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The Challenges of Measuring Social Impact
April 12, 2012
Social ventures are launching rapidly across the globe and striving to build sustainable business models that drive social or environmental progress. Yet to achieve progress through enterprise, social entrepreneurs must confront a challenge that has long plagued the nonprofit sector – quantifying and tracking social impact.
Substantive impact measurement can be costly and complex, but it’s critical for social ventures pursuing greater scale and efficacy. Recently, sector heavyweight Ashoka launched an open resource that will encourage and facilitate impact tracking across the social change sector – to the benefit of social entrepreneurs, ventures, funders, and investors globally.
When we talk about measuring social impact, we generally mean measuring social or environmental outcomes – i.e. the result of implementing a program, producing a good, or consuming a product or service. Outcomes are distinct from outputs – the amount of goods produced or products delivered. While traditional business is concerned with profitably generating outputs, a social enterprise must produce outputs profitably (or at least sustainably), while also advancing a desired social or environmental outcome.
Unfortunately outcomes are not as easily quantified as outputs. They are messy results of numerous variables, only a few of which a social enterprise can hope to influence effectively. The measurement challenge that social businesses face is to demonstrate a connection between output (say, # jars of honey made by formerly incarcerated workers) and outcome (i.e. increased employment and reduced local recidivism rates), and to describe that connection quantitatively (i.e. “Our operations lowered recidivism by 15% relative to control populations over 5 years.”). Quantifying and tracking this relationship is costly. It requires greater data collection and analysis upfront (before launch) as well as over time.
Despite these challenges, developing robust measurement procedure merits substantial thought and energy. Today, both nonprofit and for-profit social ventures must report impact data to attract and retain resources throughout their lifecycle. From Social Venture Capital firms like City Light Capital to major investment managers like Calvert, a new class of impact investors is forgoing maximum financial return in favor of blended social and financial return on investment. To attract resources from what JP Morgan estimates will be a $400 billion - $1 trillion asset class by 2020, social ventures must be able to quantify and track social performance as effectively as financial. Simultaneously traditional philanthropy is evolving to look and behave more like investment, and is adopting a similar emphasis on measurable social outcomes.
For these reasons social ventures would do well to consider impact measurement from their conception. Developing an impact measurement plan in tandem with a business plan allows entrepreneurs to refine measurement strategy as the business or revenue model changes - building measurement infrastructure into the fabric of an organization rather than grafting it on later. As startups assess “market opportunity” they should also strive to quantify “impact opportunity” – i.e. the baseline against which they can measure social impact. But, as in any business, the need to build a viable product, launch a beta, and generate revenue can easily rise to the top of social entrepreneurs’ priority list – leaving little time and resources to build the data collection and operations infrastructure needed to measure and track social impact effectively.
As both a social enterprise and a funder of social change organizations, Investing In Communities (IIC) has confronted the challenge of effective impact measurement internally and externally. An online platform, IIC empowers consumers to fund nonprofits for free through their brokered real estate transactions. We do this by enabling individuals and businesses to connect directly to real estate professionals who will donate a percentage of their compensation, through IIC, to the clients chosen nonprofit. Since 2010 IIC users have generated over $121,000 in donations to 34 nonprofit organizations.
Initially we felt tempted to stop here, measuring out impact in terms of this easily quantifiable output: philanthropy generated. We struggled to imagine a cost-effective, time-efficient way to measure the outcomes of the funding we distribute. Our initial approach, relying on high-touch personal follow-up with recipients, increased demands on scarce staff time and was not scalable. Yet building a new custom database at our site to allow for automated data collection and follow-up was not financially viable. Finally, we had no existing policy for how recipients were expected to report the use of IIC funding. Thus if an organization reported the impact of IIC funding entirely in terms of outputs, we had little leverage to press for better data.
Enter Ashoka Changemakers. In, early 2012 Ashoka launched Changemakers Changeshops - an open platform on which social ventures can define their social impact goals, set milestones, and publicly track their progress towards milestone completion. Crucially, participants can compete for resources and connect with a community of funders and investors on the platform. By offering this infrastructure free of charge, Changemakers saves capital constrained organizations time and money – lowering the barrier to substantive impact tracking. By providing an open interface with investors, Changeshops creates a powerful incentive for social ventures to engage in substantive impact tracking and measurement. Organizations that demonstrate quantifiable social performance over time will be recognized as lower risk and higher impact, and rewarded with financial resources.
IIC is engaging on the Changeshops Beta as a Network Funding Partner and a social innovator. As a Funding Partner, IIC henceforth requires all our funding recipients to setup a free Changeshop so they (and we) can track how IIC funds were used to achieve a defined milestone or goal. As a social innovator, IIC is excited to establish a profile and track our own growth and net social impact. This partnership will allow IIC to tie our own output (charitable funding) to social outcomes. For example, we previously knew that a recipient used funding to buy 12 new cribs for sudden infant death syndrome education. With Changeshops, we could easily learn that these 12 cribs enabled the organization to expand their education program and hit their target of educating x-thousand individuals by 2011.
The partnership is also an asset to individuals and corporations who use IIC to generate charitable funding through their real estate transactions. Corporate users will now be able to gather social impact data for their own CSR reporting directly from the Changeshops of the nonprofits they support through IIC. Individual users will gain the added satisfaction of learning exactly how the nonprofits they select use IIC funding to advance their mission. All of this information will be freely accessible and linked to IIC’s Network Partner Page for easy access.
Ashoka’s launch of Changemakers Changeshops represents a significant investment in the kind of “enabling infrastructure” needed to mobilize large-scale investment in social enterprise and unlock its latent potential to drive global change. In 10 years, we may look back and say that THIS was the beta for a global social impact market that increased transparency and accountability, accelerated information exchange, and promoted substantive impact measurement. As a social enterprise, and a funder or social change organizations, IIC is excited and grateful to be on board. We hope all the innovators, funders, and investors out there will join us.
 Ebrahim, Alnoor and V. Kastury Rangan. The Limits of Nonprofit Impact: A Contingency Framework for Measuring Social Performance. Harvard Business School Working Paper. 2010. pg 10-15.
 Monitor Institute. Executive Summary: Investing For Social and Environmental Impact. Monitor Institute, 2009.