Welcome to week two of this course on growing your social enterprise. What we're going to do today is delve a little bit deeper into social impact assessments and also talk a little bit about social return on investment. Now as you will quickly see, we're not going into a lot of detail here. If you want to do a social impact assessment, that can be a very time- and resource-consuming endeavor, which on the upside will allow you to much better understand your social impacts. However, for most businesses starting up, that amount of time and resource investment might be tricky to do. So we're going to mention to you here what a social impact assessment can do but we encourage you to explore these possibilities as you grow and develop your social enterprise. At this time, probably in your business plan you will have a rather short section on the questions of social impact assessment. However, make sure that that section is at least well grounded by looking for the right data. Don't just assume because you want to have a positive social impact that you actually will have one. So clearly demonstrate your theory of change and if there's any data available out there that can back you up, put that into your business plan. This will be important for investors, stakeholders, and other supporters of your social enterprise. Now what we're going to do next is we're going to talk about communication and marketing strategy. So I will introduce you later today to an organization called Cafedirect, which is a fair trade coffee company in the United Kingdom and we will look a little bit at how Cafedirect has started out communicating with its customers. Your optional case assignment will be to look at the advertisement of Cafedirect and to speculate a little bit about how you would change that and then next week, we will see what Cafedirect actually did. As you will clearly see, the first advertisements of Cafedirect are rather charity-oriented. Your peer evaluation exam for this week will be for you to take a first step at outlining a social impact assessment for your own social enterprise. Remember that if you submit a contribution, you also have to come back to evaluate the submissions of your peers later. This is a great opportunity for some peer-to-peer learning. And with this, let's have a look at the topic of social impact assessment this week and what two of our PhD students, Lara and Catalina, have to say about it. >> How would you like to measure social impact? Is this something that you've come across ways to do and why would you want to do that? >> Well, measuring social impact is very, very complicated. It's very difficult. There's some ways that exist. For example, transforming your social impact into a financial value so giving a financial approximation of the social value you're creating. But for different reasons, from my perspective, it's very unethical. You're basically assigning a financial value to things like human life, or water. So some agencies, depending on who you're talking to, I guess if you're talking to investors, it can be a valid thing, a valid argument in terms that you're trying to be accountable. But if you're talking to public sector or to agencies, it might not work so well. >> But what about indicators that aren't necessarily tied to money? >> Right, like qualitative indicators. >> Yeah. >> Exactly, it could be an idea. Is that what the life cycle analysis is about, or? >> Well, the life cycle analysis, the LCA, comes from more of an environmental background and it's yielded some surprising results which I think emphasizes why it's a good idea to conduct something like this so that when you go forth with some sort of product or process, there's usually an assumption about what's better and what's not. So one of the surprising results was there was a big uproar with the production of milk cartons, because historically milk was being sold and transported in- >> Glass right. >> Glass bottles. >> Yeah. >> And so people thought, well, of course this is more sustainable environmentally because you can just reuse the bottles very easily whereas the cartons break down over time. >> Mm-hm. >> And when they conducted the LCA, what they found was it was actually much more sustainable in the long run to use the cartons because the milk bottles had to be- >> Cleaned, or? >> Had to be cleaned, not only just cleaned, but with hot water, because they had to sanitize them, especially with the dairy product and this ended up using so much more water, and so much more energy than using the cartons, that the cartons went out. So I guess the point from that is that having some sort of attempt to measure what's going on and to look into the future can readjust your direction in a big way just trying to measure what you've accomplished or not so far. >> Yeah, I guess it's easy in the field of environmental if you're talking about environmental studies, and if you're talking about environmental impacts it can be easy to measure, right, because you have the quantity of water, you have the energy. But if you're talking about social impact, for example, how do you measure self-esteem, or these kind of immeasurable things? So it gets much more complicated in social. >> And actually it comes out in the environmental side too, within the environmental LCA there's a stage where you must prioritize as an LCA researcher which are the most important goals to meet. So if you prioritize reducing climate change effects over preserving clean water systems. >> Like how they compare, yeah. >> That's already a subjective decision right there. >> Exactly, how do you compare for example, how do you deal with the trade-offs of water versus energy versus the impact on the environment that you have over the impact on climate change that you have? >> It comes back to a lot of social system questions too. What is important for that place at that time? And that's going to completely change the way you try and measure things, but I think that asking these questions in the first place can be a good start to trying to come up with indicator systems that can be tailored to a more local environment for the needs there or for where you're trying to have your social enterprise. >> Exactly, so just think about impacts, be accountable, pursue that logic, yeah. >> The social impact assessment consist of several steps. The first step is to develop a so-called Theory of Change. This is a qualitative verbalization of the principal mechanisms through which the social enterprise creates social value. Its detailed steps of theory make the underlying assumptions clear. Let us look at the example of electrification of households in a developing country. Our theory would postulate that electrification leads to higher levels of living standard. However, we need to document how we believe that this process happens. We may, for example, argue that it allows more activities after dark, and thus, extends the time a microbusiness can operate. We have now outlined a crude theory of change: electrification leads to illumination after dark, which leads to more business output. Note that our theory does not say anything about education. We might also assume that children can learn longer in the evening. However, this was not part of our theory of change and thus, we would not consider it in a social impact assessment. Theories of change can be quite detailed and long. The second step after the theory of change would be to measure outputs, outcomes, and impacts related to your idea. It is important that you understand the difference between outputs, outcomes and impacts. Direct indicators measure what the social enterprise does, for example, the number of electrified households. That is your output. Indirect indicators estimate the social outcomes, for example, the microbusinesses that are actually working longer. The social impact is constituted by the difference between the calculated outcome and the so-called null hypothesis, meaning: what if your social enterprise did not exist? Electrification might happen anyways. The null hypothesis is important since we might otherwise overestimate your impact. Let me give you an example here. Think of a wise program for unemployed people and you'll find that eight out of ten people in your program find a job afterwards. Is that a good impact? Well that depends on. You might do some research and find out that typically five out of ten unemployed people find a job anyways after a certain time. So that means the net impact of your program is actually only three people who have found a job because of your program and who otherwise would have been unemployed. The next step could be to try to monetize the estimated impacts. Go and find data sources that allow you to assign monetary value to the impacts. For example, the average income a microbusiness creates for a family in two hours of operation. Once you have that, you can develop cash flow projections and you can even calculate the discount rate to understand the net present value of this future income. We're not going to go into those details here but let me at least outline to you very briefly the formula for calculating a social return on investment. Basically, what you do is: you take the amount of value created and monetize it and you divide it by the investment cost that was necessary in order to generate that impact. This will be your very simple formula for calculating a social return on investment. And it for example allows to understand an investor how much return, how much impact they create for every dollar invested. At the end, let me say something about why we do social impact assessments. Actually, there are three different uses. First of all, we could use this as a way of communicating about our organization. I tend to call this the cheerleading approach. You can also compare two or more options. And finally, you can use it for permanent improvement. Let's look at each of the three approaches. In the cheerleading or communication approach your typical audience are your investors, your members, your employees, the government. The focus here is on positive findings and an optimistic outlook. You want to link to the values of your audience. Usually, this is a one-off exercise based on estimates rather than past data. This is quite different from a impact assessment that is aimed for comparison. Typically, this would be done by venture philanthropists, a donor, or another audience that needs to decide between several options. The focus here is on making disparate projects comparable, like in a ranking. It is linked to the values of the investors and it also is usually a one-off exercise based on the estimates that these investors can make about the future performance of the social enterprise. There's a third type which is the permanent improvement social impact assessment. Typically, this is done by a social enterprise internally. The decision-makers in the social enterprises and their internal stakeholders together, are interested in identifying where the highest improvements can be achieved. They want to understand the risks of the options they're facing and they might want to study sensitivity of assumptions. Typically, this will be a continuous effort based on past data that you repeat perhaps on a annual or bi-annual basis. It is very important for your internal management. So as we see social impact assessments can have quite a number different tasks. You can use it to communicate to your outside audience, it can be used by an investor to compare and select investment options, and it can be used as internal tool to permanently improve your organization. Depending on what your purpose is, you would probably use a different social impact assessment approach.
