Social Impact Assessment and Building Your SROI GSVC

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

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

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? 3

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

GSVC Defines 3 Steps Define Quantify Monetize 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) 5

Examples: Focused Theory of Change Define Quantify Monetize IF…THEN… 2003 GSVC winners: • 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. 6

Step 2: Quantify top 3 social indicators Define Quantify Monetize 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. 7

Impact Value Chain Inputs Activities Outputs Outcomes 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 Based on Clark, Rosenzweig, Long and Olsen, 2003. 8 Goal Alignment How well outcomes align with intended goals; activity and goal adjustment

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

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

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

Steps in calculation of SROI Define Quantify Monetize 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 12

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 13

Quantify 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 14

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 15

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 16

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. 17

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 18

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. 19

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 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? 20

Case study: Windows of Opportunity (Wo. O) • 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 21

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

Wo. O Outputs and Outcomes Benefits Outputs Windows of Opportunity 23 Outcomes

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

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

Which are inputs, outcomes? 26

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

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 28

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 29

Read the winning SROIs from 2009! • On www. gsvc. org under Resource Library SIA examples. • Everyone should read Human Service Fellowship. It’s one of the best GSVC SIA I’ve ever seen. • http: //www. gsvc. org/docs/Human. Service. Fellowship. SROIv 2. pdf 30