Transcript Your Nonprofit is Worth More Than You Think

YOUR NONPROFIT
IS WORTH
MORE THAN
YOU THINK
A Formula for Measuring Economic Value
By
Robert A. Neiman
&
The Harvard Business School Club of Connecticut
Community Partners
Workshop Team
New Canaan Community Foundation
June 4, 2014
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A Principle
“….There is only one valid definition of the value
of an enterprise. It is the value experienced by
the customer…”
Peter Drucker (Approximate quote)
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How Do We Typically Define the Value
of a Nonprofit Organization?
In Providers Terms
• The need it addresses
• The people it helps
• The money it spends
• Number of clients served
• Number of offerings
• Number of attendees
• Dollars raised
• Years it has existed
• Affiliations it has
In Beneficiaries Terms
Pain alleviated
Poverty relieved
Ignorance overcome
Disabilities overcome
Inspiration gained
Abuse eliminated
Earnings gained
Social connections created
Success in life
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But there is more:
Economic Value!
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A Simple Way
Which is the more persuasive proposition?
• “We help 1,000 families a year by providing emergency
food and clothing,” or
• “We make a $5mm/yr difference in our community
INCOME by helping 1,000 families stay together and
pursue jobs and schooling through counseling and
emergency donations of food and clothing.”
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“AREAS OF FOCUS” OUTLINED BY TOM RALSER
(ROI FOR NONPROFITS)
Value of an organization as an entity (salaries, supplies, rent,
etc.)
Service delivery impact
Social costs avoided
Ralser Advocates:
Investment Orientation
Vs. Charity Orientation
Maybe 10% of NFP’s do this
Societal outcomes enhanced
Business growth from economic development campaigns
Sum it up: Total Economic Impact
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ROBINHOOD FOUNDATION APPROACH*
1. Adopt a mission statement
2. Translate the mission statement into well defined goals
3. Identify a specific intervention to analyze
4. Identify each and every mission relevant outcome that
derives from the intervention
5. Monetize – assign a dollar value to each outcome above
6. Estimate the benefit/cost ratio of the intervention
7. Compare the benefit/cost ratio of one proposal to another
*Rules for Smart Giving. Weinstein and Braburd. Published by Columbia Business School
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How Can We Measure Economic Value?
“…Let Me Count the Ways…” *
• Cost Effectiveness (CES)
• Cost/Benefit Analysis
(CBA)
• Social Return on
Investment (SROI)
• Robinhood Foundation
Benefit/Cost ratio
• Acumen Fund BACO Ratio
• Hewlett Foundation
Expected Return
• Ctr. For High Impact
Philanthropy Cost per Impact
• Foundation Investment
Bubble Chart
*Gates Foundation: Summary
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Value Measurement Map
People
Expertise
Tools
Inputs
Money
Facilities
Passion
Outcomes/Benefits
(Economic/Social)
• Reduced Homelessness
•Programs
•Services
•Products
•Experiences
Operations
• Improved Health
• Reduced Crime/Domestic
Violence
• Higher Student Grades and
Graduation Rates
• Increased Employment/Income
• Better Community Quality of Life
Outputs
Shelter Beds Provided
Meals Delivered
Health Clinic Caseload
Counseling Sessions Conducted
Children Tutored
Concerts/Exhibits Held
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Case Example: Employment
1. Define the initial economic condition (e.g.
earnings of participants – the prime clients – at
the start of the program.)
2. Calculate their incremental economic gain
resulting from the program at the end.
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CASE EXAMPLE:
EMPLOYMENT/INCOME
• The initial condition for job seekers is “zero income”
• The change after 6 months: 70 of 100 have jobs with
average salary of $30,000 pre-tax. That is the
outcome.
• After one year of sustained employment: 70x$30,000
= $2,100,000 cumulative pre-tax gain for
participants for one year
• Cost of program = $500,000
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Economic Value
Economic
outcomes
Inputs
Cost/Investment
to Produce
Outcome
Benefits
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Economic
Value
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Benefit/Cost Ratio
Cost
Benefits
Input
Benefit /
Cost
Economic
Outcomes
to Produce
Benefits
Ratio
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ECONOMIC VALUE AND COST/BENEFIT
CASE EXAMPLE
Economic Value Amount
Economic
$2,100,000
Value
lessCreated
$500K Program
= $1,768
Cost
• Net
+ $245K
+ $109K - $608K (Total
Program Costs) =
= $1,600,000
Economic Value
Amount
for prime clients
for first year
• $2,122KN
- $608K
= $1,514K
or $1.5illionN
Value/Cost Ratio for first year
$1,600,000 / $500,000 = 3.2X
Note: tax effects, collateral and induced benefits, and longer term compounding
effects are ignored for simplicity. These would tend to further enhance value.
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ADDITIONAL BENEFITS
•
•
•
•
Agency earned $140,000
Communication agencies earned $20,000 for their work
Trainers and contract suppliers earned $180,000
Employers gained $160,000 in subsidies + good employees
who in turn created value
• Communities gained from the induced spending of the newly
employed and reduction of costs of dysfunctional behavior
• The government sees increased tax revenue and decreased
support costs – “social cost avoidance”
Total Benefit is the sum of all these gains
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CRITICAL POINTS
• Match Benefits with Costs
– “Cause and Effect” Linkages
– Corresponding Timeframes
– Consistency and Simplicity
• Credibility will be Maximized by Regular Measurement,
Tracking and Reporting of Value
• Do Calculations Relevant to an Audience, e.g.
– Participants: Direct benefit (individual gain)
– Funders: Benefit – Cost = Economic Value amount or
Value/Cost Ratio
– State or Community: add societal cost reductions,
collateral and induced gains to get total economic value
• Do no more calculations than you’ll be using
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Do You Want Your Grantees to
Report Economic Value?
• Build it into your grant request form
• Help them respond
– Consultation
– Workshops
• Keep track of your grantees results. Your
funders may want to know.
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ECONOMIC VALUE FOR
EIGHT ORGANIZATIONS IN FAIRFIELD COUNTY CT. IN 2013
ORGANIZATION
Abilis
PROGRAM
$ ECONOMIC VALUE
X RETURN ON COST RATIO
Birth-3 yr. old
Special needs children
$5,678,357
2.3X
$1,400,000
2.0X
$11,012,000
7.9X
$13,556,605
38.3X
$1,700,000
6.6X
$8,800,000
4X
$1,977,000
5.9X
Catholic Charities
Soup Kitchen
Food Program
for all in need
First time buyer program
Housing
Development Fund
Inspirica
Women’s Shelter
Neighbor to
Neighbor
Shelter for
Homeless
TBICO
Food service
Emergency Shelter
Employment service
The Bridge to Independence
and Career Opportunity
Education support for
students to become
Today’s Students, Tomorrow’sCopyright HBSCT Community Partners 2014
teachers
TSTT
$5,163,766
6.1X
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Inspirica: Value to client based on tracked earnings, plus new State supplement, minus housing
costs. Plus the value to the community based on studies of health, policing and other community
cost reductions as homelessness is reduced. Plus benefits to local businesses, based on studies in
similar communities. Plus tax benefits to the State based on the incremental tax effect of earnings
of retail businesses.
RITE program: Actual tracked earnings gains of clients; plus actual tracked declines in State
supplements to clients. Governmental support savings based on actual tracked values including
Medicaid components based on State averages of Medicaid costs.
Housing Development Fund: Decreased credit costs to homeowners; plus gains to municipality,
banks and servicers; plus increased tangible wealth accruing to homeowners; seven year
residency; thirty year mortgage.
Abilis: Reduced cost of special education and other support costs based on State estimates of
value accruing to families and governments because of early childhood education for special needs
children. Long term gains were discounted to present value in order to compare to the present
value of shorter term cost of the early childhood
TSTT: The long term yield and earnings of teachers emerging from the TSTT support program were
discounted to the present value at start to compare to the present value of the earlier but extended
investment in high school and college education.
Others were based on more direct one year savings to clients based on retail costs of food and
other services and induced benefits to communities.
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QUESTIONS/DISCUSSION
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