How to measure impact

We are currently carrying out a research project that aims to advance companies’ ability to create value and to provide decision models and tools to evaluate investments and to assess uncertainty and risk. MittaMerkki project will provide a methodological framework and practical tools for integrating wider value creation perspective into the investment decision-making. Investments should be evaluated, selected and prioritized not only in terms of money but also with regard to sustainability, safety, quality, social acceptability and other typically intangible criteria. This blog will feature a series of texts from the project team. In this first text I will focus on the topic of impact investment and impact measurement.

Impact assessment models

In recent years there has been an increasing interest towards impact investments. These impactare “investments made into companies, organizations, and funds with the intention to generate social and environmental impact alongside a financial return” [i].

In order to demonstrate economic, environmental and social results of these investments impact measurement needs to be carefully planned and applied. Several frameworks have been developed to assist in planning the impact measurement for impact investment projects. These are e.g. IRIS, Outcomes matrix, HIPSO, and European Venture Philanthropy Association (EVPA).

Key factors for successful impact measurement are [ii]:

  1. Set goals. Define the desired impact of the investments.
  2. Develop framework and select metrics. Determine metrics to be used for assessing the performance of the investments.
  3. Collect and store data. Capture and store data in a timely and organized fashion.
  4. Validate data. Ensure sufficient quality of the data.
  5. Analyse data. Review and analyse the data for insights.
  6. Report data. Share progress with key stakeholders.
  7. Make data-driven investment management decisions. Assess stakeholder feedback, address recommendations and make the necessary changes.

Impact can be evaluated using the logic model approach. This divides the factors to be assessed into inputs, activities, outputs, outcomes and impact.

  • Inputs are the resources needed for the project.
  • Activities are the processes, tools, events, technology, and actions related to the project implementation.
  • Outputs are the direct results of the project.
  • Outcomes are the benefits or changes for participants resulting from the project outputs.
  • Impact is the long term change and consequences of the project.

A guide for logic model development is available from the W.K. Kellogg Foundation website

Social Impact Investment Taskforce has developed an Impact Value Chain model. Impact measures can be divided into qualitative, quantitative and financial. The following table provides some examples of these different types of measures[ii].

Input Activity Output Outcome Impact
Qualitative Description of inputs Description of activity Description of outputs Case studies describing outcomes Qualitative evaluation of impact
Quantitative Volume of non-financial inputs Volume of activity delivered Numbers of outputs delivered Outcomes measured using quantitative indicators Impact measured using robust measurement framework
Financial Financial value of incoming resources Cost of activity Cost per output Cost per outcome; societal financial value of outcome Societal financial value of impact

An interesting approach for impact measurement has been developed by Acumen. This is an organisation that invests in businesses whose products and services are enabling the poor to transform their lives. They have developed an approach based on lean data. Lean data uses low cost-technology to communicate directly with end customers, generating high-quality data both quickly and efficiently [iii]. The approach involves two main elements [iv]:

  • A shift in mindset away from reporting and compliance and toward creating value for a company and its customers.
  • The use of methods and technologies for data collection that emphasize efficiency and rapid response while still achieving a sufficient degree of rigor.

More information from the experiences on using mobile data for impact measurement is available from Acumen’s website.

Next steps

In the MittaMerkki project we are currently working with a Finnish start-up to develop impact assessment framework for their impact investment projects. The main elements for the impact assessment framework will be:

  1. Setting objectives for the investment project.
  2. Identification of the key stakeholders.
  3. Planning activities, resources and funding.
  4. Qualitative, quantitative and financial assessment of outputs, outcomes and impacts.
  5. Reporting the results.

The aim is to develop such a model that could be easily integrated into a web based platform to facilitate agile data collection and analysis. In addition, the model should integrate existing impact assessment frameworks to enable use of these when defining the impact indicators for a project.

Further reading

Several reports have been recently published on the topic.

  1. OECD 2015. Social Impact Investment. Building evidence base
  2. Social Impact Investment Taskforce 2014. Impact Investment: The Invisible Heart of Markets. Harnessing the power of entrepreneurship, innovation and capital for public good.
  3. Purpose Capital 2013. Guidebook for Impact Investors: Impact Measurement
  4. JP Morgan 2015. Impact assessment in practice.
  5. Social Impact Investment Taskforce 2014. Measuring Impact.

What You Need to Know About Impact Investing

[ii] Social Impact Investment Taskforce 2014. Measuring Impact.

[iii] Acumen 2015. Innovations in Impact Measurement.

[iv] Acumen 2015. The Lean Data Field Guide.

Teuvo Uusitalo

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