Creating Social Impact: Strategic Use of Resources in the ... · Creating Social Impact 5...

Creating Social ImpactStrategic Use of Resources in the Social Sector

Report

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Creating Social ImpactStrategic Use of Resources in the Social Sector

bcg.com

Ulrich Villis

Pia Hardy

Thomas Lewis

December 2009

© The Boston Consulting Group, Inc. 2009. All rights reserved.

For information or permission to reprint, please contact BCG at:E-mail: [email protected]: +1 617 850 3901, attention BCG/PermissionsMail: BCG/Permissions The Boston Consulting Group, Inc. One Beacon Street Boston, MA 02108 USA

Creating Social Impact 3

Contents

Executive Summary 4

Achieving True Social Impact Is What Matters 6

The Need for Greater Focus 8

Defining a Social-Investment Strategy 12Defining Areas of Focus 13Defining the Right Role 14

Investing for Impact 16Quantifying Social Impact 16Applying the Framework: REACH Case Study 20

Some Practical Implications for Social-Sector Organizations 26

Bibliography 27

Note to the Reader 28

4 The Boston Consulting Group

Executive Summary

T he resources available for organizations en-gaged in the social sector will never be suffi-cient to comprehensively address the needs of the world’s poor. Moreover, there is concern that the resources expended over the years in this

endeavor have not brought the gains that were hoped for. There is, therefore, an increasing focus on ensuring that funds deployed in the social sector produce tangible returns in terms of greater well-being for beneficiaries. While impact assess-ments typically focus on tracking results after an intervention, a large part of the actual social impact created is determined up front, when decisions are made about where to deploy re-sources.

This report explores how to improve preintervention decision making—a critical area for social investors as well as for or-ganizations and corporations operating in the social sector. It is based on The Boston Consulting Group’s broad experience with both business and social-sector clients and is informed by interviews with multiple practitioners and leading experts in the field.

Achieving true social impact is becoming increasing-ly important to all the players involved in the social sector.

Donor and recipient governments are demanding in-◊ creased aid effectiveness, transparency, and account-ability, as reflected, for example, in the Paris Declara-tion on Aid Effectiveness, initiated by the Development Assistance Committee of the Organisation for Econom-ic Co-operation and Development.

For 68 percent of high-net-worth individuals, ensuring ◊ impact is the key driver of contributions, and most would give more if the impact were known.

New types of “social investors” are emerging who are ◊ bringing a businesslike perspective to social invest-ment in order to maximize returns.

The imperative of ensuring the highest possible im-pact is particularly great when investing to meet the needs of the 2.5 billion people living on less than $2 a day in developing countries.

The world’s most needy populations receive just over ◊ half of the development aid committed by govern-ments and about 5 percent of private charitable giving in the major industrialized nations.

Given limited resources and the magnitude and com-◊ plexity of the challenges, social-sector organizations should focus on carefully selected areas where their contribution is likely to have the greatest impact.

Because of the inherent difficulty of making resource ◊ allocation decisions, however, program portfolios are often very fragmented among a variety of projects.

In order to increase the impact of their investments, social-sector organizations need to improve their pre-intervention decision making by means of a clear social-investment strategy.

The first step is to define the areas of need that the ◊ portfolio should focus on and the organization’s role within the chosen beneficiary segments.

The next step is to quantify the likely impact and re-◊ turn of the programs or interventions being consid-ered and make investment choices on the basis of these estimates.


Identifying the right areas of focus and the organiza-tion’s role within these areas requires a systematic, iterative process.

Creating transparency in the existing portfolio with re-◊ spect to areas of need served and targeted beneficiary segments often highlights the imperative for greater focus and provides a starting point for a systematic dis-cussion of priorities.

In selecting and reviewing areas of focus and roles, ◊ social-sector organizations must analyze and under-stand the following factors and the relationships among them: the needs of potential beneficiaries, the activities of other players that are addressing those needs, the availability of cost-effective solutions, and how well the required capabilities and expertise fit with the organization’s own competencies and man-date and with the preferences of stakeholders.

On the basis of this assessment, organizations need to ◊ carefully consider the areas of engagement in which they have a comparative advantage and offer the great-est potential for tangible social impact.

Before making the final investment decision, organi-zations should quantify as far as possible the likely impact of each potential intervention.

BCG recommends a four-step approach that involves ◊ assessing and quantifying the critical aspects of an in-tervention: the resources invested (input), what the beneficiaries receive (output), the effects on the lives of beneficiaries (impact), and the monetized value of the benefits received (value creation).

A case study of an investment in Africa by a partner-◊ ship dedicated to ending child hunger and undernutri-tion confirms that such a preintervention impact as-sessment can yield important insights into the payoff of a social investment and the key value drivers that need to be considered and monitored during the im-plementation process.

Optimizing a portfolio’s impact requires systematic preintervention assessments across all potential pro-grams and a commitment of resources to manage this process.

Over time, preintervention assessments should be-◊ come standard procedure—as is generally already the case for postintervention assessments—and the two should become complementary processes.

The benefits of making a commitment to a preinter-◊ vention process are potentially extremely high because it can equip social-sector organizations to determine at an early stage the achievable impact of programs that often require significant investments and many years to implement.

About the AuthorsUlrich Villis is a principal in the Munich office of The Boston Consulting Group and global coleader of the Social Impact practice; you may contact him by e-mail at [email protected]. Pia Hardy is a principal in the firm’s Helsinki office and a core member of the Social Impact practice; you may contact her by e-mail at [email protected]. Thomas Lewis is a senior advisor in BCG’s London office and global coleader of the Social Impact practice; you may contact him by e-mail at [email protected].


Achieving True Social Impact Is What Matters

Despite some growth in development aid and charitable giving in the last decade, the resources available for organizations engaged in the social sector are far from sufficient to comprehensively improve the

welfare of the world’s needy.1 Moreover, there is great concern that the resources expended over the years have not brought the hoped-for gains. Public and private do-nors are therefore increasingly focused on whether their invested and donated funds are sufficiently matched by greater well-being among beneficiaries.

Consider the story of Wollert Hvide, a successful hedge-fund manager based in Oslo, Norway. Mr. Hvide realized that merely giving his four children money would not make them happier and that investing in philanthropy would deliver a far greater return to society than invest-ing in the stock market. But he needed assurance that his money would be well spent and lead to real improve-ments in people’s lives. He was concerned that many nongovernmental organizations (NGOs) lacked the right culture for measuring impact, improving cost-effective-ness, and allocating capital to where it could do the most good. In early 2008, he therefore mobilized a group of like-minded individuals to establish Voxtra as an effec-tive, results-oriented vehicle for philanthropic donations and investments. “We see philanthropic donations the same way as we see business investments,” Mr. Hvide told The Boston Consulting Group. “Through rigorous due diligence of organizations with effective approaches to poverty reduction, we are striving to maximize the so-cial return on every dollar. Performance measurement is a cornerstone of our approach.”

Mr. Hvide’s sentiments are shared by many other philan-thropists. In a comprehensive U.S. study of the key moti-

vators for charitable giving, 68 percent of high-net-worth individuals said that bringing about the desired impact was a key driver of their giving. Almost 60 percent said they would give more if they were able to determine the impact of their gifts.2

Philanthropists are not the only constituency demanding that social-sector organizations increase their transpar-ency and accountability. Government donor bodies, such as the Organisation for Economic Co-operation and De-velopment’s (OECD’s) Development Assistance Commit-tee and governments that receive and distribute funds are also calling for greater aid effectiveness, transparency, and accountability. This greater focus on impact was the key objective in the Paris Declaration on Aid Effective-ness of March 2005. And the general public, of course, is concerned about the effectiveness of its giving. Indeed, it is now possible to compare the relative performance of aid agencies by using Internet portals such as Charity Navigator in the United States or ratings from indepen-dent bodies such as New Philanthropy Capital in the United Kingdom.

Social-sector organizations are well aware of the need to meet these donor requirements. Many would like to measure their impact on beneficiaries but struggle to do so. And many are asking the same questions:

1. The term social sector was coined to encompass the different types of players involved in development aid and charitable giving: governmental multilateral and bilateral aid organizations, nonprof-it groups and nongovernmental organizations, and philanthropic and corporate social-responsibility units, as well as the receivers of aid and giving, that is, governments and local communities in devel-oping and developed countries.2. Bank of America Study of High-Net-Worth Philanthropy: Portraits of Donors (Center on Philanthropy at Indiana University, December 2007).


How can we ensure that our efforts significantly im-◊ prove the lives of the largest number of beneficiaries?

Is there a way to measure the social impact generated ◊ by our interventions?

Can we assess different types of potential interven-◊ tions to determine which are likely to have the greatest impact?

The problem facing social-sector organizations is that there is no standardized approach to measuring social impact in the same way that internal rate of return measures the profitability of investments in the commer-cial world. Measurement methodologies for assessing im-pact in a pragmatic way are generally lacking. Organiza-tions that do attempt to measure their impact tend to use their own individualized approaches, many of which fo-cus only on project-specific indicators and leverage very little academic research or the practical experience of others. Moreover, organizations have tended to focus on tracking results after an intervention is under way. Very few systematically use available information on social im-pact before making their investment decisions—a critical shortcoming given that early decisions on where to focus efforts profoundly determine the ultimate outcome.

To improve the impact of their interventions and make better use of their resources, social-sector organizations must take action on three fronts, as shown in Exhibit 1:

Define a social-investment strategy. ◊ Organizations that have clearly defined their focus areas and their own role deliver better results.

Invest for impact. ◊ Calculate in advance the likely im-pact and return of each program or intervention—be-fore funds are committed.

Track results—and learn from them. ◊ Measure the achieved social impact of initiatives and incorporate the lessons learned into future investment decisions, program design, and implementation.

This report explores how to improve preintervention de-cision making. By making sound investment decisions up front, organizations can direct their efforts more strategi-cally to deliver greater impact and value. Moreover, by understanding the factors that maximize social impact, they can design better projects and track the most critical indicators throughout a project’s life cycle.

The approach and framework presented in this paper are drawn from BCG’s broad experience with both business and social-sector clients. We have also reviewed academ-ic research on the subject and interviewed multiple prac-titioners and leading experts in the field. Although the investment guidelines we offer address the specific re-quirements of the social sector, they can also be used by private-sector organizations to make effective, socially motivated investment decisions.

Define a socialinvestment strategy Invest for impact Track results

◊ To clearly define focus area, target beneficiaries, and role

◊ To make the right investment decisions based on likely social impact and return on investment

◊ To measure the social impact of initiatives and incorporate lessons learned into future program design and implementation

Objective

Output

Businessanalogue

◊ Clear strategic positioning in terms of market segment and approach

◊ A focused “social investment” portfolio of high-impact interventions

◊ Actual social impact◊ Actual social return on investment

Strategic evaluation Expected earnings/ROI Actual earnings/ROI

Preintervention Postintervention

Exhibit 1. Deploying Resources for Greatest Impact Requires Three Basic Steps

Source: BCG analysis.


Both development aid from governments (known as official development assistance, or ODA) and charitable giving by individu-als have been growing since the beginning of the new millennium.3 (See Exhibit 2.)

The emergence of new foundations and the donations of high-net-worth individuals have contributed to this de-velopment. Yet funds still fall far short of what is needed, and the resources that are available are often neither well targeted nor efficiently used. The economic down-

turn, which started in 2007, is likely to exacerbate this problem.

There are other challenges as well. Only a small amount of private charitable giving ever leaves the wealthiest countries. When it does, it often focuses on a handful of the most “popular” beneficiary countries. These countries

The Need for Greater Focus

3. ODA is long-term aid to developing countries that is tracked by the OECD’s Development Assistance Committee.

2.50

50

100

3.5

$billions

0

100

200

300

182.0

235.6

$billions

14.2 21.2

0

50

100$billions

8.3 9.40

50

100$billions

0

50

100

150

72.5

2003

125.32

2008

$billions

Governmentaid1

Privatecharitable

giving

11.6%per annum

2003 2007 2003 2007 2004 2007 2004 2006United States United Kingdom Canada France

6.7%per

annum

10.5%per

annum

4.0%per

annum

17.7%per

annum

Exhibit 2. Development Aid and Charitable Giving Have Been Growing

Sources: OECD database on development; Giving USA Foundation; National Council for Voluntary Organisations and Charities Aid Foundation (United Kingdom); Statistics Canada; Centre d’Étude et de Recherche sur la Philanthropie (France); BCG analysis.Note: Compound annual growth rates determined excluding exchange rate variations; all data in nominal terms.1Net ODA disbursements from members of the OECD’s Development Assistance Committee (DAC) and from non-DAC countries reporting to the OECD. 2Disbursements from non-DAC countries, representing less than 5 percent of the total, are assumed to be at 2007 levels (2008 data not yet available).


actually report being overwhelmed by aid and attention—to the point that they have difficulty planning and manag-ing the efficient use of the assistance they receive.

Let’s explore this dynamic more closely. Beneficiaries can be divided into three segments:

The absolutely underprivileged:◊ those living on less than $2 per day, mostly in developing countries4

The ◊ relatively underprivileged in developed countries: those with a lower standard of living than the majority of the population in these countries

The ◊ general public in any developed society

Although all beneficiary segments have serious needs, the needs of the absolutely underprivileged in the devel-oping world are of a very different magnitude and scope. To cite a few statistics: 37 percent of the world’s popula-

tion, or 2.5 billion people, live on less than $2 a day. Every year, hunger and undernutrition claim the lives of 3.5 million children under the age of five. Preventable dis-eases and the absence of basic health services claim an-other 9 million lives per year in low-income countries.

Why has so little progress been made in alleviating the dire needs of the absolutely underprivileged? There are no easy answers to this question, but resource allocation is clearly one key factor. Most charitable support in fact goes to the relatively underprivileged or general public in the developed world. As shown in Exhibit 3, only about 5 percent of total private charitable giving in the major in-dustrialized nations is devoted to international aid. There are many reasons for this, such as a “natural” preference to help in one’s own community, a lack of awareness of

45

236

United States

21

United Kingdom

9

Canada

5

Italy

1

Japan Germany1 France1

G7 private charitable giving in 2007 ($billions)

96%

280

G7 total

International recipients Domestic recipients

90%95% 94% 99% 92%Domestic recipients

Exhibit 3. Private Giving Is Focused on the Developed World

Sources: Giving USA Foundation; National Council for Voluntary Organisations and Charities Aid Foundation (United Kingdom); Statistics Canada; Centre d’Étude et de Recherche sur la Philanthropie (France); Instituto Italiano della Donazione; Statistics Bureau and National Tax Agency of Japan; Destatis (German Federal Statistics Office); Hudson Institute’s Center for Global Prosperity; BCG analysis.Note: Total charitable giving and the split between international and domestic giving cannot be tracked precisely and are based on survey estimates; for countries with no data available on international versus domestic giving, a split based on the average of the other countries was applied to arrive at the G7 total. Country totals do not add up to the G7 total because of rounding.1Data are for 2004 (Germany) and 2006 (France); data on international versus domestic giving unavailable.

4. This definition of the absolutely underprivileged is based on the median poverty line in developing countries according to The World Bank and is widely used in the development community.


the needs of developing countries, and the inability of many recipient social-sector organizations to address those needs.

Although it has been negatively affected by the global economic downturn, ODA is generally on a growth trend because of increased commitments from OECD countries and because of new government donors. And there is sig-nificant potential for further growth, as many OECD countries still fall short of their commitment to direct 0.7 percent of their gross national income (GNI) to develop-ment aid.5 But even within ODA, the proportion of fund-ing that goes to the absolutely underprivileged in the poorest countries is just over half (55 percent), with the rest being directed to middle-income countries (those with an annual per capita GNI of $936 to $11,455).6 And while these middle-income countries often receive grants, much of the aid to the poorest countries has recently been in the form of debt relief for loans that the recipient governments were not servicing anyway, so no real in-crease in spending capacity has occurred. As a result, or-ganizations dedicated to alleviating the poverty-related challenges of the absolutely underprivileged are almost always greatly resource-constrained. This state of affairs

means that achieving the greatest possible impact from the limited resources available is critical. And this can only be achieved through careful investment decisions and diligent impact assessment.

These decisions are, however, terribly difficult to make be-cause they require favoring certain beneficiaries or causes over others. The needs of developing countries are many, and the resources required to meet these needs vary im-mensely. But in all areas of need, the amount invested is falling short of what is required to reach the Millennium Development Goals (MDGs)—targets agreed to by the countries participating in the 2000 Millennium Summit.7 (See Exhibit 4 for some examples.) Given these funding

5. This target, affirmed at the March 2002 International Conference on Financing for Development in Monterrey, Mexico, has been met by only five countries; however, the European Union pledged in 2005 to achieve the target by 2015.6. The 55 percent funding proportion is based on average ODA to the least developed countries and other low-income countries from 2002 to 2007.7. At the Millennium Summit, the189 member states of the United Nations committed to concrete targets to help the citizens of the world’s poorest countries achieve a better life by 2015.

0 10 20 30 40 50($billions)

Funding shortfall

Estimated annual funding shortfall1

Community andeconomic development

Infrastructure: In some African countries, only10 percent of roads are paved, and poweroutages occur more than 200 days out of the year

Education Between 72 million and 93 million childrenglobally miss out on primary education

Public health9 million people per year die owing to preventablediseases and lack of basic health services inlow-income countries

Poverty and hunger Hunger claims 9 million lives annually

Environment Unsafe drinking water and poor sanitation claim1.8 million lives annually

$34 billion

$10 billion

$23 billion

$24 billion

$6billion

Official development assistance and approximate private charitable giving

Selected examples

Exhibit 4. Funding Gaps Exist in Many Areas

Sources: OECD database; Food and Agriculture Organization of the United Nations; World Health Organization; The World Bank; Africa Progress Panel; Giving USA Foundation; BCG analysis. Note: ODA based on gross disbursements in 2007.1As data availability is limited, displayed values do not all refer to the same base year.


60Program size ($millions)

50

40

30

20

10

0Programs

20 percent of programsrepresent 82 percent of

total expenditures

Average size:$3 million

250 programs receive lessthan $3 million per year

Exhibit 5. Many Dispersed Activities Indicate Fragmentation in This NGO’s Portfolio

Source: BCG client example.

shortfalls, the question that essentially all social-sector in-vestors and organizations are asking is, “Where will the social return be greatest on the next dollar I invest?”

The magnitude and complexity of these challenges mean that social-sector organizations should ideally focus on carefully selected areas where their contribution is likely to have the greatest impact. But because making resource allocation decisions is so difficult, program portfolios are often very fragmented. Our analysis of numerous founda-tion, NGO, and corporate social-responsibility portfolios shows that a pattern like the one illustrated in Exhibit 5 is quite typical. The portfolio of this large U.S. NGO is char-acterized by a few very large programs and many small, often underfunded programs. This fragmentation is partly driven by donations that are tied to specific initiatives, but it is also the result of a kind of emotional reflex on the NGO’s part to help wherever it can globally. The result is that resources are diffused across many projects, and man-agement attention is diluted instead of being focused on the programs that are likely to have the greatest impact.

The original mandate of most social-sector organizations does call for a focus on a specific area of need, often with-

in a particular region. Unfortunately, this focus often be-comes diluted over time because of the commitment to help wherever the need arises and because of changing needs and growing experience with what works and what doesn’t. Thus, even organizations that focus on a specific segment or region should periodically review their port-folio and redefine their mandate when appropriate in or-der to maximize value creation.

For-profit companies focus their commercial efforts on specific customer and business segments—a strategic principle that would improve the performance of non-profits as well. But for-profit companies have a much eas-ier task in allocating resources, both because calculating a rate of return is standardized and because the emotion-al component that can inform the decisions of social- sector organizations is lacking. The framework for port-folio analysis and investment decision-making presented in the following pages offers a more factual and dispas-sionate basis for resource allocation. A social-sector orga-nization can, of course, still factor management judgment and emotional considerations into its final investment de-cision, but doing so in the context of a quantitative assess-ment will ensure the greatest tangible impact.


T he areas and beneficiaries that an organiza-tion chooses to focus on can be thought of as its social-investment portfolio. As noted ear-lier, potential beneficiaries include the abso-lutely underprivileged, the relatively under-

privileged, and the general public. To distinguish among the different areas of need, we have chosen for the pur-poses of this paper the following broad categories: arts and culture, community and economic development, ed-ucation, public health, poverty and hunger, and the envi-ronment.8

As with any investment portfolio, a clear strategy is criti-cal to success, and before an organization can decide how to move forward, it must gain an understanding of its cur-rent activities relative to the unmet needs of beneficiaries and its ability to serve those needs in light of its own expertise and the preferences of stakeholders.

Defining a Social- Investment Strategy

8. This categorization does not include all the possible areas of so-cially motivated activities and could, for example, be expanded to include such issues as gender and human rights or peacekeeping and conflict management.

High-income-countrybeneficiaries

Middle-income-countrybeneficiaries

Low-income-countrybeneficiaries

Arts andculture

Education

Public health

Poverty andhunger

Environment

Not applicable

Not applicable

Ethiopia

Ethiopia

Ethiopia

Ethiopia

Malawi

Malawi

Malawi

Mozambique

Mozambique

Mozambique

Mozambique

Himalayas region

Himalayas region

Guinea

Guinea

Bangladesh

Bangladesh

Mali

Mali

Chad

Chad

Haiti

Haiti

Haiti

Haiti

Vietnam

Vietnam

Vietnam

ZambiaYemen

Yemen

Pakistan

Pakistan

Pakistan

Southern Sudan

Southern Sudan

Southern Sudan

Sudan

Sudan

Sudan

Nicaragua

Nicaragua

Djibouti

Djibouti

Bolivia

Bolivia

Bolivia

Egypt

Egypt

Egypt

Honduras

Honduras

Philippines

Philippines

Philippines

Indonesia

Georgia

Georgia

Georgia

Georgia

MoroccoGuatemala

Guatemala

Guatemala

Guatemala

Azerbaijan

Armenia

Armenia

Armenia

El Salvador

El Salvador

El Salvador

Jordan

Jordan

Jordan

South Africa

Afghanistan

AfghanistanAfrica

West Bank/Gaza Strip

Caucasusregion

Central Asia

Central Asia

Central Asia

Central AsiaLatin America/

Caribbean

Bangladesh

Chad

Philippines

Indonesia

Africa

Himalayas region

Himalayas regionUnited States

United States

United States

West Bank/Gaza Strip

Sudan

General public/relatively underprivileged Absolutely underprivileged

Bolivia

Caucasusregion

Bangladesh

Communityand economicdevelopment

Exhibit 6. The NGO’s Activities Cover a Wide Spectrum of Causes and Beneficiaries

Sources: NGO internal data; The World Bank; BCG analysis.Note: Bubble size indicates relative program size; each country’s position on the x-axis is according to its GNI per capita.


Beneficiary needs◊ Magnitude of needs◊ Root causes of needs◊ Causal relationships among needs

InternalExternal

Area of focus

The right role

a

Current activities◊ Level of investment◊ Positioning of other organizations

b

Stakeholder preferences◊ Particular interests◊ Risk tolerance◊ Time frame

e

Capabilities◊ Content expertise◊ Technical/process know-how◊ Fundraising◊ Networks

d

Known solutions◊ Proven interventions◊ Expected social impact and returns

c

Environment

Public health

Poverty andhunger

Arts and cultureCommunity &economicdevelopment

Education

Absolutelyunderprivileged

Generalpublic

Relativelyunderprivileged

Focus area

Investor

Intermediary

Implementer

R&DProgramdesign

Programimple-

mentationAdvocacy

Exhibit 7. Different Inputs Need to Be Considered in a Social-Investment Strategy


Defining Areas of Focus

The first step in reviewing an existing portfolio is to cre-ate transparency by systematically taking stock of current investments and activities. Displaying these in visual form can help to highlight whether an organization has become overly fragmented in its portfolio of activities. For example, the portfolio of the NGO discussed in the previous chapter comprises a large number of activities covering a wide spectrum of causes and beneficiaries. (See Exhibit 6.) Examining the portfolio in this way offers a starting point for a systematic discussion about priorities.

In order to systematically arrive at a social-investment portfolio strategy, it is essential to take the following fac-tors into account. (See Exhibit 7.)

The Needs of Potential Beneficiaries. ◊ Just as customer needs drive strategic decision-making in the private sector, the needs of beneficiaries must be the primary consideration of social-sector organizations. Which needs are the most pressing, and which are currently not being addressed? By targeting a specific need, or-

ganizations gain a clear sense of purpose and a fund-raising advantage.

Existing Activities in the “Market” Segment.◊ Assess what the “competition” is already doing. Are there areas that are clearly underserved and would benefit from investment? Are there suitable collaboration partners with which a joint and coordinated approach would be beneficial?

Availability of Solutions.◊ Social-sector organizations must understand which interventions are available to meet the identified needs and how they can best be used.

Required Capabilities and Expertise. ◊ What capabilities and resources will be needed to make an impact in certain market segments, and are they currently avail-able or attainable? How well do these match what the organization can offer? Does the organization have a comparative advantage—and a niche opportunity to have a real impact?

Organization and Stakeholder Preferences. ◊ Charitable in-terventions are not purely rational endeavors; they are


often “heart decisions” that reflect the interests of the people who drive them forward. Therefore the prefer-ences of stakeholders—whether individual philanthro-pists, a board of trustees, or a government—will have an influence on portfolio decisions. Benefactors must be convinced that their engagement is important and resolve to remain committed even in the face of chal-lenges and failures.

Selecting areas of focus is an iterative process that re-quires analyzing and understanding these different fac-tors and how they interrelate. For example, an analysis of beneficiary needs and current activities on a global level is often a helpful starting point that can yield interesting insights and result in more fact-based decisions. Social-sector organizations with a fairly clear, preexisting area of focus should go even deeper, targeting needs or geo-graphic areas more precisely.

In the following chapter, we will show how a systematic analysis of known solutions and their likely impact, com-bined with an organization’s own capabilities and prefer-ences, can help determine the most appropriate choices.

Defining the Right Role

Another key decision is what role to play in the chosen beneficiary segment. There are three generic roles: inves-tor, intermediary, and implementer. And within each of these roles, there is a value chain of activity. (See Exhibit 8.) Social-sector organizations need to consider carefully which role and activity will allow them to meet the objec-tives of their charter and have the greatest impact. Let’s look at each of these dimensions more closely.

The Investor. ◊ Investors provide funding to the govern-ments of countries in need or to other social-sector or-ganizations. Organizations that play this role include foundations; multilateral organizations like The World Bank and, at times, the United Nations; the overseas-development agencies of OECD governments; and cause-related investment vehicles like the Global Fund. Investment models vary but can include for-profit or not-for-profit grants, loans, or seed funding.

The Intermediary.◊ A relatively new role, the intermedi-ary has emerged in response to a number of factors.

Investor

Intermediary

Implementer

Programdesign R&D Program

implementation Advocacy

Acumen Fund

Bill & Melinda Gates Foundation

Geneva Global

Roll Back Malaria Partnership

Social Edge

LSHTM

Save the Children

Clinton GlobalInitiative

London School of Hygiene &Tropical Medicine

Save the

Child-ren

Exhibit 8. Social-Sector Organizations Must Choose the Right Role and Area of Expertise

Source: BCG analysis.Note: LSHTM is the London School of Hygiene & Tropical Medicine.


These include the surge in social investment, the growing emphasis on cost-effectiveness and impact (and the realization that this can often be achieved only in public-private partnerships), and the need for monitoring and evaluation. Intermediaries include or-ganizations such as Roll Back Malaria, a global part-nership that seeks to decrease fragmentation by coor-dinating players around a clearly defined and measurable objective; Geneva Global, an organization that manages philanthropic investments; and virtual networks (such as Social Edge) and advocacy platforms (such as the Clinton Global Initiative) that cre-ate communities and knowledge plat-forms around different causes. Interme-diaries often address market inefficiencies and seek to increase the overall impact of the social sector.

The Implementer. ◊ This is the organization that performs the work or carries out the programs. Implementers are typically recipient governments, NGOs, some U.N. agencies and bilateral development agencies, grass-roots organizations, universities and research insti-tutes, and social entrepreneurs. The number of imple-menters and their reach have increased significantly in recent years. Today, even small, local grass-roots orga-nizations can access significant international funding thanks to the growing influence of intermediaries.

New social-sector organizations have flexibility in deter-mining the role in which they would like to be active and for which they feel financially equipped. Established or-ganizations, on the other hand, typically have a pre-defined role, generally determined by the founding char-ter. As described earlier, the risk of “scope creep” over time means that role and approach should be revisited on a regular basis to make sure that they are still appro-priate for the chosen market segment and its needs.

Social-sector organizations must also choose a position on the value chain of social work, which includes four main areas of expertise:

Research and Development.◊ R&D requires deep techni-cal knowledge in order for investors to identify the most promising opportunities, for intermediaries to es-tablish the most effective networks, and for imple-menters to conduct meaningful research.

Program Design.◊ Creating a high-impact program re-quires an in-depth understanding of the most critical beneficiary needs, available solutions, country-specific requirements, and delivery channels. A well-designed program should also specify how to assess implemen-tation and measure impact.

Program Implementation. ◊ Effective pro-gram implementation requires a local presence, ready access to relevant decision makers, an understanding of stakeholder management, and the ability to ensure that the program delivers the targeted re-sults. Building capacity, capabilities, and relationships in recipient governments and with local implementers is often as

important as the implementation itself.

Advocacy.◊ An effective advocate requires a superior network, strong lobbying skills, and far-reaching con-nections.

An organization’s existing skills should drive the decision about which area of expertise to focus on, but it may be necessary to strengthen certain capabilities. When com-petencies are lacking and cannot be developed or ac-quired, organizations need to seek out partners with com-plementary skills.

Focused positioning and effective partnering between so-cial-sector organizations can sharply improve overall ef-ficiency. When organizations try to do everything in-house and are reluctant to cooperate on common causes, there is a great risk of duplication of effort. This often leads to the funding of activities beyond the original man-date. And since there is no direct “market” feedback on oversupply and inefficiency, these problems may never be corrected and may continue to grow. Policy agree-ments and self-regulation are the only tools for reducing duplication of effort and improving efficiency. Adherence to a clearly defined social-investment strategy should be an integral part of the self-regulation of all social-sector organizations.

Focused positioning

and partnering can

sharply improve overall

efficiency.


Once a social-sector organization has devel-oped a clear portfolio strategy, the next step is to explore and evaluate potential investment options in the targeted areas. To accomplish this, we strongly encourage

an exercise that goes as far as possible in actually quan-tifying the costs, benefits, and likely social impact of po-tential interventions. We believe that completing this ex-ercise in advance leads to better investment decisions by enabling organizations to objectively compare the impact of different initiatives, pinpoint the key drivers of impact, and identify the critical variables that must be managed during implementation. There will always be questions of data availability, but even when data are of question-able accuracy, this exercise will lead to a clearer and more disciplined investment decision.

In this chapter, we lay out our approach to quantifying the likely social impact of an investment decision, and we illustrate the approach in detail by applying it to a spe-cific investment case.

Quantifying Social Impact

Our approach analyzes four critical aspects of a social in-vestment: inputs, outputs, impact, and value creation. Ex-hibit 9 applies this framework to case examples in the ar-eas of poverty and hunger, public health, and education. Especially in complex interventions, the required infor-mation may not all be available, or it may be difficult to obtain, making it necessary to resort to rough estimates of the investment’s effect on beneficiaries. This is often the case in areas such as capability building or knowledge exchange, where attributing impact to the most relevant interventions poses a significant challenge. But even with complex interventions and incomplete data, the use of a

framework such as ours will almost certainly enhance a program’s design and resulting impact.

Inputs and Outputs. The inputs (that is, the financial and nonfinancial resources invested) and outputs (what the beneficiaries receive) of a given intervention are gen-erally relatively easy to quantify. Donors typically require that their implementing partners formalize and measure output targets to account for how the budgeted money is being deployed.

The main problem generally lies in correctly identifying who actually benefits from an intervention. It might seem fairly straightforward to calculate the number of children who receive vitamin A, a mosquito net, or a pri-mary-school education. This is, however, easier said than done. Control of final delivery may be assigned to local governments or to NGOs, with no requirement that the beneficiaries be recorded. Even when the beneficiaries are fully accounted for, it may not be easy to determine whether the donated goods reached their intended ben-eficiaries. For instance, a mosquito net may be used by parents instead of by their children, or a new school may be used by children who switched from another school instead of by children who are attending school for the first time.

Again, unreliable or incomplete data pose a fundamental challenge to measurement. With the help of some well-grounded assumptions, however, there is almost always sufficient relevant data to conduct a reasonably robust analysis. Moreover, the current trend toward more measurement and monitoring of aid effectiveness, and toward more pragmatic approaches to capturing the in-formation needed for decision making, will help reduce these problems over time.

Investing for Impact


Impact. Although output information (on what the ben-eficiary will receive) is important, it does not take into ac-count whether—or to what extent—the welfare of each beneficiary will increase. This can only be determined by measuring the changes to the beneficiary that result from the intervention—that is, its impact. In Exhibit 9, for in-stance, the impact would be the actual number of chil-dren who survived their early years thanks to nutritional interventions and malaria protection, or the number of children who obtained access to education, completed primary school, and found paying jobs as a conse-quence.

In a preliminary assessment, it is the likely impact of an intervention that is estimated, rather than its actual im-pact. This requires assumptions that are as reliable as possible about four key variables:

Impact Indicators. ◊ To assess impact in a standardized way, it is important to choose indicators that can be compared across several different initiatives in the same area of need, and preferably across several dif-ferent areas. In health-related interventions, for exam-ple, indicators could be deaths averted or diseases

averted. In education, a well-established indicator is literacy improvement.

Beneficiary Base. ◊ How many beneficiaries in the target population could benefit from the intervention? Base-line information is generally available from intergov-ernmental organizations such as the World Health Or-ganization (WHO), Unicef, and the U.N. Development Programme (UNDP).

Intervention Effectiveness.◊ At the heart of any prelimi-nary assessment is determining how effective the in-tervention is likely to be, technically and operationally. Where an intervention is well established and has a track record, its efficacy should already be known and documented. Where it is less well established, academ-ic research may provide the necessary information. If not, pilot programs may become necessary. Once the effectiveness of an intervention has been established, an organization can estimate its likely impact on the target population.

Attribution.◊ The impact of the intervention must be isolated from any other interventions that are simulta-

What beneficiaries receive Ultimate impact on beneficiaries

Financial and nonfinancialresources invested

Monetary value of the impact

Over $150 million invested in nutrition support for undernourished children under the age of five in Mauritania over ten years

Approximately 450,000 children under five receivenutrition interventions each year (80 percent coverage)

Economic benefit of $3.7 billion over ten years at a benefit-cost ratio of 31

Approximately 940,000DALYs from undernutritionaverted over ten years in children under the age of five

$85,000 invested in 10,000mosquito nets distributedto rural children under theage of five in sub-SaharanAfrica

3,500 rural children under the age of five reached overthree years

Economic benefit of $10 million over three yearsat a benefit-cost ratio of 127

2,200 DALYs from malaria averted over three years in rural children under the age of five

$2.9 million invested in school infrastructure,teacher salaries, and booksin one year in Cambodia

568,000 children reached per year over four years

Economic benefit of $9.5 million over fouryears at a benefit-costratio of 4.3

9,000 new school enroll-ments; 3 percent reductionin dropout rate (17,040 children) per year; improvedearning ability through moreand better education

Input Output Impact Value creation

Under-nutritionexample

Malariaexample

Educationexample

Exhibit 9. There Are Four Aspects to Quantifying Social Impact

Source: BCG analysis.Note: The first two examples assume a monetization factor of $5,000 and a 3 percent discount rate; the third example assumes an improvement in future wages of the participating children, which directly correlates to the GNI of the country examined. DALYs are disability-adjusted life years.


neously targeting the same beneficiaries. For example, improvements in child literacy may result from a com-bination of initiatives, such as building new schools, changing the national curriculum, training teachers, and improving children’s cognitive abilities through nutritional interventions. Although often difficult, it is important to determine attribution in order to correct-ly match the benefits to the costs.

As with inputs and outputs, the data used to assess these variables are often of questionable accuracy, and the data quality varies across countries and intervention types. Finding and validating data will, therefore, require time and effort.

Value Creation. The final step is to attach a monetary value to the benefits of an intervention. This often re-quires examining several different levels of socioeconom-ic impact. The value is then compared with the program’s cost in order to calculate the estimated “return on invest-ment” of the intervention.

Although directly targeted beneficiaries usually receive the greatest value, many interventions also deliver benefits be-yond the narrow beneficiary target group. (See Exhibit 10.)

Preventive health interventions, for example, reduce the cost of public and private medical care. These secondary effects are generally harder to quantify, as the causal chain is longer and attribution becomes more difficult to deter-mine. But since these effects can be salient, it is worth-while to attempt to quantify them as far as possible.

In assessing value creation, the nature of the intervention determines the impact indicator used, which is then giv-en a monetary value. For health-related interventions, for example, the disability-adjusted life years (DALYs) saved is the de facto standard for measuring impact. One DALY is in essence one year of healthy life lost because of disease or poverty. Health interventions aim to decrease or avert DALYs.

To calculate the monetary value of a health intervention, academics suggest assigning a value based on the expect-ed economic productivity of each DALY saved. This can be achieved by multiplying DALYs averted by a moneti-zation factor. Such a calculation is, however, ethically sen-sitive as it entails making an explicit assumption about the value of a human life. Moreover, there is no consensus on which monetization factors to use. Options include the following:

Health example Education example

◊ Increased productivity and income as a result of decreased mortality and morbidity directly related to disease/nutritional status

◊ Improved lifetime earnings and improved cognitive skills

Direct impacton beneficiaries

1

Direct costsavoided

2

Wider socioeconomicimpact

3

◊ Reduced private and public medical expenses (prevention and treatment)

◊ Reduction in associated medical conditions (comorbidity and comortality), such as low birth weight

◊ Positive impact on education and on family and community investment decisions

◊ Costs related to unemployment and crime (although there are lost earnings from children attending school instead of working)

◊ Impact on secondary beneficiaries through advocacy or capacity building

◊ Increased tax revenue

◊ Family health, population control, social cohesion

Exhibit 10. There Are Several Levels of Socioeconomic Impact



9. The value of a statistical life year was adopted as a standardized input parameter by the Copenhagen Consensus, a project that seeks to establish priorities for advancing global welfare using methodologies based on the theory of welfare economics.

Diesel vehicle technology

Total sanitation campaigns

Benefit-cost ratio0 20 40 60 80 100 120 140 160 180 200 220 240

Microfinance

Girls’ schooling improvement

Tuberculosis treatmentHeart attacks: acute management

Malaria preventionImmunization for children

Tobacco taxationHIV: combination prevention

Hospital surgical capacitySupport for reproductive role

Deworming/nutrition programsMicronutrients for children

BiofortificationMicronutrient fortification

Community-based nutrition

Improved stove intervention

Inspection and maintenanceof diesel vehiclesLow-sulfur diesel

Large multipurpose damRural water supply

Biosand filters

Community andeconomic development(1.1–21.6)

Education (18.3–26.1)

Public health(27–150)

Poverty and hunger(18.5–250)

Environment(1–37.5)

Minimum Maximum

Exhibit 11. Different Interventions Have Very Different Benefit-Cost Ratios

Source: Copenhagen Consensus 2008.Note: A monetization factor of $5,000 was used for all interventions by linearly scaling up the benefit-cost ratios of the Copenhagen Consensus; for community and economic development and for education, specific values are given.

The value of a statistical life year ($1,000–$5,000), as ◊ defined by the Copenhagen Consensus9

The target country’s GNI per capita adjusted for pur-◊ chasing-power parity ($300–$3,700 for low- and lower-middle-income countries)

The average global GNI per capita (currently about ◊ $9,800)

The monetization factor chosen will have a huge impact on the value assessment, and variations among countries can skew the results. For instance, low-income countries will be disadvantaged when their national GNI figures are compared against those of higher-income countries. We therefore suggest using a monetization factor that val-ues all lives equally whenever feasible. Once a valuation factor is chosen, it can be applied to all project assess-ments and becomes useful as a means of comparison.

In an education project, the increase in years of schooling can be converted into a monetary value. This is based on empirical evidence that more and better education in-creases cognitive ability, giving beneficiaries a better chance of securing and keeping paid employment.

To show the efficiency of resource use, a benefit-cost ratio is derived by weighing the monetary benefit against the cost of the program. The net present value (NPV) is used to show a project’s monetary impact and is calculated by discounting the annual cash flows of the project. Both the monetary benefit and the monetary impact are impor-tant measurements, and an organization may use one or both, depending on its focus.


By measuring benefits and impact, organizations can “grade” and compare initiatives across different areas of need (such as health and education), show the relative impact of different factors, and differentiate between ini-tiatives that save lives and those that merely improve them.

Unfortunately, there are few opportunities to benchmark value creation across differ-ent areas of the social-services field. An ex-tensive set of benefit-cost benchmarking data is provided by the Copenhagen Con-sensus, which has studied a range of inter-ventions related to undernutrition, HIV/AIDS, malaria, tuberculosis, school enroll-ment, and other areas of international de-velopment. Although this macroeconomic approach can-not take the place of more detailed analyses by specific country or setting, it does provide very valuable informa-tion on orders of magnitude. Benefit-cost ratios presented by the Copenhagen Consensus at its 2008 meeting clear-ly show that interventions vary greatly in their cost-effec-tiveness. (See Exhibit 11.) In an environment of scarce resources, such data can help organizations make more informed choices.

Several efforts are currently under way to develop open-source databases where social-sector organizations can share efficiency data and create a benchmarking tool. Should these efforts succeed and these databases become standardized and gain acceptance, they will greatly in-crease transparency and accountability within the aid community. Until then, organizations can benchmark their own results using the process outlined above.

Applying the Framework: REACH Case Study

REACH: Ending Child Hunger and Undernutrition is a multistakeholder partnership combining the efforts of governments, the United Nations, NGOs, academia, and the private sector to fight child hunger. It is an initiative that promotes government-led, solution-oriented joint ef-forts at the country level that are focused on bringing an integrated set of proven interventions to scale. REACH was established by Unicef, the World Food Programme, WHO, and the Food and Agriculture Organization to sup-port countries in the fight against childhood undernutri-tion. REACH’s goal is to accelerate progress toward the

Millennium Development goal of reducing by half the global percentage of underweight children under the age of five, from 32 percent in 1990 to 16 percent by 2015.

REACH promotes interventions in five priority areas: breastfeeding and complementary feeding, micronutrient intake, diarrhea and parasite control, treatment of

acute undernutrition, and household food security.

The main difficulty in assessing the impact of hunger and undernutrition interven-tions is that hunger is rarely a direct cause of disease or death. A malnourished child is, however, more susceptible to serious diseases and may die after contracting di-

arrhea, malaria, or measles—illnesses that a stronger child with greater resistance might survive. Hunger is thus often an intermediate but crucial factor that ulti-mately leads to death or physical impairment. Globally, more than one-third of deaths of children under five are caused by undernutrition.10

This case study analyzes the investment case for Mauri-tania, one of the REACH pilot countries. Using the frame-work presented earlier, we will assess the four key areas of input, output, impact, and value creation potential. To determine the robustness of the investment case, we complement this assessment with a sensitivity analysis in which the effects of changes in the key input factors are modeled.

Inputs and Outputs. Based on in-country data for each intervention included, the total annual resources (inputs) required to deliver a package of interventions in Maurita-nia is estimated at about $15 million. (See Exhibit 12.) This assumes target coverage of about 450,000 children (output), or 80 percent of the population under five years of age. Some interventions—such as supplementary and therapeutic feeding—will, however, target smaller groups of moderately and severely underweight children.11

Impact. Given the complexity of the problem and the di-versity of interventions proposed, assessing the likely im-

10. Zulfiqar A. Bhutta et al., “What Works? Interventions for Mater-nal and Child Undernutrition and Survival,” Lancet 371, no. 9610 (February 2, 2008), 417–440.11. For a more detailed discussion of the input parameters, see the “Sensitivity Analysis” section later in this chapter.

More than one-third

of deaths of children

under five are caused

by undernutrition.


pact of the REACH Mauritania project is challenging, but existing research can help. For instance, WHO lists the to-tal DALYs for children under five years of age for each de-veloping country. A WHO model can be used to calculate the proportion of DALYs that can be attributed to child-hood undernutrition in a specific country. For Mauritania, it indicates that about 195,000 (33 percent) of DALYs among children younger than five can be attributed to undernutrition.

According to the Lancet’s report on child hunger and un-dernutrition, about 60 percent of these DALYs could be averted if a set of interventions were delivered to all ben-eficiaries.12 Assuming 60 percent efficacy and 80 percent target coverage, 93,600 DALYs could be averted annually in Mauritania. (See Exhibit 13.)

Dividing the total annual cost (inputs) by this impact po-tential results in a cost per DALY averted of $161. That is, it would cost $161 to save one year of a healthy and pro-ductive life. To assess the relative effectiveness of the pro-gram, this ratio can be compared with other health-relat-ed interventions that also quantify their impact in DALYs. Typically, interventions with a cost per DALY averted be-low $400 are considered highly cost-effective.13

Intervention

Zinc supplementationBreastfeedingIodine fortificationIron fortificationComplementary-feeding educationVitamin A supplementationHousehold water treatmentHand-washing with soapMalaria intermittent preventive treatment

Complementary (blanket) feeding

Supplementary feeding

Therapeutic feeding

Annual intervention costsAnnual coordination costsAnnual total costsOne-time setup costs

Annual costper

beneficiary($)1

3.212.132.361.391.171.020.750.710.25

63

133

197

Annualnumber ofpotential

beneficiaries(thousands)

5572

16

50

17

Annualtarget

coverage(%)

803

80

80

80

Annualnumber of

targetbeneficiaries(thousands)

446

13

40

13

Total annualcost

($millions)

5.9

0.8

5.3

2.6

14.60.5

15.11.0

Allchildren

underfive

Childrenat risk ofmoderate

acute under-

nourishment

Moderatelywasted

children

Severelywasted

children

Exhibit 12. $15.1 Million per Year Will Benefit Almost 450,000 Young Children in Mauritania

Sources: REACH; BCG analysis.1These are rough cost estimates based on existing research and in-country information. 2Some of these interventions will benefit the child via the mother or other caretakers; all children under five will be addressed over time. 3Breastfeeding is targeted at 90 percent of beneficiaries.

12. The Lancet 2008 Series on Maternal and Child Undernutrition is an extensive international study of 36 countries on the linkages be-tween hunger and fatal diseases, and the efficacy of potential rem-edies.13. For more details and cost/DALY-averted ratios for other inter-ventions, see Dean T. Jamison et al., Disease Control Priorities in De-veloping Countries, 2nd ed. (The World Bank and Oxford University Press, 2006), 52.


Value Creation. To compare results against a broader set of other investments, the final step is to assign a mone-tary value to the DALYs averted. As noted earlier, several different monetization factors can be used. Applying a factor of $5,000 (for the value of a statistical life year) to the 93,600 DALYs averted per year results in a benefit-cost ratio of 31. Given these assumptions, the NPV of the investment is $3.7 billion over a ten-year period. (See Exhibit 14.)

Sensitivity Analysis. Even when assumptions are based on scientific research, a considerable level of uncertainty always remains. Modeling a range of inputs can reduce this uncertainty by providing a fuller understanding of the results and of the relative importance of individual factors and can, therefore, offer valuable insights into where to focus. For such a sensitivity analysis, the upper and lower boundaries of each key parameter can be es-timated and their influence on the overall result mod-eled to create worst-case and best-case scenarios. (See Exhibit 15.) The key parameters in this case include

country and project parameters and methodological pa-rameters.

Country and project parameters include the following:

DALYs Due to Undernutrition. ◊ Working with WHO ex-perts and using their assessment tool, we used a range of 30 to 35 percent for this parameter.

Intervention Costs. ◊ For each intervention, we analyzed costs using local data. For the sensitivity analysis, we defined upper and lower limits on the basis of experi-ence in other countries. The total cost of interventions also depends on synergies achieved in delivery. Actual costs may therefore be lower. We modeled a range of $7 to $20 per child under five for the general package of interventions (excluding complementary, supple-mentary, and therapeutic feeding, which target specif-ic beneficiary groups).

Setup and Coordination Costs. ◊ Interestingly, setup and coordination costs have a limited impact on the bene-fit-cost ratio and the NPV.

Coverage. ◊ For the coverage ratio, we simulated a range of 60 to 95 percent. As expected, changes in interven-tion coverage have a major impact on both the bene-fit-cost ratio and NPV.

Efficacy. ◊ Predicting precisely how effectively the bundle of interventions that have been analyzed can avert DALYs due to undernutrition is difficult. The Lancet study used here, as well as other academic sources, in-dicate a range of efficacy numbers. To account for these variations, we used a broad range of 50 to 70 per-cent. Also, efficacy depends heavily on the quality of program design and implementation. Since impact ris-es sharply with each additional percentage point of ef-ficacy, the importance of proper program design and quality management becomes very explicit as well as quantifiable.

Methodological parameters include the following:

Economic Value of a Life Year. ◊ The factor chosen in as-signing a monetary value to DALYs averted has a sig-nificant impact on both the benefit-cost ratio and NPV. The lowest monetization factor of $1,000 reduces the benefit-cost ratio by 25 and the NPV by $3.1 billion,

592,000

Total DALYsper year ofall childrenunder five

195,000

DALYs per year due to

undernutrition

156,000

DALYs peryear targetedby REACH

93,600

Potentiallyaverted DALYs

per year

33%

DALYs due toundernutrition

Targetcoverage

Efficacy1

80%

60%

Exhibit 13. REACH Could Avert Approximately 94,000 DALYs Annually in Mauritania

Sources: REACH; BCG analysis.1Efficacy of interventions based on the Lancet 2008 Series on Maternal and Child Undernutrition.


0.22.3

Parameter

DALYs due to undernutrition (%) Annual cost of general intervention per child ($)Annual cost of complementary (blanket) feeding per child ($)Annual cost of acute supplementary feeding per child ($)Annual cost of acute therapeutic feeding per child ($)One-time setup costs ($millions)Coordination costs ($millions)Coverage ratio (%)

Efficacy (%)

Economic value of a life year ($)Discount rate (%)

Worstcase

30

20

90

150

314

1.50.760

50

1,0006.0

Basecase

33

11

63

133

197

1.00.580

60

5,0003.0

Bestcase

35

7

40

50

180

0.50.395

70

9,8160.0

Results aer changes in individual parameters

Worst case Best case

NPV ($billions)Benefit-cost ratio

3.730.9

13.4148.5

3.7

3.7

3.7

3.8

3.4 4.0

3.83.7

3.73.7

3.73.73.73.7

4.52.8

4.43.1

7.50.64.53.1

28.2

23.0

30.2

29.6

28.0

30.930.523.2

25.8

6.230.9

32.9

35.7

31.6

39.5

31.4

30.931.436.7

36.1

60.730.9

3.730.9 30.9

Base case

Benefit-cost ratio NPV ($billions)

Benefit-costratio

Countryand

projectparameters

Methodologicalparameters

Exhibit 15. Sensitivity Analysis Points to the Key Drivers of Success

Sources: REACH; World Health Organization; BCG analysis.

Annual benefits ($millions)

◊ The base-case monetization factor of $5,000 yields approximately $500 million in annual benefits

◊ Benefits almost double to $918 million per year when the average global GNI per capita ($9,816) is used

◊ The lowest monetization factor used ($1,000) still yields $94 million in annual benefits

Benefit-cost ratio NPV ($billions)

500 1,000

94

468

918

0

61

31

6

0 20 40 60 80 0 2 4 6 8

0.6

3.7

7.5

Results remain positive, even with different monetary values assigned to DALYs averted

1 $1,000 $5,000 $9,816Monetization factor 2 3

1

2

3

1

2

3

1

2

3

◊ 31 is a very positive benefit-cost ratio in the base case◊ A benefit-cost ratio of 6 is still high for a comprehensive undernutrition project and aligns well with Copenhagen Consensus findings

◊ NPV varies according to the monetization factor, with the spread amplified by the ten-year duration of the project◊ Calculated NPV ranges between $649 million and $7.5 billion

Exhibit 14. The REACH Program Has a Very High Payoff



whereas the highest factor of $9,816 increases the ben-efit-cost ratio by 30 and NPV by $3.8 billion. This is, however, a methodological parameter with little signif-icance for beneficiaries, project design, and implemen-tation. As long as the same monetization factor and dis-count rates are used, relative comparisons between projects are valid. At the same time, it is important to note that the REACH case examined here would have a positive return even in the most conservative scenarios using the lowest monetization factor.

Discount Rate. ◊ The U.S. Panel on Cost-Effectiveness in Health and Medicine has recommended that health-related economic analyses use a 3 percent real discount rate to adjust both costs and health outcomes, but that analysts should also examine the sensitivity of the results to the discount rate. The 1990 Global Bur-den of Disease study, updates published in recent WHO reports, and the Disease Control Priorities Project have all used 3 percent as the discount rate. The rate used has no impact on the benefit-cost ratio but does have an impact on the NPV. We used a discount rate range of 0 to 6 percent for the sensitivity analysis.

Beyond modeling the sensitivities of individual parame-ters, it is also helpful to consider an overall worst-case scenario. Even when the most conservative estimates are applied across all parameters simultaneously, the invest-ment case remains positive, with a benefit-cost ratio of 2.3 and an NPV of $200 million.

More Detailed Analyses. The Lancet series on child hun-ger and undernutrition provides more detailed informa-tion on the relative burden of malnourishment on chil-dren of different ages, and these can be used to assess the impact that specific REACH interventions could have. For example:

Ninety percent of benefits occur between birth and age ◊ three. During this time, children are especially vulner-able to undernutrition. Years four and five yield the remaining 10 percent of benefits. Therefore, when re-sources are scarce, focusing on children under three is more cost-effective.

Interventions vary in cost-effectiveness.◊ Benefit-cost ra-tios for individual interventions vary. In Mauritania,

for example, exclusive breastfeeding has a much high-er benefit-cost ratio than interventions such as house-hold water treatment. This information can help to pri-oritize or sequence actions when resources are limited.

Wider Benefits. The REACH approach analyzed here is likely to have significant effects beyond the reduction of undernutrition. These in-clude benefits related to health, education, and socioeconomic well-being. For in-stance, better nutrition reduces illness and therefore also public and private treat-ment costs. It also improves students’ cog-nition, reducing costly grade repetition and improving achievement. Moreover,

REACH improves women’s health through breastfeeding interventions and improves water quality for all house-hold members, not just malnourished children. These benefits are much more difficult to quantify but are worth considering qualitatively when evaluating the overall approach.

Conclusion. Quantifying the expected benefits and like-ly social impact of an intervention or program in ad-vance of programming provides for a more fact-based evaluation of investment decisions. The REACH case considered here appears to be a very high-yielding in-vestment opportunity, with a potential annual return of $468 million, an NPV of $3.7 billion over ten years, and an estimated benefit-cost ratio of 31. (See Exhibit 16.) In addition, the absolute annual returns are likely to be much higher once benefits that will accrue beyond the target beneficiaries are taken into account. These are likely to be significant as this multi-intervention program is intended for implementation on a national scale rath-er than being limited to a specific subgroup or region within a country.

Performing a sensitivity analysis is useful in assessing the robustness of the investment analysis and providing in-sights into the relative importance of the key variables. In the REACH example, modeling the investment case using conservative estimates shows that in all instances—in-cluding the worst-case scenario—the outcome remains positive. Analyzing the relative importance of the indi-vidual parameters highlights the key drivers of impact. For REACH, the fact that the key drivers are the interven-tion’s efficacy and coverage ratio underscores the impor-

Quantifying expected

benefits provides

for more fact-based

investment decisions.


tance not only of effective planning and solid implemen-tation but also of scale. It argues against low-coverage interventions and makes a compelling case for country-wide programs.

In this case, the sensitivity analysis also demonstrates that the setup investment and ongoing coordination costs have a limited influence on the overall benefit-cost ratio and NPV. Although these costs might seem high when

considered on their own, they are negligible relative to the overall impact potential. Analyses with this sort of outcome could encourage social investors to make the up-front investment required to finance similar large-scale programs. Yet such an analysis also highlights that critical parameters like the actual scale reached and the efficiency of intervention delivery must be closely moni-tored during implementation.

An investment of $15.1 million has the potential to save approximately 90,000 life years per annum

Annual investment:$15.1 million

◊ $15.1 million per year for a multi-intervention approach against undernutrition in children under the age of five

◊ This includes $0.5 million in annual coordination costs (an additional up- front investment of approximately $1 million for program setup is required)

Input Output Impact Value creation

◊ Approximately 450,000 children under five receive nutrition interventions per year (80 percent coverage)

◊ 40,000 moderately wasted, 13,000 severely wasted, and 13,000 children at risk of undernourishment receive targeted interventions per year

◊ 93,600 DALYs averted in children under five

◊ This includes 2,500 deaths averted in children under five

◊ $468 million in annual benefits

◊ NPV of $3.7 billion over ten years

Average annual costper child:

$34

Annual cost per DALYaverted:

$161

Benefit-cost ratio:31

Exhibit 16. REACH Mauritania Is a Very High-Yielding Intervention

Sources: REACH; BCG analysis.


T he pragmatic framework laid out in this re-port can help social-sector organizations make better investment choices and ensure that their resources are used more effective-ly to benefit those most in need. To support

the strategic allocation of resources, we suggest that these organizations take the following steps:

Implement a regular portfolio-review process to evalu-◊ ate the status of current projects and the value they are creating for the target beneficiaries

Commit the time, people, and analytical capabilities ◊ needed to analyze individual investment decisions sys-tematically

Create a systematic process for using information from ◊ postproject impact assessments to inform up-front de-cision making

Establish a process to link the findings of the ◊ preproject impact analysis with program design

Anchor this impact orientation within the organiza-◊ tion, and ensure that fact-based reviews are performed and that they inform all the investment decisions of top management

Share information on the intervention analysis and re-◊ sults with other players in the social-services field to enhance the global public good

Making a commitment to better investment decisions re-quires a systematic process and a commitment of resourc-es to manage it. The outcome, however, is well worth the effort—such a process can determine at an early stage the achievable social impact of programs that often take many years to implement.

Some Practical Implications for Social-Sector Organizations


Copenhagen Consensus 2008 Challenge Papers, http://www.copenhagenconsensus.com/Default.aspx?ID=1143.

Emerson, Jed, and Sheila Bonini. The Blended Value Map: Tracking the Intersects and Opportunities of Economic, Social and Environmental Value Creation, February 24, 2003, www.blendedvalue.org.

Gair, Cynthia. “A Report from the Good Ship SROI,” REDF, 2005, http://redf.org/publications-sroi.htm.

Jamison, Dean T., et al. Disease Control Priorities in Develop-ing Countries, The World Bank and Oxford University Press, 2006.

Jiminez, Emmanuel, and Harry Patrinos. “Can Cost-Ben-efit Analysis Guide Education Policy in Developing Coun-tries?” Policy Research Working Paper, no. 4568, The World Bank, 2008.

The Lancet Series on Maternal and Child Undernutrition, January 19, 2008, to February 2, 2008.

Lomborg, Bjørn. How to Spend $50 Billion to Make the World a Better Place, Cambridge University Press, 2006.

Psacharopoulus, George, et al. “Returns to Investment in Education: A Global Update,” Policy Research Working Paper, no. 1067, The World Bank, 1993.

Psacharopoulus, George, and Harry Patrinos. “Returns to Investment in Education: A Further Update,” Policy Re-search Working Paper, no. 2881, The World Bank, 2002.

World Health Organization, global burden of disease database (2002 DALY and mortality figures by country and cause), http://www.who.int/healthinfo/statistics/ bodgbddeathdalyestimates.xls.

World Health Organization, Global Health Atlas (figures on disease treatment and coverage by country), http://www.who.int/globalatlas/dataQuery/default.asp.

Bibliography


Note to the Reader

AcknowledgmentsMany thanks to our interview part-ners, who significantly contributed to the creation of this report: Juan Car-los Alegre (Save the Children United States), Nina Arnhold (The World Bank), Pernilla Bard (Carnegie Social Initiative), Alesha Black (Bill & Me-linda Gates Foundation), Monika Blössner (World Health Organiza-tion), Emily Bolton (REDF), Alonso Bustamante Guerra (Ignia), Caroline Cederlöf (Carnegie Social Initiative), Denise Costa Coitinho (REACH), Pål Dahle (Voxtra), Ian Darnton-Hill (Unicef), Jacob Harold (The William and Flora Hewlett Foundation), Lucy Heady (New Philanthropy Capital), Iona Joy (New Philanthropy Capital), Warren Lancaster (Geneva Global), Eilís Lawlor (New Economics Foun-dation), Anne Mills (London School of Hygiene & Tropical Medicine), Harry Patrinos (The World Bank), Annette Prüss-Üstün (World Health Organization), Carol Tappenden (South African Social Investment Ex-change), Sérgio Teixeira (REACH), Brian Trelstad (Acumen Fund), Ellen Wratten (U.K. Department for Inter-national Development), and Nick York (U.K. Department for Interna-tional Development).

We would also like to acknowledge the following members of the BCG team for their support in preparing and writing this report: Ina Astrup, Petter Eilertsen, Philipp Kolo, Nicolas Krauss, Victoria Lawrence, Kai Mon-heim, Mitja Müller, Javier Seara, Oyvind Torpp, and our colleagues in the BCG Social Impact Practice Net-work. Finally, we would like to thank Barry Adler, Gary Callahan, Angela DiBattista, and Gina Goldstein for contributions to its editing, design, and production.

For Further ContactFor further information about this report or to learn more about BCG’s social impact work, please send an e-mail to [email protected] or contact the authors.

Ulrich VillisBCG Munich+49 89 23 17 [email protected]

Pia HardyBCG Helsinki+358 9 8568 [email protected]

Thomas LewisBCG London+44 207 753 [email protected]

For a complete list of BCG publications and information about how to obtain copies, please visit our Web site at www.bcg.com/publications.

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