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Are you a mission-driven organization? Are you an asset manager like Impact Fund, Funds of Fund, Impact Advisor, Social Impact Accelerator, or Foundation? Are you a nonprofit or social enterprise that works with stakeholders, beneficiaries, or employees? Do you want to raise impact capital or grant for your social impact mission? In this article, we will show you different techniques for you to build impact evidence. Once you’ve defined your impact strategy, you can use many kinds of data collection and analytics. Many of these techniques are relatively simple but powerful in demonstrating impact to project funders. So, without further ado, let's dive into eight critical patterns of showing impact - the lean data way!
First, who are the stakeholders of impact evidence? They can be Mission-driven organizations, Asset Managers (Impact Funds), Funds of Fund, Impact Advisors, Social Impact Accelerators, Assets (Social Business), Foundations, Social Entrepreneurs, Non-profits, etc.
You can watch a step-by-step process for creating an impact strategy if you are just starting.
Once you have an effective impact strategy, now, let's start with the next step, lean data collection, analytics, and learning strategy.
How does your financial and social impact data look like today?
Do you identify the below hurdles?
Many organizations need to start by defining an impact strategy. Whether you are a funder or an organization working on the field, you might want to align with multiple frameworks, such as IRIS, Impact Management Project, and Sustainable Development Goals.
You can decide to use a Theory of Change model, a Logic Framework, or the Five Dimensions of Impact; the real goal is to know what is changing in the community because of your intervention.
Primary User: Defining a strategy is the perfect option if your organization has been around for some time but has only collected operational or financial data so far. It also works well for young social enterprises and new funds.
Reason: Defining the impact data strategy will dictate how your organization collects and aggregates data. Who are your stakeholders? Maybe grantees/investees, or the end beneficiaries. What are the KPIs that we need to observe over time? Does an organization need to invest in cultivating data culture?
Benefit: Having a strategy shows funders and donors that you know what you're working to accomplish and gives them a way to monitor how far are you of your community improvement goals. This will also help you identify the data gaps.
Challenges: You have to be ready to start allocating some budget towards data collection and reporting tools. Whether you collect data from your grantees/investees or your end beneficiaries, don't underestimate the effort that goes into collecting high-quality outcome results.
Primary User: Organizations that may have collected data on stakeholders such as demography, which includes race, sex, locality, religion, etc. and or financial data. If your organization doesn't have the resources to undertake a completely new Impact Strategy, you can still use the data collected currently to derive some insights into your program's performance.
Reason: You have to start somewhere, and your funders and donors will appreciate the fact that you are at least making an effort to understand who are your stakeholders and what direct benefits they are receiving from your services.
Benefit: You will get a basic understanding of your beneficiaries and what should be measured as outcomes in the future when your organization is ready.
Challenges: You might require expert help to figure out a way to transform programmatic or output data into relevant KPIs.
Primary User: If your organization has experience collecting quantitative data, you might want to grow into collecting other types of data as well, such as qualitative data.
Reason: It's essential to understand if our stakeholders have the same perception of the services that we think they have from the quantitative data we collect. Sometimes we find surprises.
Benefit: Collecting this kind of data helps you understand what they are saying, thinking, feeling about the services that you are providing them. In the end, numbers don't mean anything if we are not able to alleviate the problem we're addressing.
Challenges: This requires well-thought-through questions that will give valuable information, which again might require some expert help. Also, you need the right balance between qualitative and quantitative questions, stories from the field, or Asset Manager annotations to fully understand the context.
Primary User: Incubators and accelerators that have a short term relationship with the underlying entrepreneurs.
Reason: In this case, it might be hard to define outcome metrics, since the contact happens for such a short period and in a very early stage of the entrepreneurs.
Benefit: Measuring the performance of the incubator or accelerator in terms of how useful their intervention is to get funding, to acquire new business skills, or to get in contact with advisors, might be enough at this stage.
Challenges: It still requires well-defined metrics that will be applied at the beginning of the intervention as a baseline and then at the end of six months after the intervention is over to understand what improved for the community development organization during that time.
Primary User: Organizations that work directly with the stakeholders and collect data from them to measure outcome performance overtime.
Reason: It is crucial to understand the impact we have on a group of people, as well as pointers on how individuals experience the impact, is very helpful in some cases. For instance, using averages to derive an understanding of impact is dangerous because it can skew the result falsely toward the positive.
Benefit: While cohort analysis helps us in understanding the overall impact the services had on the people, individual performance gives us a deeper understanding of how the analysis may be skewed when the impact is seen only from the perspective of the cohort.
Challenges: This is not simple. A thorough analysis process requires knowledge of sophisticated tools and methodologies that lets you learn from the data you may have collected. A lack of such tools and methodologies can quickly discourage an organization from thinking in that direction altogether.
Primary User: Organizations, large and small, looking at ways to start their Impact management journey. The Dutch government wants to create jobs in the coconut and palm oil industry in East Africa. For new impact investments to flow, the sector expects impact evidence that everyone understands. One of the organizations we are working with intends to adopt IMP 5 dimensions (What, Who, How Much, Contribution, and Risk) to holistically collect and report on impact evidence to attract these investments and help the farmers to establish a sustainable business around coconut and palm oil business.
Reason: Virtually every successful organization, primarily motivated by the high financial outcome, puts a lot of effort behind understanding how their product benefits the stakeholders. The same level of rigor is ideal for impact-driven organizations, as well. To be successful, learning about is no longer optional.
Benefit: This methodology helps the organization to concentrate on the stakeholders and Impact it has on them rather than thinking about how to measure the impact they have on them.
Challenges: It may seem complex for an organization to start measuring impact. However, they could now get started seamlessly by following IMP 5 dimensions of impact.
Primary User: This is a good option for more mature organizations that already have a robust stakeholder data collection.
Reason: In the case of Asset Managers, it only makes sense if you are enabling your entrepreneurs or grantees to collect high-quality data, aggregate it, analyze it, and perform all the calculations in a not so overwhelming way. Also, it's mainly used to compare investments that are entirely different, but you still want to compare the "amount of impact produced by each of them."
In the case of organizations working directly with stakeholders, it only makes sense if you have the resources to define high-quality financial proxies that are relevant for your geography.
Benefit: It gives a financial valuation of the impact generated by an organization, which is easy to understand and compare to other very different organizations.
Challenges: The process to get that valuation is very time consuming and requires a person with enough knowledge of the SROI methodology defined by Social Value International. Calculating SROI is only possible once you have impact data collected and impact management process in place. It also requires proper financial proxy for the calculation.
Primary User: Asset Manager and Asset Owners
Reason: For these kinds of organizations, it can be hard to create a strategy that involves data collection directly from the end beneficiaries or even defining outcome metrics. It is essential to understand the level of maturity of their underlying organizations. If we're talking about entrepreneurs with just a few years in the market, it is possible to start with some output metrics that can tell us at a high-level the number of jobs created and gender distribution in management positions, for example. If we are talking about organizations with more experience in data collection, you can jointly create a strategy by Impact Theme that will have the 3 or 4 basic metrics per theme to understand the portfolio impact.
Benefit: Collecting this results directly from the partners ensures that they also have a process in place to obtain this data from their communities.
The level of granularity of the metrics will depend on the level of maturity of the underlying organizations and the relationship with the Asset Manager/Owner.
Now, following the robust impact data strategy and collecting valuable impact evidence can attract endless deal-flow for the funders. They can identify, compare, and fund (or invest) in high impact projects with deep change. The organization can also learn from its data and allocate funds to the programs generating more profound or scaled impact. Impact evidence is a must to have to fulfill the challenges identified by global goals; impact evidence is must to have and is not optional.
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This article was first published in next billion. Impact investors have long turned to the GIIN catalog of metrics (IRIS...Read full article