, and what they get out of it 3.Determine what inputs and outputs are worth to each stakeholder (Contingent Valuation: replacement value, willingness to pay, proxy value, substitution premium, etc.) 4.Determine degree of change you can take credit for 5.Calculate net benefit (degree of positive change) 6.Calculate SROI (apply values to net benefit) 18 SROI is an international standard for measuring the intrinsic value of social goods, which are valuable but not commoditised

19 Valuing social goods 1.Are there any market-priced goods that can serve as accurate proxies for the value of social goods? 2.What is the replacement cost of a social good? 3.How much would you pay to continue enjoying the benefits of a given thing? 4.What would you pay to avoid giving something up? 5.At what rate do you value your time? Some examples of Contingent Valuation (CV) 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. 19

20 Sample SROI Analysis: I 20 Source: A Guide to Social Return on Investment, (2012) The SROI Network: guide-to-social-return-on-investment-2012http://www.thesroinetwork.org/publications/doc_details/241-a- guide-to-social-return-on-investment-2012

21 Sample SROI Analysis: II 21 Source: A Guide to Social Return on Investment, (2012) The SROI Network: guide-to-social-return-on-investment-2012http://www.thesroinetwork.org/publications/doc_details/241-a- guide-to-social-return-on-investment-2012

22 Blended valuation = Value of commoditised goods + Value of social goods 22

23 Initial investment Direct Impact Purchasing / supplier value added Indirect Impact Value added to products / consumers Induced Impact Market value created Social / contingent value created Total Economic Impact Blended valuation For all stakeholders / sectors 23

24 2. Social and Economic Indicators of vibrant and resilient communities 24

25 Why resilience? Resilience-oriented community developers commission projects that remediate specific areas of vulnerability so that communities become empowered to take care of themselves, come what may Resilience analysis is at the cutting-edge of needs-based commissioning, providing focus, detail, performance targets and measurement indicators for effective community development Resilience = The capacity to recover quickly from difficulties, challenges, and unexpected changes of circumstance 25

26 Recipe for resilience Resilient Community Level of Objective Wellbeing Level of Subjective Wellbeing Changes / Trends in Levels of Wellbeing Sustainability of Level of Wellbeing / Probability of Continuity Assets (vulnerabilities) Warning system 26

27 Relating wellbeing to resilience Is absolute level of wellbeing high? Is this level stable/ sustainable? Yes Vulnerable to shocks Resilient Community No Yes Develop resilience capacity Can community adapt / respond / rebound? No Yes Vulnerable to shocks No 27

28 Choosing indicators Top-Down (theoretical model) 1.Identify people reporting highest levels of life satisfaction 2.Isolate objective and subjective indicators of wellbeing with strongest statistical correlation to life satisfaction 3.Identify local threats to wellbeing and local assets that could mitigate effects of unexpected shocks 4.Commission projects that bolster existing defences or build new ones Bottom-Up (empirical model) Example: Wellbeing and Resilience Measure (WARM) – Young Foundation, UK 1.Ask people what the most important characteristics of wellbeing are 2.Develop indicator set that suitably captures these characteristics and is capable of accurately tracking them over time 3.Identify areas which perform well against the set and those that dont, broken down by indicator 4.Commission projects to address poor indicator outcomes Example: Canadian Index of Wellbeing – University of Waterloo, Ontario 28

29 Indicator Set Correlates of Wellbeing Top-Down approaches Regression / Sensitivity Analysis (Discern which indicators have highest impact on life satisfaction) 29

30 Bottom-Up approaches Public Input / Definition of Wellbeing Indicator Set Find / develop indicators for tracking priorities 30

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) 31

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. 32

33 Canadian Index of Wellbeing (composite) Bottom-up tracking Community Vitality Indicator 33 Source: Canadian Index of Wellbeing, Community Vitality Indicator headline_indicators_EN.png headline_indicators_EN.png Source: Canadian Index of Wellbeing, Composite Index, dex.html dex.html

34 Top-down tracking Wellbeing and Resilience Measure 34 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-communitieshttp://www.youngfoundation.org/publications/reports/taking-temperature-local-communities

35 Resilience mandala Individual Supports (networks) Systems and structures (environment) 35

36 Analyzing wellbeing Universal level Domain level Targeted level Overall wellbeing of whole population Focus on one area of wellbeing / aspect of life experience for whole population Measures wellbeing of specific groups and sub-groups within an area or population 36

37 International Variations CountryThought LeaderTypeMission CanadaCanadian Index of Wellbeing Bottom-Up, some top- down National Indicator development and tracking effort Germany, Spain, Netherlands Parliamentary Committees Bottom-UpRoundtable exercise to determine most appropriate measurement systems UKNEF/Young Foundation/ Office of National Statistic Top-down and bottom- up Policy Focussed scanning, development and evaluation schema FranceInstitut national de la statistique et des études économiques / OECD / Stiglitz Commission Top-down and bottom- up Resolve tension between GDP and quality of life indicators USNational Academy of Sciences Top-downKey National Indicators System (KNIS) AustraliaAustralian Bureau of Statistics Bottom-Up and Top- down Measures of Australias Progress (MAPS) 37


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