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Social Impact Assessment and Building Your SROI Rick Larson Adjunct Associate Professor Columbia Business School Director, Sustainable Ventures The Conservation.

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Presentation on theme: "Social Impact Assessment and Building Your SROI Rick Larson Adjunct Associate Professor Columbia Business School Director, Sustainable Ventures The Conservation."— Presentation transcript:

1 Social Impact Assessment and Building Your SROI Rick Larson Adjunct Associate Professor Columbia Business School Director, Sustainable Ventures The Conservation Fund Grateful acknowledgement: Cathy Clark GSVC Prep Day Columbia Business School

2 2 “Metrics must be understandable, inexpensive, and most importantly, useful.” – Acumen Fund

3 3 Every Social Entrepreneur Faces Impact Questions: What social impacts is your venture aiming to achieve? What is the relationship between these impacts and the activities of your venture? How well is your venture achieving them? What are you learning about how to improve this? Can you afford to regularly produce these impacts? How much value is being created for society as a result? How do you communicate all this in compelling, cost-effective ways to the right people at the right time? How can the venture’s social impact improve its financial performance and sustainability?

4 4 for-profit Process Methods Impact Methods nonprofit Early stageMature Benefit-Cost analysis REDF SROI GSVC SROI AtKisson Model AA 1000 GRI World Bank PSIA Mature ISO 14001 New Profit Balanced Scorecard REDF OASIS Balanced Scorecard Acumen Scorecard/ BACO Theory of Change SVN best practices Social Responsibility UN Global Compact CERES Principles © Copyright 2003, Double Bottom Line Project: Clark, Rosenzweig, Long and Olsen Taken from: Double Bottom Line Methods Catalog, available at: B Corporations What Methods Do People Use for Social Impact Assessment?

5 5 GSVC Defines 3 Steps 1. DEFINE social value proposition: Theory of Change 2. QUANTIFY how you’ll track social value: Impact Value Chain: top three social output indicators 3. MONETIZE intended social value: Social Return on Investment (SROI) Define Quantify Monetize

6 6 Examples: Focused Theory of Change Tarsian and Blinkley: If Afghani refugee women are sewing clothing for the high margin fashion markets in the US, their quality of life and that of their families will improve. Developing Power: If power is provided at low costs to rural areas in developing countries, both family income and community quality of life will improve. Bronx Charter School: If a charter school integrates arts education into the curriculum for lower income Bronx children, educational achievement in arts and other areas will improve. Define Quantify Monetize IF…THEN… 2003 GSVC winners:

7 7 Step 2: Quantify top 3 social indicators Identify your top indicators of social value These are outputs you can measure directly as part of your business operations. They should relate in a compelling way to the ultimate desired social outcomes of the venture. We call them “indicators” or “social outputs.” GSVC requires that you specify the 3 most important. Define Quantify Monetize

8 8 Impact Value Chain InputsActivitiesOutputsOutcomes What is put into the venture Venture’s primary activities to produce financial and social value Results that can be measured by the venture = “social indicators” Changes (increases or decreases) to social systems Goal Alignment How well outcomes align with intended goals; activity and goal adjustment Based on Clark, Rosenzweig, Long and Olsen, 2003.

9 9 Impact = differential change InputsActivitiesOutputsOutcomes What is put into the venture Venture’s primary activities Results that can be measured Changes to social systems Goal Alignment Activity and goal adjustment What would have happened anyway Essential!!! = IMPACT - Based on Clark, Rosenzweig, Long and Olsen, 2003.

10 10 Stonyfield Farm Example Economic Development Environment Health Amount paid to small dairy farmers per gallon of milk Savings in environmental emissions from manufacturing Ratio of organic, pesticide-free yogurt produced to non- organic Increasing or stabilizing small dairy farm industry in Northeast US Decreasing CO 2 emissions in Vermont Increasing percentage of total yogurt sold in US that is organic. Lower pesticide traces in childrens’ bodies. OutputsOutcomes Define Quantify Monetize Benefits

11 11 Pacific Community Ventures Example Economic Development: Job Creation Job Quality Job Transferability Number of jobs created in low- income zip-codes Numbers of living wage level salaries and benefits for those jobs Turnover stats and surveys of why employees leave the business Increased employment of people previously unemployed or underemployed Increasing employee asset accumulation and economic stability Increasing number of employees who get better jobs after this one OutputsOutcomes Define Quantify Monetize Benefits

12 12 Steps in calculation of SROI 1.Quantify outputs/outcomes where possible 2.Translate into economic equivalent where possible using proxies 3.Develop social cash flow projection 4.Subtract outputs/outcomes that would have happened anyway (refer to proxy data) 5.Where outcome is qualitative, discuss what it is and how you will know it’s happening 6.Cite your sources and assumptions clearly Define Quantify Monetize

13 13 Example: Developing Power Define Theory of Change (focused): Developing Power’s value proposition is to break the cycles of poverty in Brazil through electricity and capacity building. The primary benefits from access to electricity include improved education, human health, communication and entertainment, comfort, protection, convenience, and productivity. Social Outcome: improved productivity

14 14 Social outcome: improved productivity If no proven results from venture’s operations exist, research outside “proxy data” Ex. source of proxy data for Developing Power: “Rural Electrification and Development in the Phillippines: Measuring the Social and Economic Benefits,” The World Bank, 2002. The World Bank study indicates that with electricity, small businesses in the Phillippines typically operate two more hours per day compared to businesses without electricity. Output unit for productivity : 2 increased hours of operation per day Quantify

15 15 Monetize – value per unit of social value Developing Power took the information from the study, adjusted it for average income its region (Bahia, Brazil), and estimated a business could potentially increase its income by $34 per month per household by gaining access to electricity. Economic value per output unit of productivity: $34 per month

16 16 Completing an SROI calculation Armed with the valuation per unit of social value, develop social cash flow projection. –Use a 10-year time horizon for your projections (recommended this year for the sake of consistency). Subtract outcomes that would have happened anyway (refer again to proxy data). Discount to social NPV using the appropriate discount rate. (Suggestion: 10%) Subtract cost of providing service Calculate return ratio: SROI or SIRR

17 17 Example: Developing Power’s SROI Developing Power expects to electrify 91,000 households over 15 years, resulting in an SNPV of $93 million and an SROI of $3.20.

18 18 Estimate risk and a discount rate Social value creation has a measure of risk with a corresponding cost of capital. Depending on the social focus of your plan, the cost of public or charitable funds that would otherwise have been used to achieve the same impact may be a useful reference Use your own judgment! State assumptions and rationale. 10 year time horizon recommended

19 19 SROI tips When an outcome does not show up in the social cash flow projection, discuss what it is and how you will know it’s happening. Do not measure benefits based solely on the market valuation of the perceived benefit. –Ex.: A manufacturer counted revenue generated from the recovery of waste gas as the social value. Instead, it should try to quantify the environmental value gained from reduced emissions. –Ex.: A coffee producer counted the value of their sustainable farming practices to be the extra $.50 per bag of coffee that consumers were willing to pay. They should have monetized the drivers of social outcomes such as reduced hunger, illness, and increased wages to farmers. Include both positive and negative impacts. In any quantification, include only impacts that are clearly and directly attributable to the venture and easily quantifiable. Based on Lingane and Olsen, “Social Return on Investment: Standard Guidelines,” September, 2003.

20 20 Putting it All Together: Social Impact Assessment tips The goal is to make a compelling case about actual value creation, NOT to achieve the largest number. Show how you will track performance and calculate impact over time. Where are your risks and biggest challenges, are they reflected in your social impact figures? What are your biggest causal assumptions? How will you test them? How does your growth plan impact your SROI? Who is your competition (the industry standard) and how do you compare?

21 21 Case study: Windows of Opportunity Windows of Opportunity (WoO) A lead-safe window replacement business that protects children from lead poisoning while providing an employment training program to youth ages 17 to 24 who are at risk of chronic unemployment. For-profit subsidiary of Baltimore nonprofit, CLEARCorps

22 22 Windows of Opportunity What is Windows of Opportunity’s Theory of Change? What could key outcomes be? What key outputs, social indicators, could WoO measure?

23 23 WoO Outputs and Outcomes Outcomes Benefits Outputs Windows of Opportunity

24 24 WoO Theory of Change: If lead windows in inner cities are replaced by well- trained high risk youth, communities will be healthier and employed youth will have greater educational and vocational opportunity.

25 25 WoO Outputs and Outcomes Health Education Jobs Wealth Less lead in blood of resident children Higher test scores for childen in WoO client housing More hiring and higher income for workforce in next positions Increased monthly savings due to lower energy costs Outcomes Define Quantify Monetize Benefits Outputs Windows of Opportunity Number of windows replaced Number of children in client homes Jobs and salaries attained by workforce after WoO Amount saved per household

26 26 Which are inputs, outputs, outcomes?

27 27 Outputs Desired Outcomes Inputs Note: technically “impact” was not shown!! Value from Proxy Data Outputs WoO inputs, outputs, outcomes

28 28 GSVC SIA judging guidelines 1. Compelling theory of change and strong relationship between it and the top three indicators you choose that will drive to ultimate outcomes 2. Monetization of social return on investment using consistent and appropriate logic, clearly identified sources of value and assumptions, and thoughtful approach. 3. A clear and compelling assessment that can be easily absorbed by judges

29 29 Other advice we give to GSVC entrants Make sure Theory of Change is consistent with the social impact you predict through the SROI Support your assumptions with actual data and/or outside sources whenever possible Include both positive and negative outcomes State how venture will monitor return over time

30 30 Read the winning SROIs from 2009! On under Resource Library SIA Everyone should read Human Service Fellowship. It’s one of the best GSVC SIA I’ve ever seen.

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