Social Impact Measurement – A practical approach to valuing what matters.

The heightening climate crisis has finally brought the environmental sustainability issue on to the agenda after many decades. The current COVID-19 pandemic has further   exacerbated social inequalities. These isues made many of us question what is important in our lives, and what type of society we want to live in.

Having arrived at this crisis point, one has to question, how did we end up in such a dire position? Surely it can only be the result of some extremely poor decision-making over a long period of time or a gross negligence? But perhaps we, as a society, may have been distracted by having our eyes fixed on the “wrong” prize? Instead of governing for the welfare of all citizens, countries have instead been focused on growing their GDP and failing to recognize the wellbeing of their people. As both these agendas was not necessarily following the same growth trajectory. In this relentless pursuit of wealth and economic growth, we have forgotten to place value on the things that actually matter to us, like the wellbeing of all people and the planet that sustains us.

The ‘social value’ concept is broadly acknowledged in the UN’s Human Development Index (HDI) and in frameworks such as the Sustainable Development Goals (SDGs), as they try to track progress, beyond GDP. There is also momentum gathering for transitioning towards a ‘Wellbeing Economy’, with governments such as Scotland, New Zealand, Iceland, Wales and Finland leading this change.

So how do we embed the concept of ‘social value’ into our decision-making process so that we can priorities a better quality of life for all? I believe part of the answer lies in social impact measurement.

What exactly is social impact measurement?

While there is no standard definition of social impact measurement, at the Australian Social Value Bank (ASVB) we have adopted the definition as coined by Dr Daniel Fujiwara. He is a global leader in social value analysis, wellbeing research, and in econometrics. He is the brain behind the technical aspects of our model.

As Dr Daniel explains, “social impact measurement is concerned with evaluating whether an intervention or action is in society’s best interests”. In this context the ‘social’ refers to the aggregation of the individuals that make up society, rather than the type of impact. This is an incredibly important distinction because if we were to interpret ‘social’ as meaning the type of impact (eg, on health or crime), then social impact measurement would be concerned only with those types of impacts, when in fact social impact measurement is concerned with all impacts on ‘society’, which then broadens the scope of concern to include what we might call ‘social’, ‘economic’ and ‘environmental’ impacts, because all of these have an effect on people in society.

Now there are numerous approaches to social impact measurement, and each have their place depending on the activity in question, the data and resources available to conduct the assessment and whether one needs to arrive at a policy decision rule. Social impact measurement evolved from evaluation methodologies used by governments to determine what activities should be undertaken. ‘Formal’ social impact measurement approaches provide policy decision rules, and this requires some form of comparison of benefits with costs.

The need for Cost Benefit Analysis

Cost Benefit Analysis (CBA) is internationally endorsed as the best-practice methodology for social impact measurement, and very rarely will you see any other method used when it comes to critical policy decisions by government. In fact, its origins can be traced back to the 1700s when it was applied to a public works project in France. Since this time there has been extensive academic research and debate which has resulted in the development of highly detailed CBA guidance.

As the name implies, CBA aims to measure the full impacts of any government decision or action by considering the benefits and costs of an intervention in monetary terms and then comparing them. All outcomes, both positive and negative, financial and non-financial should be included in the calculation. When you subtract the social costs from the social benefits, the resulting net benefits indicate how effective the intervention was. Any activity that creates net social benefits greater than zero is in society’s interests and worthwhile pursuing.

So, if this methodology is so great at helping us to understand what activities are in society’s best interests, then how did we end up in this time of climate crisis and deep social division?  For me this comes down to two main reasons. Firstly, conducting a CBA is a costly process, therefore, only mandated for projects that reach a certain value threshold. Secondly, as with most poor decision-making processes, not all of the pertinent information gets considered.

Non-market valuation

In the Cost Benefit Analysis process, costs and benefits are valued at the prevailing market prices whenever prices or reasonable proxies are available. However, the challenge comes when trying to value what are referred to as ‘non-market goods’ (things which cannot be bought or sold). There are several accepted methodologies for non-market valuation listed within best-practice guidance including: Revealed Preference, Stated Preference and Benefit Transfers. Without going in to too much detail, each of the approaches has their pros and cons, and each has their place in CBA.

Valuation of non-market goods requires expertise, and the process is resource intensive, therefore it is a costly affair. For this reason, assessments often rely on Benefit Transfer approaches, however, citing valuations from previous studies may not align closely enough to warrant comparison. So, alternatively, the value of the non-market goods is left out of the calculation entirely, only being referenced in the qualitative assessment, but that can bias the decisions-making process.

So, how we can quantify social value? At the Australian Social Value Bank we’ve developed a tool that aims to overcome some of these issues. Our online Value Calculator performs a CBA in accordance with government guidelines targeting programs that create social outcomes.  It is a resource-lite approach that makes a rapid calculation of net social benefits achievable for anyone, regardless of their level of expertise in CBA. The main innovation is that the Value Calculator is embedded within a bank of ‘social values’, where our technical experts at Simetrica, have already valued a list of 63 ‘non-market’ outcomes for you to use.

These social values have been derived using a methodology called ‘Wellbeing Valuation’ which can be listed under approved Stated Preference methods within government guidelines.

Wellbeing Valuation often starts with a pre-existing survey dataset that includes a measure of the Subjective Wellbeing (SWB) of participants, then applies econometric methods to estimate the SWB provided by a specific non-market good, and subsequently converts this into a monetary value by combining it with an estimate of the effect of income on SWB.

One of the strengths of this valuation approach is that it omits many of the inherent biases attributed to other Stated Preference methodologies. The resulting values are conservative estimates, averaging all the positive and negative outcomes associated with the specific non-market good across the dataset, which is particularly useful in a policy context. Our Wellbeing Valuation methodology is consistent across the bank of social values. It also allows for comparison of the value of different social outcomes in a way not previously possible, and when using Wellbeing Valuation on an existing dataset it is also a cost-effective approach.

Using the Australian Social Value Bank

So, what does social impact measurement actually entail when using the Australian Social Value Bank? Well firstly, if you are a CBA expert you can simply plug in our social values to your calculation. But if you are just getting into social impact measurement for first time, the ASVB will make it achievable for you quickly, and will facilitate assessment of the benefits of different social programs and investments.

Simply select the relevant social outcome from our drop-down list (e.g., ‘Homelessness to secure accommodation’), enter how many people achieved this outcome (e.g, the number of people you housed), and how much it cost to deliver the program, and the ASVB will calculate the net social benefits the program has to offer.

Whilst this is a simplified version of CBA, for lower value propositions, a proportionate approach is used to estimate net social benefits with a high level of rigour. Utilising Wellbeing Values and embedding approaches like the ASVB Value Calculator into your decision-making process will help to ensure better outcomes for society.

This has started to happen with countries like New Zealand, leading the way with their Wellbeing Budget in which they use converted ASVB Wellbeing Values, and Iceland who have also started incorporating social indicators into its budget planning.

There is still much to learn as we transition to a Wellbeing Economy but the impetus for change has never been stronger; now we just need to make sure we have our eyes squarely fixed on the right target!

Source: https://asvb.com.au/