by Julia Cannon
Any nonprofit or philanthropic professional is familiar with the challenges of impact measurement.
Impacts are vital to nonprofits because they prove the theory that their programs work. They provide evidence that they are creating positive impacts in the community, environment, healthcare system, or any other mission area.
Funders use impacts to identify nonprofits that have historically delivered results with their programs and projects. Therefore, their investment will have the best chance of delivering results in a future program or project. Certainly, this is sound logic. Boards and individual funders can feel confident that a nonprofit will put their money to productive use. This also gives foundations a standard for comparing proposals that may be as different as apples and oranges.
Impact Measurement: It’s Complicated!
However, funders know that impact measurements are not the silver bullet they may appear to be. When you get into the details of what to measure, how to measure, and how to weigh one measurement against another, it gets very complicated very quickly.
Part of the challenge comes from the nebulous nature of impacts. It is virtually impossible to isolate the impact of a particular project on a particular individual. In order to accurately compare funding proposals, impact measurement has to be uniform across nonprofits. And for nonprofits, this is only feasible when impact measurement is uniform across funders.
There is a multitude of methods to tackle this challenge, but I will highlight a couple of the most recent and interesting.
Breaking Impacts Down to their DNA
The theory at play is that impact, like DNA, can be broken down into four main elements. You can find these elements in all outcome data.
Take for instance, that the DNA of dogs and cats contains the same building blocks despite the difference in species. In the same vein, Environment programs contain the same impact elements as Arts programs, despite the difference in program manifestation and objectives.
The main example of this approach is embodied by the Impact Genome Project, who first established this concept with the Music Genome Project that powers Pandora’s logic. By breaking down outcomes into categorical elements, funders and researchers can more easily aggregate and compare data across a wide variety of programs and data points.
This approach has the potential to address the issue of non-uniformity across data collection and data requested by funders. In the case of the Impact Genome Project, independent researchers and experts handle the data analysis. As a result, participation does not add any additional effort to nonprofit staff.
Treating Impacts as Currency with Blockchain Technology
This idea builds on the emergence of impact investment, but takes it a step further by making the impacts themselves the measure of value as opposed to traditional currencies.
Using blockchain technology to create and track impact ledgers, this concept is the basis of a project by the Ixo Foundation in collaboration with UNICEF. (By the way, if you want to brush up on what blockchain is and how it works, I like this article.)
In this model, the impacts become a cryptocurrency to exchange for other currencies and use for funding. The market determines the value of any particular impact. This market is influenced by project funders, project implementation organizations, organizational reputation, and impact quality, among other factors.
The promise of this method is similar to the promise of blockchain–data is secure, transparent, and decentralized. No single organization controls or influences impact information. It also has a democratizing effect on the impact economy, allowing organizations to influence the value of the impacts they create.
Potential Limitations to Impacts as Currency
Naturally, this new system of “impacts as currency” has untested potential drawbacks to consider as well.
As an example, we can look at the process laid out by the Ixo Foundation in their step-by-step practical guide. Following their guide (pg. 14), nonprofits and project suppliers will need to first create the impacts before they can receive tokens for exchange into other currencies. However, many nonprofit organizations seek funding because they do not yet have the capital to begin or expand a program that they expect to deliver the promised impacts.
Still, this is not an insurmountable challenge. In physical currency, loans and venture capital help new business endeavors. Perhaps we’ll see similar methods put into practice with impact cryptocurrency.
The Best is Yet to Come
There is currently no perfect solution for defining, tracking, and valuing impacts. But recent innovation has centered around specific requirements: the solution must be data-driven, collaborative, and accommodating to the administrative work of nonprofits.
As foundations continue to evolve and refine the way they invest in their missions, I’m excited to see what new trends and methods emerge.