This article originally appeared in Philanthropy Impact Magazine in February 2022.

By Madison Kerr, Economist at PBE

Funders today expect charities to provide evidence of their impact. This is more important than ever in the wake of the pandemic, which has left a permanent scar on the sector’s public donation levels which could be as large as £6.6 billion. However, analysing the economic impact of a charity’s services is easier said than done for some organisations, so it is beneficial to consider what is feasible before investing in data collection and impact consultants.

ECONOMIC IMPACTS AND OUTCOMES

The starting place for those in charge of charities should be to ask, why do we want to estimate our impact? Who are we trying to influence and what outcomes will those stakeholders be interested in? Will they be motivated by case studies, technical studies or are they interested in savings expressed in pounds and pence?

Charity leaders can then start thinking about the outcomes their organisation delivers and whether these can be measured and articulated in a way that will work for those stakeholders. For example, a charity focused on improving mental health through counselling support has several potential avenues for articulating their impact. They can tell stories about people whose lives have been turned around. They can express how improvements in mental health reduces NHS usage. Equally, they can explain the value of improvements in people’s quality of life from their services.

IMPORTANCE OF DATA

After a charity has decided what outcome it is interested in measuring, those in charge will need to make sure data is carefully collected prior to and after the delivery of the charity’s services. Frontline staff usually collect data at charities, so they need to recognise the importance of this data and understand how it will benefit service users. If frontline charity workers see data collection as an inconvenience, this may affect the data quality, which has consequences. It is not possible to do an accurate economic analysis if the underlying data is unreliable.

MONETARY IMPACTS

At Pro Bono Economics, we typically estimate the economic impact of a charity through either the monetary value of the outcomes or by the improvements that follow in people’s wellbeing. Charities like to explain the impact of their programmes in pounds and pence because it is a universally recognised understanding of value. Stakeholders, whether they be funders, service users, employees or volunteers, can easily grasp the importance of x pounds in outcomes outweighing y pounds in costs.
However, to do this, the charity’s outcomes must be suitable for conversion into monetary terms. Some outcomes are easier to convert into currency than others. For instance, charities that improve students’ academic scores, get people into employment, reduce dependence on government benefits and improve the physical and/or mental health of clients all have pre-existing evidence of the value of these outcomes.

Last year, Pro Bono Economics undertook an economic analysis of The Clink Charity which operates training restaurants in prisons. Trainees get the opportunity to gain skills and qualifications before The Clink Charity subsequently helps connect them with employers upon release. We estimated that for every £1 invested, the charity’s training and support programme could generate £4.80 in benefits through reductions in the probability of reoffending.

WELLBEING IMPACTS

However, some outcomes achieved by charities have traditionally been far more difficult to translate into a monetary value. For example, charities which help people to access government services or welfare payments to which they are entitled would often appear as a negative benefit to the government, as they increase demand on services in the near term. But we know that accessing these services can have an instant and dramatic impact, improving the lives of their beneficiaries at a time when they are often at their most vulnerable. Fortunately, measuring economic impact through improvements in wellbeing has been gathering momentum, as government agencies recognise that improving the lives of people is both measurable and valuable in economic terms. New guidance from the Treasury supports the case for converting wellbeing improvements to pounds, which could transform the ability of many charities to talk about their impact in monetary terms.

WHEN IS IT NOT APPROPRIATE TO ATTEMPT ECONOMIC IMPACT ANALYSIS?

Unfortunately, despite these important strides in capturing and measuring changes to the quality of life, there remain some charities that are not appropriate for economic impact analysis. To start with, there are some outcomes that remain difficult to monetise. It is likely to remain difficult to put a monetary value on charities that conduct research, advocate for social change or improve animal welfare. Secondly, isolating the effect from an organisation’s intervention can sometimes be near impossible if clients simultaneously use other services. In addition, the burden of data collection may not be appropriate or possible with the type of intervention and/or resources available to an organisation. For instance, mental health charities may not want to require clients to fill in long surveys before and after their services as it may deter people from accessing the services in the first place.

IS AN ECONOMIC IMPACT ANALYSIS FOR YOU?

Before setting off down the path of estimating a charity’s impact, it is important for an organisation to understand:

1. Why they want to receive an economic analysis
2. If the outcomes their organisation influence lend themselves well to impact evaluation
3. Whether they have the time and resources to conduct one

Pro Bono Economics believes that providing evidence of economic impact is incredibly beneficial for charities if they are well positioned to do so.