Date: 2024-08-16 Page is: DBtxt003.php txt00017305
Impact Metrics
The Investment Impact Index™
DETERMINING INVESTMENT IMPACT AND RETURN ON INVESTMENT
Peter Burgess
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Date: 2024-08-16 Page is: DBtxt003.php txt00017305 | |||||||||
Impact Metrics | |||||||||
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Burgess COMMENTARY Peter Burgess | |||||||||
| Impact and ROI: In search of the holy grail Published on May 31, 2019 Reana Rossouw - Next Generation Reana Rossouw - Next Generation Owner: Next Generation and Investment Impact Index™ Impact Management | Meas... See more 42 articles Following DETERMINING INVESTMENT IMPACT AND RETURN ON INVESTMENT Determining the impact of development programs has gained momentum in recent years. Finding the perfect solution to determine impact and ROI can seem, at times, to be the quest for the holy grail. With the global interest and growth in impact management approaches, standards, technologies, processes and systems, investors now aim to understand the difference a development intervention or impact investment can make. The quest to find a standardised methodology and approach to determine impact and return – one that will address all stakeholders’ needs and expectations equally – seems to be impossible. Much of the current debate around impact methodologies is driven by impact investors who forget that social investors have, for years, been painstakingly trying to measure impact. Global measurement frameworks and guidelines, as well as reporting standards have been developed to provide insight into the success, impact and outcome of development and investment interventions. Everyone agrees that evaluating, measuring and comparing risks and impacts across different topics, portfolios and investment themes are complex. Nevertheless, various projects demonstrate that it is possible to properly quantify and qualify outcomes and to evaluate such impacts. One such initiative is the Investment Impact Index™ that Next Generation Consultants developed over a period of 10 years. The methodology takes a stakeholder-based approach to impact assessment. Its origins are in traditional social research methodologies as well as established and evolving evaluation practices. Whilst built on existing measurement practices, the III™ goes one step further and specifically recognizes that impact and return on investment are linked and operate in complex systems. This insight therefore influences both the cost of the impact achieved, as well as the value – return on investment, obtained by the investor. The Investment Impact Index™ recognizes that each intervention seeks to achieve specific and different outcomes. It considers more than 25 dimensions of impact and return, through an indicator library, that is structured according to investment and development portfolios and themes. IMPACT IS NOT MERELY AN OUTCOME OF DEVELOPMENT Impact must be carefully planned for, through an investment strategy and impact thesis. It should also be guided by specific impact objectives, targets and goals contained in a theory of change or logic model framework. Impact must also be carefully managed, through a process of monitoring and evaluation, to measure and track progress over time. Furthermore, impact must be analysed to understand what impact was experienced along the impact value chain by the intended stakeholders. The impact assessment methodology therefore carefully examines, and analyses impact as follows: Understanding and analysing the impact strategy according to a strategic, operational and programmatic framework and considering more than 50 benchmarks to understand intent, objectives, deliverables and outcomes An integrated stakeholder approach that determines; who was impacted and in what way as well as an in-depth analysis of the evidence of impact achieved Identifying and calculating the impact and return on investment achieved; through indicators and impact dimensions to determine the depth, width, reach and extent of impact Calculating and scoring the impact and return achieved on portfolio, focus area and individual program level Producing an impact report with detailed analysis of impact, return and cost benefit analysis Synthesizes and triangulates impact and return according to 16 criteria including; Effectiveness and efficiency Coherence and longevity Relevance and materiality Feasibility and viability Sustainability and inclusivity The impact analysis tests the different assumptions and theories that informed program design (attribution). It considers program implementation (activities and outputs) and identifies the factors that contributed to change (causation). This provides insights into how interventions can be changed to affect greater impact (enhanced outcomes) or how to mitigate and reduced negative impact. In effect, the impact assessment highlights and re-orientates development toward more effective investment and development approaches for greater impact. The Investment Impact Index™ goes deeper in that it assesses the impact of the inputs – the resources invested to determine return on investment. Over the last ten years, we have learned a lot about impact assessment by working with investors, intermediaries and beneficiaries. Here is what we learned; Investors The term “impact” technically means long-term, sustained change experienced by stakeholders that would not otherwise have happened. Therefore, investors’ intent for the impact they envisage must be described clearly. Notwithstanding any other impact an intervention delivers, if the original intent for such envisaged impact is not achieved, all other impact is unintentional. Intermediaries Intermediaries generally present proposals to funders and investors. These proposals or applications for funding are based on their existing programs, or newly created ones that address a specific community’s needs. There may (or may not) be a link between the funder and the implementer’s envisaged impact. What needs to happen during the initial phase – generally the due diligence stage – is that the funder and implementer of the program need to agree and estimate future impact. Discussion of impact at this stage also provides the opportunity to build understanding around shared impact goals. Establishing both parties’ expectations around metrics, reporting and impact targets, reduce the risk of conflict about these matters down the line. Ongoing performance measurement and management Once the investment has been made, ongoing impact measurement and management practices employed by investors range from simple to complex. At the simple end, is measuring quantitative outputs (through reporting and monitoring). This process, which is generally easy to track, does not provide enough information about actual qualitative change that matters. At the more complicated end, there are more sophisticated measures that demonstrate change for beneficiaries, that also consider other material changes (whether positive or negative). This includes change that would not otherwise have occurred and cost-effectiveness (through a cost benefit analysis). Tension remains between the adoption of standardized indicators and more flexible, context-specific indicators. Many investors feel standardized indicators would be useful and cost-effective in theory. In practice they tend to limit understanding of an investments’ true results. On the other hand, many investors see more flexible, context-specific and qualitative indicators are necessary because of the need to measure what matters. However, they are both incomparable and costlier to implement, and thus not fit to manage investments at scale. Next Generation’s Impact Investment Index™ specifically addresses these three aspects. It can mediate between investors and disparate, non-standardized information about impact. More importantly, it verifies and assures the impact and return on investment achieved. In conclusion, the outcome of the impact and return process also delivers an impact dashboard as well as an impact management report that provides recommendations to leverage investments, enhance impact strategies, contribute to institutional learning, create baselines for future impact assessment and increase return on investment for the funder. For more information about the impact assessment methodology and supporting technology platform - please visit the Investment Impact Index This article was written by Reana Rossouw, founder of Next Generation Consultants and creator of the Investment Impact Index™. | |||||||||