Value Creation‎ > ‎

Impact

Examples of Impact

Impact can be created in many ways, it either relates to improving peoples lives, improving living conditions or preventing the destruction of the environment. Here are some examples:

Families in Afghanistan suffer from bad health. The costs of sickness to those families:
  • grief from sickness and death
  • medical costs
  • loss of income
  • funeral costs
In total one could argue that the the costs of sickness averages 140 dollars per family per year. When 50% of those costs are caused by drinking contaminated water and you have a system that costs 40 dollars per year to purify that water, implementation of one system could have an impact of 30 dollars per year and 150 dollars over 5 years (use 5 years or the max life span of the system as infinite). If the system has initial costs of 70 dollars and is free to use after that, your impact could be 280 dollars (again use 5 years as infinite).

In rural Uganda the majority of the population cooks on firewood of charcoal. The fuel must be bought from traders. The costs related to cooking:
  • purchase of firewood or charcoal (av 12 per month)
  • smoke related diseases
  • destruction of habitat by wood poachers
When you can create a fuel efficient cooking stove that costs 150 dollars and saves 50% on fuel and lasts three years, you have not made much impact against cooking costs (you save 160 in fuel and your system costs 150) but you might have made environmental impact (used less firewood) and if the stoves are made locally you might have made impact on the local community and less smoke means less health hazard. You need to take into account however that you might put some fuel traders out of business. You best retrain them to be stove manufactures and distributors.

To maximize impact don't import, always try to source locally:
  • use local (raw)materials, 
  • use local labour and management (train people), 
  • use local capital (borrow from local entrepreneurs), 
  • use local manufacturers, 
  • use local distributors, etc. 
To exit your business, transfer ownership gradually to the people you work with and keep your own business very scalable (stick to design, first implementation and knowledge transfer). 



Guy Kawasaky in "The Art of the Start" claims that emerging entrepreneurs should focus on making meaning, not money. If your vision for your company is to grow it just to flip it to a large company or to take it public and cash out, "you're doomed". Kawasaki says that great companies are built around one of three kinds of meaning:
  • Increase the quality of life. Make people more productive or their lives easier or more enjoyable.
  • Right a wrong. A variant on the above. Be a part of the solution, not a part of the problem.
  • Prevent the end of something good. Preserve something classic or historical. Save the whales.
  • I would personally like to add: Prevent Waste (or utilise idle resources)
In his own way Guy Kawasaki is very right. Although he is a hardcore venture capitalist and not a development economist he still believes your efforts as an entrepreneur are wasted if they are not aimed at making meaning, or in our case, making impact.

Impact

Creating impact is similar to creating customer value. The same general rules apply. But where customer value aims at the customer on an individual level, impact aims at a community or society in general. When we measure impact, we take into consideration all costs, not just the business costs, but also social, environmental and economic costs. Take into consideration:
  • social:
    • social injustice
    • child labour
    • dangerous working conditions
    • underpayment or not adhering to labour law
    • not paying taxes
    • displacement op existing jobs
  • environmental
    • depletion of natural resources (mining, hunting, fishing, logging, etc.)
    • destruction of natural habitat
    • extinction of marine and terrestrial life 
    • pollution of soil, water or air
    • nitrification of the environment
    • CO2 emission
    • fresh water usage
  • economic
    • high dept ratio
    • displacement of local business
    • capital flight
    • trade deficit
    • opportunity costs
Impact can be made on three levels: economic impact, social impact and environmental impact. This is called the tripple bottom line. Impact can only be made when the costs of an activity is lower than the benefits, taking all costs into consideration.

Measuring Impact

Measuring impact is a tricky business. It's by no means an exact science, but well illustrated impact calculations can be very convincing. In the end Impact Investors will choose the business that they believe will leverage the impact of their investment to the max. The best practice for illustrating impact is as follows:
  • Describe present situation (context)
    • What problems do you see and what is the root of these problems
      • economical
      • social
      • environmental
    • What is happening already? What options and alternatives are already available
    • What are the cost of doing nothing
      • costs to individuals and families
      • costs to the community
      • costs to the (local) economy (including opportunity costs)
      • social costs
      • environmental costs
  • What are you going to do to improve the situation (activities)
    • What are you going to do
    • How is that going to help individuals and/or society
  • What is put into the venture (inputs)
    • What have you put in yourselves
    • How have you leveraged your input
    • Have you replaced existing jobs/businesses/environment
  • What are the results of your venture that can be measured (output)
    • lives improved
    • business started
    • meaningful jobs created
    • products sold
    • sickness avoided or cured
    • people educated
  • What improvements have you made to the system (outcome)
    • social changes
    • economic changes
    • environmental changes
    • subtract what would have happened anyway
    • subtract what should be contributed to others

IMPACT = OUTCOME - COSTS
LEVERAGE = IMPACT / INVESTMENT

Metrics

IRIS is an organisation that difines metrics whereby impact can be measured (http://iris.thegiin.org/metrics). Some of these metrics are mentioned below:

Social Impact Objectives (OD6247)
Social impact objectives pursued by the organization. Select all that apply:
- Access to clean water
- Access to education 
- Access to energy
- Access to financial services
- Access to information
- Affordable housing
- Agricultural productivity
- Capacity-building
- Community development
- Conflict resolution
- Disease-specific prevention and mitigation 
- Employment generation
- Equality and empowerment
- Food security
- Generate funds for charitable giving
- Health improvement
- Human rights protection or expansion
- Income/productivity growth

Environmental Impact Objectives (OD4108)
Environmental impact objectives pursued by the organization. Select all that apply: 
- Biodiversity conservation
- Energy and fuel efficiency
- Natural resources conservation
- Pollution prevention & waste management
- Sustainable energy
- Sustainable land use
- Water resources management

Target Beneficiary Socioeconomics (PD2541)
Socioeconomic groups of beneficiaries targeted by the organization. Select all that apply:
- Very poor 
- Poor 
- Low income 
- Other

Target Beneficiary Demographic (PD5752)
Demographic groups of beneficiaries targeted by the organization. Select all that apply:
- Children (younger than 10 years old)
- Adolescents (10 year of age or older but younger than 19)
- Adults
- Elderly/older adults
- Persons with disabilities
- Minority/previously excluded populations
- Women
- Pregnant women
- Other at risk populations
- Other target populations

Further Reading


ndw 2014-2017