CCBot/2.0 (http://commoncrawl.org/faq/) - Array ( )
Login

Responses to Metrics 3.0: A New Vision for Shared Metrics

In a recent issue of the Stanford Social Innovation Review, Mike McCreless et al. proposed a new approach to measuring social impact – Metrics 3.0: A New Vision for Shared Metrics. This new approach seeks to build on the progress made in using metrics for accountability and standardization. McCreless et al. argue that the next step is to integrate impact, financial and operational metrics, and to shift towards evaluations that are targeted, actionable, broadly useful and that serve collective learning. In this Skoll World Forum series, co-edited by Mike McCreless, a range of different experts present their responses to the Metrics 3.0 vision.

 
 
 

Six Tips on Using Metrics to Align Mission with Financial Performance

Six Tips on Using Metrics to Align Mission with Financial Performance

Mike McCreless

Director of Strategy and Impact, Root Capital

August 27, 2014 | 946 views

 

“In my organization, it feels like we have a financial performance discussion, and an impact discussion, but those two discussions are separate and we don’t know how to connect them.” – ANDE Metrics Conference participant

Social enterprises and impact investors, along with non-profits and foundations, have invested significant effort in designing metrics to monitor and evaluate impact. Yet these impact metrics do not create as much value as they could. Too often, impact metrics and the people who manage them are siloed in their own departments, one step removed from strategic decision-making in their organizations.

The cause is understandable: we don’t have the data, analytical methods, and language necessary to integrate impact monitoring and evaluation with strategic decision-making.

This compromises our ability to achieve our goals. First, we don’t get the full return on our investments in monitoring and evaluation. More importantly, we make poorer decisions about investments, product and service design, and customer selection than we would if we had integrated impact, operational, and financial data to support those decisions. We are leaving impact, financial returns, or both, unrealized.

Integrating impact and financial performance metrics: not an easy task

At the 2014 Aspen Network of Development Entrepreneurs (ANDE) Metrics Conference in Washington DC, a group of impact investors and capacity developers serving rural small and growing businesses convened to discuss this topic. The event was framed by “Metrics 3.0: A New Vision for Shared Metrics,” which argues that the social sector should strive to integrate impact and financial metrics.

Everyone in the room came from thoughtful, well-run organizations that sought to create positive impacts. Our directors, senior management and front-line staff all agreed that impact was important, and felt that impact data had yet to permeate decision-making.

Several participants had started to integrate impact metrics with financial and operational metrics, to break down the silos within their organizations. Integrating financial and impact metrics does not simply mean, for instance, that impact investors put data about the revenues and profits of their investees in the same database as the number of people reached by each investee. It means generating and analyzing the data necessary to answer some key questions: Which investments, loans, products, services, or customer segments are making or losing money for us? What kinds of impact are they achieving? How are our impacts and our financial results aligned or not aligned, and what should we do differently as a result?

Add impact metrics and stir?

Asking these questions helps organizations to evaluate investment or lending opportunities; select customers or beneficiaries to serve; develop products and services that deliver greater impact at lower cost; and communicate externally about impact and financial performance in a more nuanced way.

Conference participants recognized the benefits of integrating impact and financial metrics, but agreed that it was often unclear how to do so. As one participant commented, “You can’t just add impact metrics and stir.”

Why is this? I believe that the first challenge is a lack of data about impact and, to a lesser extent, financial returns of specific segments of investments, loans, products, or customers. The second challenge is the lack of analytical methods to evaluate alignments or tradeoffs between impact and profitability that could inform day-to-day and longer-term decision-making. We typically focus on the first challenge, but the second is equally important if impact data is to inform decision-making.

Participants in the discussion had explored the following analytical methods of integrating financial and impact metrics:

Devise a formula that incorporates impact and financial metrics into a single number, such as a ratio or an index. The Social Return on Investment (SROI) is a methodology that can create such a metric.

Identify a common unit of analysis for which both impact and financial/operational metrics can be computed, and then use that unit to relate them. For impact investors, the relevant unit of analysis is likely the loan or investment, about which both impact and profitability metrics can be calculated and then correlated. (Read about what this analysis revealed for Root Capital.)

Only if more organizations seek to generate and analyze integrated data about impact and financial returns will analytical methods improve and standards and best practices emerge.

Tips for integrating impact and financial performance metrics

To help others along this path, participants shared some tips based on their ongoing efforts.

  1. Ground your work in a theory of change. If people have different mental models for how the organization should create impact, or how it should balance impact with financial objectives, these should be made explicit.
  1. Engage team members from across the organization early and often – particularly those you disagree with. Convene a cross-functional group to develop a shared understanding of the problem and how to resolve it. This will improve the quality of the end product and generate buy-in and momentum.
  1. Identify a project manager who can speak the languages of both impact and finance and who is empowered and influential in the organization.
  1. Fine-tune data collection and analysis. Avoid over-collection; use proxies when possible.
  1. Invest in compelling data visualization to improve comprehension, maintain peoples’ interest, and engage their imagination.
  1. Design a communications campaign and implementation plan to engage the organization on the results, come to a consensus on interpretation and implications, and integrate the findings into daily operations and longer-term strategy.

For those interested in more detail, ANDE has published an expanded set of twelve tips.

As described in Metrics 3.0, “The challenge for impact specialists is to become sufficiently fluent in operational and financial metrics to both integrate them with impact metrics, and create and advocate for this integrated approach with the leaders of their enterprises.”

The siloing of impact into specialized databases, departments, and discourses serves neither impact specialists nor the organizations they support. Integration is the next critical step, after simply obtaining data, to enable impact investors, social enterprises, non-profits, and foundations alike to create the greatest impact at the lowest cost.

 
 
 

Let’s keep this going …

Why not join our growing community of social innovators? You’ll get exclusive content and opportunities delivered straight to your inbox and all the latest details from the Skoll World Forum.

We value your privacy and you can unsubscribe anytime.