New Metrics

Social Impact Measurement:
A Key Business Management Tool

As companies obtain greater understanding of the social and environmental implications of their operations and products, the need to implement measurement methodologies to understand the impact of these business activities becomes more evident. Social impact measurement aids companies in identifying opportunities and risks associated with a project. It is a valuable ally to highlight the positive aspects of a given process or product. It is an even more useful tool to understand the important negative effects that must be managed and minimized.

By Germán Granda | Published 10 years ago | About a 4 minute read

These exercises also help improve communications and engagement with stakeholders. Understanding the value that you provide a given community and being capable of controlling the negative side effects of certain operations are all results of social impact considerations in different measurement exercises within companies. These results can be very interesting from a public administration or community organizations standpoint.

Another outcome of social impact measurement practices, especially related to a company’s products and services, is greater innovation capacity. This innovation is the fruit of a new process or the consideration of new criteria in terms of impact measurement: the social perspective. Thus, it can provide information related to positive and negative effects that can be used to adapt a given product to meet customers´ expectations and needs.

Despite the common understanding that social impact measurement is relevant as part of a company´s management practices, there are still many challenges for corporates that adventure into these types of exercises. Many companies still struggle in the metrics arena. Underpinning and identifying the appropriate and most relevant key performance indicators (KPI) is one of the toughest aspects of these types of measurements.

When measuring the social impact of a given project, the options, in terms of different metrics that can be used, are wide. To capture the most relevant metrics, it is important to understand both the external context against which the measurement is being done and the motivations or objectives of the company in regards to what is being measured. The need to identify metrics that are material to the context make it necessary to have external input when undertaking the exercise. Thus, stakeholder engagement becomes a crucial element for these types of business practices. Identifying metrics based on a company’s motivation is also important because it highlights relevant and material aspects that create value for the organization. Both perspectives contribute to defining the most valuable metrics for the exercise.

There are several methodologies available to aid companies in developing a process to measure the social footprint and identify the most appropriate KPIs. Tools such as Community Footprint, SEAT, Social Return on Investment, Impact Measurement & Investment Standards (IRIS), or the World Business Council’s Measuring Impact Framework are just a few examples of a range of tools available for companies in this field. They provide support throughout the different steps of the measurement exercise and guidance in the identification of the appropriate indicators.

Social impact measurement is a valuable yet complex exercise. Currently, many companies are already working on the issue individually or in cooperation with stakeholders, such as sustainability- or CSR-related organizations. Beyond the issue of identifying metrics, the main challenges remaining in the field include:

There is a current state of slight chaos in terms of the methodology to be used. Companies can either choose an already created tool or develop an in-house methodology. It is even possible to combine both approaches, by developing a custom-made methodology based on an existing support structure. These options, and the diverse approaches towards these exercises, make understanding the social impact a bit more complicated. The lack of comparability is a factor that should be addressed to better understand and value the positive and negative impacts of a given project, process or product.

Companies are increasingly engaging these types of measurement practices. However, there is still a disconnect between the results of the social impact measurement and business strategy. Often enough, the exercise of measurement is reflected on internal reports aimed for a management-level audience or to engage with local communities. However, the business strategy remains primarily exclusively based on economic aspects, disregarding the potential value that may involve the consideration of social risks and opportunities.

As knowledge and capacity advance in the field of social impact measurement, many of the remaining challenges will be slowly addressed. Metrics will be more understood, stakeholder engagement and the importance of context will be better addressed, and companies will start to experience how these exercises provide benefits associated with the quality of their management processes, their capacity to innovate in certain aspects of the company, and in improved relationships with key stakeholders. At the end of the day, from a corporate standpoint, “what is measured is managed and what is managed matters.” Measuring the social impact of operations as a means of improving both internal management processes and engagement practices with key stakeholders matters and makes sense.

To see Forética´s Guide to Socio-economic measurement, click here.