Listen to a typical conversation about measuring social value and you’re likely hear talk of a ‘dollar figure’, ‘return on investment’ and ‘ratios’. The idea of assigning a financial value to something social has an intuitive appeal – the possibility of a single, high impact number; the idea of valuing everything in the same way, allowing comparisons or decisions to be made; the ethos of taking a more ‘businesslike’ approach.
But there’s also an intuitive unease about this practice as well, and not every analysis of social value ends with a pound or dollar sign. Some of our clients have valued their social impact in financial terms, but subsequently have updated their measurement frameworks excluding financial valuation. Why is this?
In this post I will look at some of the objections or concerns with financial valuation, the potential consequences of financial valuation and some alternative approaches.
What money can’t buy
One reason for unease is illuminated in the book ‘What Money Can’t Buy: The Moral Limits of Markets’ by Harvard philosopher Michael Sandel. Sandel argues that market-based thinking has infiltrated moral and social areas of life where it should not be, because monetary valuation can have a corrupting influence on the ‘goods’ being valued.
To use an example from Sandel’s book, let’s assume we want to get children to read more. We might decide to pay them for each book they read. While this ‘extrinsic motivator’ might make children read more in the short term, over time they might see reading as a chore. What this shows it that valuing something (a ‘good’) encourages certain attitudes towards it. Reading becomes a task to be completed for a reward, not a source of enjoyment as we had intended.
If children see reading as a chore, they are likely to stop reading when the money stops flowing. This illustrates that norms governing a method of valuation can ‘crowd out’ other norms typically associated with that good. If children come to see reading as a task associated with reward, this potentially reduces their ability to see reading as a pastime for enjoyment. In this way, money can have a ‘corrupting’ influence by hampering the love of reading in the child, not enhancing it.
I think these points should serve as warning signs to us regarding the use of financial valuation in our analysis of social impact. To see why, let’s apply Sandel’s argument to this process:
Some things in life are priceless...
Firstly, consider the idea of financial valuation encouraging certain attitudes towards a good. This is apparent in value games. In a value game, the stakeholder is asked to decide whether they would take (or be willing to lose) the outcome they have experienced (for example, an increase in confidence) or a series of different items that can be financially valued (for example, a car, or a new pair of shoes). There are some social outcomes that it is often considered immoral to ask someone to value in this way. Think about a stakeholder who said a programme saved their marriage. Asking this person to choose between having their marriage saved and having a new house bought for them seems callous, perhaps because it enforces a financial valuation of something that is considered ‘priceless’. Strangely, it seems that it is the most intuitively valuable things that are most controversial to value financially.
Secondly, let’s consider the idea of financial valuation crowding out non-market based norms. This is demonstrated each time an organisation conducts social impact analyses ‘for the ratio’, and for a continuing trend to report these ratios as actual financial values rather than a unit of impact using financial concepts as a proxy. But there are also ways in which financial valuation corrupts the process of social impact analysis itself. For example:
- Greater risk of getting away from the ‘real’ outcome. Any measure, whether an indicator or financial proxy, can only be a representation of reality. They are not the outcome itself. Combining an indicator with a proxy potentially puts further distance between the measure and the reality it represents. In their latest issue of Perspectives, nef consulting states that ‘despite very significant advances on well-being valuation... the results remain uncertain and debatable’. Financial valuation can also cause confusion or abstraction: financial proxies can be seen as just another link in a chain of logic for someone to understand.
- Inadvertently focusing on funders and commissioners rather than beneficiaries. The theory behind using financial valuation is to provide a ‘common currency’ for social value, so that the value for stakeholders who are typically ignored is represented. However, the reverse might be true, with the emphasis on the financial further promoting the power of those who hold the finance, leading to a focus on valuing the outcomes they experience. For example, where our clients’ primary motivation for conducting social impact analysis has been to secure additional funding, they often start with an assumption that the correct technique to use should include financial valuation.
The value of valuation
If these concerns are valid, then what’s the cost? If we use market thinking to value outcomes which are typically not recognised by markets, then we might find ourselves facing one of two issues:
- Market values end up ‘crowding out’ the non-market norms which do value these things. Valuing them in financial terms may actually serve to corrupt the very thing we are trying to value, leading to adverse behaviour by those involved in the ways described above.
- ‘Tissue rejection’ of social impact analysis by frontline practitioners. The practitioner may feel that the results of their work cannot be valued adequately in this way. So even if they undertake the analysis, they would do so grudgingly, with scepticism, and social impact analysis is never embedded in the organisation. As a result, the true benefits of it may never be realised.
These issues could result in a dissociation between the exercise of impact measurement and frontline practitioners’ perception of the true impact of their work, coupled with a perceived need to produce financial valuations that look good to funders, resulting in significant pressure for practitioners to ‘over claim’. In a workshop CAN Invest conducted in Bristol last year, we asked participants to describe their concerns with impact measurement. A common response was ‘it doesn’t really capture what we do, but we need to do it because funders want it’.
What are the alternatives? Here are a few suggestions:
- Benchmark outcomes. The arguments above don’t only apply to financial valuations – they apply equally to any inappropriate measurement that values outcomes in the wrong way. But they don’t apply to measuring as a whole. Often, a robust indicator is enough, and some indicators have consistently recognised and comparable values in themselves. If you have a reference point, you can still make judgements about efficiency and effectiveness.
- Focus on articulating how you create value. Being able to show clearly how your model delivers value is often more powerful evidence than forecast figures based on a rickety pile of assumptions. Key stakeholders such as funders often care just as much about your measurement framework and the evidence for your intervention as the results themselves as this provides certainty that performance can be measured and managed.
- Champion multiple conceptions of value. Financial valuation assumes the need for a universal standard for ‘value’. But there are many alternatives, such as triple bottom line and multi-criteria analysis, which either separate different types of value (as in triple bottom line) or develop a method of scoring and weighting different criteria based on specific objectives (as in multi-criteria analysis).
Sometimes the use of financial proxies has a sense of ‘if you can’t beat them, join them’ about it. And as social impact measurement continues to be integrated in our sector, it’s tempting to want a ratio to show your value, perhaps for fear of missing out. But by doing this we may be belittling the very things that we most value.
What are your thoughts? Does financial valuation help you to articulate your social value, or do you believe there are other ways to articulate value that are more effective for telling your story and achieving your impact measurement objectives?