Reasons of measurement from different angles

Impact measurement is often contested for increasing costs with little use for improvement. Additionally, small organizations find it difficult to adjust the elaborated methods to their limited resources. But there are good and very prevailing reasons for it.

The increase of quantification is not a recent development. As Barman (2007) shows for the development in the United Kingdom, measuring is not a new issue for nonprofits. However, the reasons for measurement changed over time. Before impact measurement came in the focus of nonprofit leaders and funders, the assessment of community needs or pure financial efficiency were former targets of measurement activities. Thus, as Barman (2007, pp 112) concludes, ‘measurement emerges in moments of uncertainty and change… [and] …reflects larger debates and contestations over the appropriate purpose and nature of the voluntary sector.’ Thus, the actual emphasis on impact measurement reflects a change in the perception of the nonprofit sector by the society at large. In the following, driving forces for the appearance and use of impact measurement will be explained. These include transparency, causality, accountability, and acceptance.

1. Drivers of transparency

The basic expectation towards social initiatives is transparency in terms of funding, resource management, and service delivery. The dependence on external or third party funding requires a clear and open communication in order to build trust. Usually, donors are not able to follow and understand the concept and logic or a social initiative in every detail. Thus, trust enhancing activities such as certificates, rankings, or labels are used as indicators of good work. Although most of these methods are input-based and do not tell much about impact, they are popular among donors or the media, because they are easy to assess and to compare.

2. Drivers of causality

Nowadays, solutions for social problems become more and more complex. The expectations of private donors or funding institutions go far beyond the ethical principle of ‘do no harm’. Thus, philanthropic action requires well thought-out concepts that cover and align the interests of diverse stakeholders. In order to create real change, an underlying theory of change has to be developed and, afterwards, the goal attainment has to be measured. Theories of change are usually based on logic models that explain in a causal chain how the resources invested are used and what kind of outputs or outcomes should be achieved. Thus, only by measuring the contribution of the project to social change, the theory of change can be proven to be right. Accordingly, impact measurement is always oriented to the organization’s mission and not only to aspects of effectiveness and efficiency (Sawhill & Williamson, 2001).

3. Drivers of oversight and accountability

In philanthropic relationships funders give resources to nonprofits as intermediaries linked with a mandate to provide goods or services to beneficiaries following the funders’ purpose. Notwithstanding a thorough selection process of funded projects, funders and grantees inherently have different goals, interests, and motivations. The intermediaries might misrepresent their capacities to funders in order to obtain a grant (adverse selection), or might try to elude conditions agreed upon (moral hazard). As a consequence, both funders and grantees are obliged to agree on arrangements of monitoring, measurements, and oversight systems. Murray (2010) differentiates between two basic forms of accountability: legal and moral. Legal accountability is based on formally and officially defined contracts that both parties accept. Moral accountability exists when ‘reporting is legally not required but parties believe there is an obligation for one to be accountable to the other’. A funder-grantee relationship is usually based on legally valid contracts. However, grantees often feel a moral accountability to other stakeholder groups such as beneficiaries or the community.

4. Drivers of acceptance: multiplication and leverage

Despite the global growth of philanthropy, the economic potential of ‘the good economy’ is still falling far behind public subsidies and investments. Being aware of the scarcity of philanthropic money, new ways of funding developed that highlighted the importance of multiplication and leverage. As a consequence, the understanding of giving transformed from alms to investment. Adapting strategies and techniques from venture capital to the financing of social purpose organizations, the notion of investing and reinvesting was introduced in philanthropy. This development was mirrored by an increase of hybrid organizations combining social and economic goals in favor of a better goal attainment. The basic idea of hybrid organizations is to use economic value creation strategies to solve social problems and by this, increase the utility of the donated money. These new structures on both sides – social investors and social entrepreneurs – call for new forms of measurement that cover economic and social aims. However, the aim to define and measure the so called blended value is a major challenge.

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Entrepreneurship in Nonprofits

University of Basel