Calculated Impact

Calculating the social impact of an organization is a big step in the right direction towards creating a more effective social venture industry.  However, these calculated values are only valuable when attention is paid to the assumptions implicit in the calculations.  The numbers discussed in the “Stanford Social Innovation Review” article seem sleek and simplistic, and there will be an inevitable temptation to start comparing Calculated Impact numbers across domains. 

A closer look at the subtleties of Cost-Benefit Analysis may provide some insight on these Calculated Impact statements.  First, it appears that when calculating “Outcome”, analysts only examine the direct costs of the problem.  For example, in the health field, the Cost of Illness may be lost wages and medical expenses related to an illness.  However, this Cost of Illness ignores the huge pain and suffering costs borne by the individual.  These costs are often high, and could significantly alter the Calculated Impact ratio.  The fundamental problem is that dollars are being used as a clumsy proxy for peoples’ utility.  This problem is certainly not limited to just the assessment of social impact, but is a problem across disciplines.  However, we need to be aware of it when examining social impact organizations.  However, in general, introducing quantitative rigor to the process will only add the effectiveness of assessing of social impact.  Organizations that can easily show a high monetary outcome of their activities should be funded over organizations that claim to do the same, but with a smaller Calculated Impact ratio. 

Individual funders however should only use these numbers as one among many factors when deciding to fund projects.  They should also look at how many competitors’ individual organizations are facing, as these organizations all will likely have somewhat similar ratios.  Perhaps one organization with a slightly higher ratio would get flooded with capital, while another promising venture is left without capital.  Investors should be careful to spread their capital around to foster several competing ideas, as the Calculated Impact ratio may favor a substandard organization.

I would find it difficult to calculate the Outcome is dollars and cents of my particular venture, reducing Light Pollution.  The aesthetic and environmental benefits of doing so would most likely not translate into the formula very easily.  However, this suggests that it has a smaller impact than an organization that is dedicated to eliminating Polio in Africa.  To those interested in finding the greatest direct impact of the dollars would choose to eliminate Polio, which would certainly have a higher Calculated Impact ratio.  However, select investors may still have the prerogative to invest in reducing light pollution solely because they have the interest in doing so.