Welcome to the next post in this series on impact measurement! Quickly summarizing the previous post for entrepreneurs:
- It’s important to identify metrics that can be tied directly into your business operations. Presuming that your social impact is built-in to your business model, you want to have a small number of easily-tracked metrics that tell you if your implementation model is working.
- You may be doing a lot of things, leading to huge impact. However, it’s important that you find realistic, measurable and affordable indicators that can be tracked over time and that align with the essence of your desired impact.
Thinking Strategically about Impact Measurement
Taking off from the second point, let us start with how we should approach thinking through impact indicators strategically. A “logic model” is a common outcome-oriented approach used by non-profits and large funding organizations while building a monitoring and evaluation framework. Every business germinates from an idea, evolves to a vision to a plan, and ultimately delivers results. A logic model provides clarity and perspective to the plan of actionable items and intended results at different frequencies of measurement. It enables an organization break their vision down, brainstorm and identify measurable indicators. Taking a lean approach, I have mapped the concept of logic models to assessment in the impact investing space.
Logic models – easier than you’d think
A basic logic model is shown in this graphic below:
Let us look at each aspect of the model briefly:
- Inputs include all the resources and materials that go into the business. Typically a business would have human resources (staff / employees / volunteers / interns), financial resources (equity / debt / grant), materials and infrastructure, partnerships / collaborations, technology (database / online platform), beneficiaries and time.
- Activities comprise every process you establish in your business. For example, some of the activities in a training business would be – hire trainers, locate an appropriate space and purchase necessary materials.
Inputs and activities together make up your business plan of actionable items. Accounting for all of them as you think about impact metrics would help you connect and make your business model more effective and efficient over time.
- All your inputs and activities immediately result in outputs. Common outputs across all businesses would be number of customers, employees, locations and partnerships. Every business would have some specific outputs, for example a healthcare business could monitor the number of equipment installations or facilities established, and count the number of patient screenings and business transactions.
- Outcomes go one step deeper to measure the benefit or value-add of the business. In some businesses the benefit maybe instantaneous (e.g., availing clean drinking water) and in other cases there is a certain time frame after which the benefit is realized (e.g., income increase from a livelihood business).
- Impact is every company’s ultimate vision of change which disrupts the market and causes systemic change. For example, an education business’s impact could be to improve students’ learning thereby enabling them to join better schools and get better jobs. This can be measured by the number of students who move to schools with higher performance track records over time and by the quality of job they get after graduation.
The frequency at which outcomes and impact are measured are decided based on the business model. For some companies, short term may mean 6 months to a year, or in the case of education sector companies, one academic year. Long term, on the other hand is defined based on the vision and macroeconomic conditions that will enable systemic changes. It could range from 2 to 5 years depending on the ultimate impact the business hopes to achieve.
Don’t forget to document underlying risks and assumptions
While identifying inputs, activities, outputs, outcomes and impact,
- Take into account the risks and assumptions made. For instance, a livelihood business, long term impact may depend on a bill that is going to be passed by the government. Being considerate of the dependence on external factors that cannot be controlled gives a holistic picture to your definition of metrics and interpretation of reports.
- Identify measurable indicators and a lean process for tracking of outputs, outcomes and impact. For instance, for a healthcare business, if an expected outcome is early detection of health issues, a measurable indicator could be tracking discharge or outpatient summaries.
Right-size your logic model depending on stage of your business
Now, let’s take a logic model into the context of the stage of an impact business, considering the amount of impact actually created and feasibility of measurement.
- Very early stage companies could track outputs and identify one or two outcomes for future measurement. Recognizing systemic impact could still be a thought-in-progress, you might place ultimate impact measurement on the back burner at this stage.
- Seed stage companies could track outputs and the one or two outcomes identified in the previous stage. At this point, identify one or two directions you plan to head towards achieving systemic impact as a business and start to measure progress towards that impact.
- Growth stage companies, with a lot more clarity on outputs and outcomes, and more resources can now track metrics indicative of long term impact as well, linking the impact achieved to the outputs and outcomes, using the knowledge of
- The end to end operations to facilitate business process improvement and impact optimization.
Be lean: At all stages, keep the metrics to a minimum – 3 to 6 outputs, 2-3 outcomes and 1-2 long term impact indicators. While designing data tracking systems, integrate them into your regular processes to avoid making data collection a chore. For example, a livelihood business could collect baseline data on current income in the first on-boarding document of a customer. Along similar lines, Acumen and Grameen Foundation are partnering on a Lean Data Initiative.
Adapt as you grow: As the company moves from one stage to another, the number of relevant metrics could increase without losing focus on the core impact of the business.
For a more detailed understanding of the logic model, please read The Kellogg Foundation’s step-by-step guide here.
Other articles in the “measuring your impact” series:
- Measuring Business Social Impact – Getting Started 101
- Applying Impact Measurement to a Venture Fund
- Looking under the Covers – Unitus Ventures (formerly Unitus Seed Fund)’s Impact Metrics and Rationale