The 7 reasons why all organisations should be measuring impact

September 7, 2020

Partnerships for the Goals

In this diverse world of impact investment with a myriad of different thematic approaches, the reason for measuring impact is simple. We want to know if what we do works. To do this, we want to find evidence to prove an organisation or business is achieving their stated mission, as predicted in a logical theory of change. We want to use this information to improve impact performance, communicate it to stakeholders and improve credibility among partners and networks.

Doing so can create value for organisations across 7 key areas:

  1. Proving achievement of mission objectives – Social purpose organisations can use measurable outcomes and data collection to confirm progress toward their mission, holding staff accountable to agreed impact targets and redirecting operational strategy to better focus on mission objectives.
  2. Improving impact performance – Assessment of impact performance against an impact measurement framework allows an organisation to review where interventions have met impact expectations on a revolving basis, redesigning their approach to more effectively achieve outcomes. Similarly, a focus on specific outcome targets can drive performance, particularly where there are financial incentives (an emerging range of alternative finance instruments are using performance incentive mechanisms, but that’s a blog for another time).
  3. Communicating to stakeholders – Quantifying social impact in understandable terms creates stakeholder engagement that grows supportive partnerships. Telling a strong story about impact through empirical data adds credibility to an organisation’s mission and values. In a connected, social media-driven landscape, impact measurement can also improve effective marketing and business reputation to create loyalty and trust. 92% of respondents to a recent Global Impact Investment Network (GIIN) survey of impact investors recognises impact measurement as key for communication purposes.
  4. Accountability – Incorporating a robust impact measurement framework ensures expected impact is accurately compared to the cost of delivering a given project. This helps demonstrate that resources are spent on initiatives that provide good value for money.
  5. The Market Demands it – As demographic trends lead to women and millennials having a greater say over investment decisions there has been a rise in socially conscious investors who are keen to support initiatives that can be proven to tackle urgent societal challenges. At the same time, humanitarian and philanthropic donors are looking for greater accountability and governments have moved to pay-for-performance models in the wake of declining trust in the effectiveness of traditional service delivery models. Again, the credibility provided by impact measurement is critical. IMM processes can be a valid signal to a market that an organisation is creating impact that is intentional, additional and has an emerging track record. Impact investors look for investment opportunities that minimise the risk of not achieving impact, and may accept greater financial risk or invest on lower terms as a result. This is the principle that underpins Development Impact Bonds and other pay for performance instruments.
  6. Investors require it – Funders are putting organisations under increasing pressure to use IMM strategies to demonstrate that their activities produce positive change, while providing good value for money. Increasingly, both investors and entrepreneurs are recognising that impact measurement and financial value go hand in hand, a GIIN survey found 59% of impact investors rated impact measurement as very important in enhancing financial performance, with only 3% claiming it was unimportant.
  7. Fund managers may face material risks from not taking it seriously – A failure to articulate expected impact, and to transparently measure and report results to stakeholders may mean fund managers face material reputational risk via accusations of ‘impact washing’. Employing an objective third-party impact advisor such as Innovest to independently verify impact demonstrates the fund’s commitment to credible and robust impact measurement, which admits when impact did not occur or was different than intended. This is most critical for first-time impact fund managers, where rigorously employing an IMM strategy drives accountability and signals intent. Conversely, a well-developed IMM strategy creates opportunities for funds to attract impact-seeking investors who require a clearly articulated impact strategy.