How Should Social Impact Be Measured?

Many people believe it’s more important to measure financials (program, administration and fundraising) than it is to measure the impact being made. So how should social impact be measured?

We should be most concerned with fulfilling our mission. Making an impact that is measurable and distinct while changing lives for the good.

As the great Peter Drucker stated many years ago – “Non-profit institutions are human-change agents. Their product is a cured patient, a child that learns, a young man or woman grown into a self-respecting adult; a changed human life altogether.”

It’s not the nonprofit leaders fault that they focus on the financials.

The pressure comes from other forces – such as the charity rating organizations, donors, the general public, and even our government who often paint a negative picture of charities.

Most nonprofit professionals would prefer to be judged by the good work they perform. That is why so many entered the profession in the first place. But the pressure to focus on numbers can be overwhelming. It might involve a board member asking why the charity doesn’t have a four-star rating, or a donor calling and asking why salaries are so high, or even a watch-dog group that makes it a point to call-out presumed financial inefficiencies on social media.

The challenged faced by well-meaning and ethical leaders is exasperated by the IRS regulations. The IRS Form 990, which must be filed annually, attempts to bring a level of transparency and accountability, which great – it’s just that it’s all about the numbers and not the outcomes.

As a consequence donors are being trained to look at the financials but not probe deeper into actual results. It takes a well-informed and savvy donor to ask the much more important question regarding impact and outcomes of the services provided.

The great news is there are many nonprofits making a huge impact. Unfortunately, some that are making a huge impact may have what appears to be “poor financials” (high cost of administration, etc.) and at the same time, there are nonprofits that look good on paper but aren’t making nearly the impact donors believe they are making.

It’s all a major conundrum that needs to be addressed. And it will need to start at the nonprofit leadership level. It will require bold and visionary leaders that are willing to focus on results and not expense allocations.

The best approach will be to measure and highlight, in an analytical and illustrative way, the actual impact a nonprofit is making.  Call it your Impact to Mission Equation or something like that.

For an excellent example of an organization reporting Social Impact effectively visit the Building Markets website. They are a USA based charity dedicated to building markets, creating jobs, and sustaining peace in developing countries.

As pointed out in a great Wall Street Journal article “Measuring the Bang of Every Donated Buck” – perhaps what Lucy Heady said states it the best: “Social return is about making charities and funders more effective based on firm evidence. Social return looks at the value created by the activity rather than just how much it costs to deliver.” Well said Lucy!

And finally I strongly suggest you take a few minutes to watch a presentation by Dan Pallota given at the March, 2013 TED conference – Simply spectacular and spot on.  WATCH THE VIDEO