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Home / Impact Consulting / Four Key Best Practices for Social Impact Measurement

Impact Consulting, Impact Investing · September 24, 2015

Four Key Best Practices for Social Impact Measurement

Is your organization considering measuring the impact of its investments, but not sure where to start? Through our work developing, designing, and conducting impact measurement and reporting for foundations, CDFIs, funds, social enterprises, and others, PCV InSight has identified some key practices that contribute to a rigorous yet practical approach to impact measurement.

[custom_headline type=”left” level=”h2″ looks_like=”h3″]Earlier Is Better[/custom_headline]

The best time to design a process for collecting, analyzing, and reporting on impact data is prior to making investments. By prioritizing impact measurement from the beginning, investors are able to set the expectation upfront that investees must report impact data and increase the likelihood of investee participation in data collection efforts. By setting up processes for impact measurement early in a portfolio’s life cycle, investors can also gather valuable longitudinal data to inform future investment decisions. That being said, if you currently have an active portfolio of investments and are thinking about impact measurement, know that it can be done (as many of our clients would attest). Measuring impact will yield valuable findings even if implemented later in a portfolio’s life cycle.

[custom_headline type=”left” level=”h2″ looks_like=”h3″]Don’t Jump to Metrics[/custom_headline]

Investors often equate impact measurement with selecting and reporting on certain impact metrics. Before you can select the appropriate impact metrics for your organization, however, you should first reflect on your organization’s impact objectives. The process of thinking through your desired impact objectives and what it would take to get there is called mapping a theory of change. When assisting an organization in developing their own approach to impact measurement and reporting, we often begin by jointly examining their theory of change. This process serves as the foundation for developing a measurement approach that not only accurately captures the organization’s desired social impact, but also hones in on the most relevant and useful metrics for the organization. This process can also result in key performance indicators (KPIs) that support decision making and spur conversations and actions.

Finally, remember that metrics are just one part of impact measurement and reporting. We encourage clients to develop a holistic approach, which might include gathering qualitative information on the beneficiaries of their capital through interviews or case studies or examining how normal business processes might incorporate an impact focus.

[custom_headline type=”left” level=”h2″ looks_like=”h3″]Get Others on Board[/custom_headline]

Social impact evaluation works best when everyone in an organization is on board. While it is important to have leaders and designated staff own and be accountable for the impact evaluation process, we’ve seen that staff at all levels can be enlisted to help think about and maximize an organization’s social impact. Impact data can often be collected through existing processes — for example, during pre-investment and annual due diligence — which requires buy-in from team members who may not have thought about impact before. Organizations can also significantly increase their impact by simply having team members focus on achieving social impact during their everyday work — in conversations with investees and other stakeholders, for example.

[custom_headline type=”left” level=”h2″ looks_like=”h3″]Standardize Whenever Possible[/custom_headline]

So you’ve developed a theory of change, generated internal buy-in, and are ready to dive into the nuts and bolts of impact measurement. Which impact metrics should you select? We advise you to utilize available standard industry metrics, such as Impact Reporting Investment Standards (IRIS) metrics, whenever possible, and to clearly define any non-standard metrics you use.

In order for any given impact metric collected from different investees to be comparable, its definition must be the same across investees. For example, we often see jobs created, total jobs, and jobs maintained conflated in impact data. Another common error is lumping projected impact data in with historical data, which can inflate aggregate impact estimates. While it might be easier in the short term to accept any readily available impact data investees are able to submit, according to their own definitions and form of reporting, standardizing both your definitions and data collection method(s) will help ensure cleaner, more useful data in the long run.  We also recommend that you put in place an annual timeframe and standardized process for data collection instead of approaching it on an ad hoc basis.

 

More questions? Feel free to contact us here. Over the past few years, InSight has worked with investors who are increasingly interested in implementing impact measurement and reporting that is rigorous, streamlined, and useful for decision-making. We are very excited about this trend and are looking forward to helping more investors understand and increase their social impact.

 

Filed Under: Impact Consulting, Impact Investing

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