Productivity Improvement

SMI tries to raise SROIs and the productivity of charities by adapting practices regularly employed in the business community.  SMI also prototypes economics and investment concepts for use by funders, evaluators, and managers of social programs.

Recommended Business Practices for Service Suppliers

SMI recommends that charities and other social programs use certain standard business practices including those listed below:

  • A direct focus on the values of long-term results created for disadvantaged beneficiaries and others and the discovery of ways to increase those values
  • Recognition that significant value is often created in assembling, to the furthest extent possible, all the necessary components for change in a disadvantaged individual’s life so he or she is able to ‘cross the finish line’ and have real opportunities to pursue a healthy and meaningful life
  • Ex ante SROI projections to evaluate the value-creation potential of program opportunities, much like commercial organizations evaluate the ROI on prospective capital expenditures and R&D projects
  • Ex post SROI measurements of the cost effectiveness of programs in creating intended benefits for clients
  • Value-driven requests for funding and regular reports to donors that highlight results realized by poor beneficiaries in formats similar to those found in standard bank and financial market request for funds and earnings reports
  • Simple spreadsheet ‘dashboard’ management tools (to specify goals in terms of and to monitor value creation for ultimate beneficiaries)
  • Cost accounting that shows total costs of all individual results realized by poor beneficiaries
  • Practices to identify (and estimate benefits for poor beneficiaries of) possible productivity improvements to identify which are most cost-effective
  • Incentive contracts and scorecards for beneficiaries and program managers
  • Result performance guarantees (benchmark productivity guarantees to donors)
  • Inexpensive monitoring and evaluation (M+E) of results obtained by clients and other promised intermediate results and of allocations of funding to promised activities and inputs
  • Explicit listings and quantifications of non-success risks and development of risk mitigation and management plans to address them
  • Strategic reserves assessments so highly effective organizations are properly funded to survive turbulence and grow

Investment and Micro-Economics Concepts for Funders, Evaluators and Program Managers

SMI feels that many principles and tools used in and by financial markets to help produce sound investments could prove, with appropriate adaptations, to be helpful when applied to the evaluation, funding and management of charitable and other social projects.  Consider some of the following possible applications:

  • Using SROI as a counterpart to the financial markets’ ROI to evaluate the impact of charitable investments (it is our hypothesis that the act of measuring SROIs raises them, as service suppliers focus more directly on raising SROIs if they know funders are tracking this information)
  • Offering guarantees of charitable results to funders in order to incentivize funding to highly effective suppliers of such results
  • Shifting risks of non-success from donors to service providers and also others, possibly using performance bonds or payment schedules, guarantees and derivative instruments
  • Pricing of risks of non-successful project performance, so funders’ expectations about results appropriately reflect such risks and so they have options to fund risk-mitigation efforts that could increase the social return on their donation
  • Estimating the equivalent of ‘market capitalization’ for a charity organization, which provides information about an organization’s long-term capacity to continue creating value for the poor (due to, for instance, strategic reserve levels, legacy planning for key employees, relationships with strategic partners, dependence on a few large donors, etc.)
  • Distinguishing between places where venture capital, equity investments and bond investments are appropriate for various donors
  • Creating portfolios of donations that diversify risk and seek to optimize the SROI on total giving with monitoring and annual reporting of returns generated
  • Distinguishing places where active versus passive management of donation/investments is appropriate