Non-Profits and Impact Based Measurement

The non-profits sector is a sector, which unlike the private and the public sector cannot access the debt and equity markets for funds. Hence, it has to rely solely on donors and the government for funding. This means that it is heavily dependent on these channels for funds. Ever since the economic crisis of 2008, more and more non-profits are facing a squeeze in terms of funding and stricter accountability. The private donors and the governments are insisting on the non-profits making their impact visible and measurable. In other words, the non-profits are being asked to report on their progress in terms of measurable and verifiable metrics. This has accelerated the need for non-profits to show results that can be quantified so that the donors are satisfied that their monies are well spent.

Thus, the impact of the non-profits work in terms of how many objectives actualized and the difference that it has made to the lives of the intended recipients is measured in figures like the Social Return on Investment or the SROI which would help the donors make dollar-to-dollar comparisons of the impact that different non-profits are having in the chosen field of operations.

For instance, a non-profit that is working in the education sector needs to report how many schoolchildren have graduated year on year and the rate of growth in terms of the number of kids who completed a certain stage in their schooling. This metric is then compared with the amount of dollars that have been spent on the program. With this measure, it is easy for the donors to compare the progress made by different non-profits in terms of the impact that the monies are having on the social sector.

While this might sound as though the non-profit sector, which by definition does not quantify its gains, is being forced to take the corporate route, it is nonetheless the case that non-profits have long reported on the progress made by them to the donors. The added aspect here is that the non-profits the SROI quantifies and compares the impact that different non-profits are having in terms of their social spend and the return that the donors are getting for their dollars. Hence, in these recessionary times when each dollar has to be accounted for, the non-profits better adopt this metric as a means of reporting their progress better to the donors.

The bottom line for the SROI usage is that in case of the non-profits sector, efficiency matters, but effectiveness matters even more. Hence, the SROI measure is one reliable and valid measure to tackle the problem of the donors not getting information regarding how much impact their dollars are having within and between non-profits. Of course, the fact is the scale of the operations does make a difference cannot be ruled out. This is something we would be exploring in subsequent articles in detail. It would suffice here to state that the best indicator of the non-profits viability and effectiveness is through the adoption of measures like the SROI, which provide a detailed and reliable measure of the impact that the non-profits are having in their chosen field of work.