As interest in impact measurement and management (IMM) is growing, we are increasingly worried about how asset managers look at IMM's role in their internal strategy. Researchers and impact practitioners familiar with impact management projects (IMPs) believe that fund managers are intentionally or unintentionally not addressing the true purpose of IMPs.
Impact measurement and management is a valuable tool to achieve faster growth and success.
In a recent podcast from Wharton's Katherine Klein interviews Maoz (Michael) Brown, head of research for the Wharton Social Impact Initiative, Michael exposes common misconceptions about impact management and reporting from impact investors. Listening to this podcast, Ana Pimenta, Impact Manager Social Capital Foundation recently commented that it is worth understanding.
I have been asking for a long time: Where are investors/fund managers measuring outcomes and setting impact targets/goals?
"According to The State of Impact Measurement and Management Practices (GIIN, 2020), 78% of respondents seek to understand outcomes, and about 80% set impact targets. My experience in the field and as a researcher tells me a different story. In my opinion, this is due to a lack of impact knowledge (understanding well what impact means, the difference between an output and an outcome, assuming some sectors will be (of course!) impactful, an intentionality that is not adequately considered, etc.) and the lower priority given to impact results (when compared with financial results)."
If we are serious about impact management, we must clarify the different approaches that tools take. So, let's start with four common objectives and create a proper understanding of the impact management landscape. The purpose of this article is to get these terms straight.
- Impact Rating
- Program Reporting, Storytelling, and Visualization
- Impact Measurement
- Impact Measurement and Management
The enterprise's impact rating measures its ability to achieve its goals. Companies are evaluated based on pre-set questions aligned with SDGs, ESG, and individual metrics. While impact rating and impact are two different things, GIIRS found that comparing results were unique and ignored the context of an enterprise's social and environmental impacts.
Many tools and rating agencies are evolving. Therefore, treating this information as one data point is appropriate, but measuring social and environmental impact is complex. To maximize impact, enterprises must adapt impact measurement and management.
Program Reporting, Storytelling, and Visualization
Often, asset managers and enterprises agree on key indicators and targets to track their company's performance. As a result, agreed-upon indicators are not a proxy for impact. Asset managers often use this to report portfolio results. In some cases, progressive asset managers can also provide their portfolio companies with tools to collect raw data so they can aggregate indicators. Program reporting focuses on output metrics and not outcomes. According to Maoz (Michael) Brown, Head of Research at Wharton Social Impact Initiative, “impact metrics are often considered a proxy for impact, but in reality, there is just no correlation. “ While this approach helps determine which enterprise to invest in, it should not be confused with social performance improvement.
Critical characteristics of program reporting are -
- Focus on aggregating program output and activities data
- Data can be qualitative and quantitative
- Funders often use surveys to aggregate results
- In many cases, funders can determine if their portfolio achieves its target. However, it is not indicative of program/investment outcome
- Focus on storytelling
Read More: Effective Nonprofit Social impact reporting
Impact measurement focuses on commonly accepted evaluation techniques such as social return on investments, outcome-based data reporting, and randomized control trials. While methods and resources to measure impact vary, this approach does require a systematic collection of data from stakeholders. If done correctly, it can highlight areas where improvements are needed—unfortunately, many end up using this approach to justify impact rather than continuous learning and improvement.
Key to effective impact measurement is a well-defined data collection strategy, stakeholder survey aligned to five dimensions of impact from Impact Management Project, proper data collection techniques aligned to different enterprise and stakeholder needs, and practical analysis to understand the longitudinal study. The figure below step by step process of achieving outcome-based impact measurement.
Impact Measurement and Management
Impact measurement and management are helpful for enterprises interested in improving product-market fit, services-market fit, and program-market fit. It is a valuable tool to achieve faster growth and success. This approach often requires collecting data from stakeholders (direct and indirect). This approach provides a constant understanding of program needs, ensuring that the investment focuses on the right demographics, outcome, contribution, scale/depth of impact, and impact risk.
IMM is often beneficial to an enterprise that believes in a data-driven approach to ensure faster success. Achieving the most accurate results typically requires data from multiple sources continuously. We recommend organizations use an impact experiment-based approach to achieve the most effective results. The figure below explains how you can start this process by connecting existing data to dashboards, identifying gaps, and focusing on key outcomes to improve outcomes continuously.
Comprehensive social and business data intelligence is the foundation to achieve impact measurement and management. Therefore, in addition to impact measurement, you will need to focus on following to achieve effective results from IMM.
- Focus on the primary outcome
- Unify internal and external data to understand impact evidence
- Make sure all data sources are connected all the time (real-time)
- Dashboard Always connected with data sources
- Impact analytics designed to focus on comparisons, benchmarking, scoring, and aligning with the five dimensions of impact from the Impact Management Project
As interest in impact management grows, we hope that organizations will become more intentional about adopting the right strategies. As complex as Impact Measurement and Management may seem, we will explain why it may be the most effective method for maximizing social and financial returns on impact in a future article.