YOUR NONPROFIT IS WORTH MORE THAN YOU THINK A Formula for Measuring Economic Value By Robert A....

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 FoundationJune 4, 2014

1Copyright HBSCT Community Partners 2014

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)


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 TermsPain alleviatedPoverty relievedIgnorance overcomeDisabilities overcomeInspiration gainedAbuse eliminatedEarnings gainedSocial connections createdSuccess in life


But there is more:

Economic Value!


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.”

Copyright HBSCT Community Partners 2014 5

A Simple Way

“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

Societal outcomes enhanced

Business growth from economic development campaigns

Sum it up: Total Economic Impact


Ralser Advocates:Investment OrientationVs. Charity Orientation

Maybe 10% of NFP’s do this

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

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


Value Measurement MapPeople

ExpertiseTools

MoneyFacilitiesPassion

Inputs

•Programs•Services•Products

•Experiences

Operations

Outcomes/Benefits(Economic/Social)

• Reduced Homelessness• Improved Health• Reduced Crime/Domestic Violence• Higher Student Grades and Graduation Rates• Increased Employment/Income• Better Community Quality of Life


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.


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


Economic Value


Economic outcomes

Inputs Cost/Investment

to Produce Outcome Benefits

Economic Value


Benefit/Cost Ratio

ECONOMIC VALUE AND COST/BENEFIT CASE EXAMPLE

• Net Economic Value Created = $1,768 + $245K + $109K - $608K (Total Program Costs) =

• $2,122KN - $608K = $1,514K or $1.5illionN

Economic Value Amount $2,100,000 less $500K Program Cost

= $1,600,000

Economic Value Amount for prime clients 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.

Value/Cost Ratio for first year

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

• 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 using16

CRITICAL POINTS

Copyright HBSCT Community Partners 2014

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.


ORGANIZATION PROGRAM $ ECONOMIC VALUE X RETURN ON COST RATIO

Abilis Birth-3 yr. oldSpecial needs children

$5,678,3572.3X

Catholic Charities Food Program

Soup Kitchenfor all in need

$1,400,0002.0X

Housing Development Fund

First time buyer program $11,012,0007.9X

Inspirica Women’s Shelter $13,556,60538.3X

Neighbor to Neighbor

Food service $1,700,0006.6X

Shelter for Homeless

Emergency Shelter $8,800,0004X

TBICOThe Bridge to Independence and Career Opportunity

Employment service $1,977,0005.9X

TSTTToday’s Students, Tomorrow’s Teachers

Education support for students to become

teachers

$5,163,7666.1X

ECONOMIC VALUE FOREIGHT ORGANIZATIONS IN FAIRFIELD COUNTY CT. IN 2013


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.


QUESTIONS/DISCUSSION


YOUR NONPROFIT IS WORTH MORE THAN YOU THINK A Formula for Measuring Economic Value By Robert A....

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