Social-cause organizations regularly have the difficult task of communicating performance on their efforts. This is in part for self-validation and encouraging and motivating internal participants in the organizations, but perhaps more importantly progress information is used to persuade additional funding sources to commit resources towards assisting the organization reach its funding goals. Economic development organizations in particular face the challenge of demonstrating real impact to their target regions.
There appears to be no standard when it comes to how these economic development organizations report progress to stakeholders. Many focus more strongly on the emotional aspect of reporting by demonstrating examples of success stories that resulted from the organization’s activities. The general goal in this type of reporting is to put a face in front of stakeholders that will ultimately make them have positive feelings and associations with the organization. This approach, while lacking in objectivity, is widely used among every organization in this category for a simple reason: it works. Grantmakers and donors are hardly looking for a tangible return on investment and instead are focused on the idea or the image that they are making a significance in the lives of others.
This is certainly not a universal rule in the industry — as the number of social entrepreneurs grows and an increasing number of organizations in this space struggle with meeting their goals, funding sources are taking a step back and asking how their contributions are being used and how that translates to tangible achievements in the organizations market.
Existing Reporting Metrics
There are a variety of existing ways in which economic-development organizations report progress through metrics. For the purposes of this examination we will focus on One Acre Fund as they publish a semi-annual report including these metrics. These metrics are as follows:
The number of families participating in the program is a good indication of how pervasive the efforts of the organization have been in regard to the local economy. This number can be reported accurately based on the records the organizations keeps on participants.
The estimated number of children whose lives are being improved as a result of the organization’s efforts demonstrates the improved well-being and quality of life. This number is estimated based on the average number of children per family in conjunction with the above metric. In some cases it may be possible to report this accurately.
This represents the physical area being cultivated by participants in the organization’s program, which can be reported accurately based on the organization’s records. As this number increases it is indicative of an improving economy. From a micro-finance perspective this could be reported in conjunction with an assets-under-management figure.
Yield per Acre
The efficiency farmers are able to obtain through the cultivated acreage shows the progress the training component of the organization is making, as well as demonstrates that the demand in the local economy is able to support growth.
The income each family is earning directly correlates to that family’s well-being and, in aggregate, the financial stability of the region.
The percentage of participants who received support in the form of lending and were able to repay it with their earnings demonstrates the stability of the economic environment and correlates the success of the individual farmers with the program itself.
While the above metrics are certainly descriptive of the results derived by the operations these organizations participate in, they leave much to be desired. First and foremost, these are the metrics reported by a single organization, and while other organizations have similar internal metrics, they report them in different ways and with different measurement criteria. The metrics calculated and reported may include more or less information than mentioned here, or perhaps none at all.
Each organization is competing for the same contributed dollar as the next. Donors and foundations alike have focused areas of interest and finite resources available for contribution. These parties currently make their decisions based on things like the reputation of the founders, how compelling the organization’s story is, and the data becomes secondary. For the smaller, lesser known organizations this presents a challenge because the founders don’t have the relationships or history that the more mature organizations have, and they have smaller marketing resources available to help craft and communicate their visions. What the industry needs today is a model for consuming data on effectiveness in a standardized way.
SROI for Nonprofits
Social Return on Investment is a method developed by The SROI Network and results in an easy-to-consume metric that displays social return as a financial figure. Calculations and assumptions are plainly stated, displaying the sources of interpreted data and evening the playing field for small and large nonprofits alike. We can us One Acre Fund as an example.
Identifying Scope & Stakeholders
The SROI Network’s Guide to SROI states that to begin an analysis, we must first identify the scope of what the analysis will include and which stakeholders to include in the analysis. In the case of an organization like One Acre Fund, the scope of the analysis will include relevant information for reporting the progress and how it relates the the beneficiary of the social programs the organization operates. Therefore, the relevant stakeholders are these very same beneficiaries.
The only real input worth measuring are financial inputs, and these are already accounted for internally in these organizations as they keep financial records for the micro-finance component of their program models. Other inputs such as time are somewhat irrelevant — time is accounted for in financial terms through salaries and the participating farmers have no other means of income and therefore no opportunity cost of spending their time elsewhere. Financial contributions come in from funding sources, they are used to purchase supplies and pay salaries, and issue new micro loans to farmers.
A revenue stream helps pay for operating expenses, but the real return that is the goal of the organization is a steadily increasing income among farmers in the regions they operate in. Since farmers who participate in the program report earnings, this information is easily obtained along with historical context. Other metrics may also make sense depending on the organization. Some organizations blend an environmental component to their programs, and others include contributions to the local education system. In these cases it may make sense to do a deeper analysis of the long-lasting effects of investment in local education and the environment.
Analyzing social returns in terms of financial figures can become controversial when speaking in terms of human well-being. In developing nations there is generally little or no cost associated for things like elderly care or medical expenses. The result is that many of the important metrics associated with human well-being cannot appropriately be accounted for as they would, in effect, be quantifying the value of the invaluable. This is a difficult problem because the ultimate goal of social-cause organizations is to improve high-level metrics like infant mortality rates or life expectancy. While still very important, in the SROI framework these metrics should be excluded and discussed in another context.
SROI is not without its pitfalls. The assumptions made and sources used for analysis may vary between organizations, potentially skewing any comparisons made between two figures. Some organizations may choose to include or exclude elements for calculation that others do not. At first glance one may be tempted to take the numbers at face-value, but the beauty of the SROI model is the transparency that goes into how every figure in the model was derived. For this reason, making adjustments to obtain a more accurate comparison between two organizations may be a simple accounting exercise.
The metrics currently being reported by organizations targeting economic development are currently few and far between. The lack of consistency among the metrics reported and how those metrics are calculated makes comparing the effectiveness of organizations extremely difficult. The SROI framework remedies this through an easy to understand financial figure and by providing transparency into how that figure was generated. While still subject to distortion and bias between organizations, the transparency into how it was calculated could provide funders a richer set of data on which they can use to make decisions.
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