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Social ROI and the Philanthropy Brokerage

You have to define the needle in
order to move it. There’s more.
You have to define both
“where we are now” and also
“where we want the needle to be.”
The per-dollar movement of the
needle is called the Social Return
on Investment or sROI.

In today’s world of nonprofit work—with philanthropy and volunteering making it possible—NGOs need to make the self-interested case to donors that their cause is worthy, and that they are effective and trustworthy in implementing the work. NGOs find themselves in need of “tooting their own horn” by putting the best photos on their websites and making the best possible annual reports of their results. Though there do exist some third-party efforts to audit the efficiency of NGO use of donations versus their overhead, there’s no clear way to audit effectiveness. Measuring effectiveness requires a definition of the goal state the NGO is working toward, and this definition cannot be defined by the NGO alone, but by all the stakeholders. Furthermore, for large-scale, complex challenges, the measurement of the contribution of a single NGO in an uncoordinated pool of efforts would not lead to a meaningful measure.

Meanwhile, in the world of for-profit investing, there is:

  1. An industry whose purpose is to rate and present investment opportunities to customers, and
  2. Government regulation to ensure sufficient honesty and transparency that an efficient marketplace can exist, in the name of the public good, i.e., for facilitating economic growth, but also to prevent fraud committed against individual investors.

Being the realm of for-profit, this industry is financed by brokerage fees.

There doesn’t exist a similar, thriving industry for nonprofit work, and there is poor financial incentive for there to be one. How would a brokerage house for nonprofits benefit problem solving efforts by receiving a fee paid from the donations meant to fund the solutions? Donors would rather all of their donation go to the charity in need, and not partly to pay a middleman whose ability to provide a benefit for the add-on service is uncertain.

The solution in the proposal works by creating a measure of the social good for each dollar of input applied to solving the challenge. We call this the Social Return on Investment or sROI. Instead of being focused on the NGOs, the problem solvers, we propose to define the needle and where it needs to move, working with stakeholders to ensure an accurate, authentic, and native understanding of how the denizens and participants in that system see their future.

Philanthropists are looking to
donate wisely. Worthy non-profits
are looking for donors.
Challenges are looking for
effective solutions.
Team Earth wants to make sure
Challenges—for lack of clarity
and definition—are no longer
under-represented in this equation.

Such a nonprofit or philanthropic brokerage would not list in its portfolio each nonprofit separately with its social benefits; it is hard to quantify in terms of social good in isolation from the challenge they are helping solve. Instead, the portfolio is a listing of different superordinate goals and the description of the challenge, functional solutions, and the resources that have come to the table to participate. In this way, philanthropists can decide which challenges they wish to help support solving. In the listing of resource participants, a nonprofit organization can appear under more than one superordinate goal, as part of many different problem descriptions.

The participation of the NGO in a particular challenge solution is guaranteed by construction to be effective. And the operational efficiency can be more easily and clearly defined because the work to be done is better and more simply defined.

In previous blog posts, we’ve described a process that begins with the stakeholders and delivers a set of functional solutions:

  1. Facilitating the superordinate goal statement
  2. Categorizing and scrutinizing the hindrances to the superordinate goal
  3. Functional solutions

The contribution of each functional solution lends itself to an estimate of how much that solution contributes to moving the needle in the right direction. It is possible for stakeholders to estimate the proportional contribution, how much each leaf node contributes towards needle movement as an approximation.

The rating or assessment of an NGO can be done on a per-challenge or per-NGO basis. It is judged by an independent assessment and not by the NGO itself in the context of the given challenge and the known functional solutions. The progress of the functional solution implementation, multiplied by the contribution of that functional solution to the solution component of that leaf node, multiplied by the contribution of that leaf node to the overall movement of the needle forms the numerator of the sROI. The denominator is comprised of the funding used by the NGO or resource to implement its contribution to the solution. The overhead needed by the entity is included in this calculation to reach an overall, gross sROI. The efficient use of funds, i.e., the ratio of overhead to effectively deployed donation capital, can still be assessed separately.

In the same way that a financial brokerage offers different packages to meet the needs of different investors, the philanthropy brokerage that conceptualizes can offer different packages for social investment, categorized by

  • Challenge type
  • Challenge specifics
  • Resource type
  • Solution type
  • NGO
  • Geographical location
  • etc.

Unlike the application of a brokerage concept to a single or small handful of NGOs, in the concept, the large number of challenges and their corresponding solutions and resource providers makes it viable to enlist the paid help of a brokerage service. This would defray the cost of:

  • Carrying out the process to obtain a superordinate goal statement and problem description visualization.
  • Development of technology for coordination and visual communication.
  • Management and measurement and coordination of resource entities implementing functional solutions.
  • Providing a single point contact for the solution efforts.
  • Single point of reliable and trustworthy information on the project and measurement of the current needle and maintenance of the goal.
  • Public relations and necessary communication for non participants for the good of the solution efforts.
  • Communication among participants.
  • Hiring HR and staff to carry out these functions.
  • Research into improving methodology between different challenge solutions.

The donor or philanthropist benefits from a reliable and trustworthy point of contact where they can obtain independent assessment of what is working. They no longer have to rely on self-reporting, e.g., on each NGO’s website.

For the NGO, it gives an opportunity to come into contact with donors, as the brokerage becomes a main funnel for qualified donors and philanthropists. The public relations work is done for the challenge, not for the NGO, but the participation of the NGO is a part of that public relations work, and a rating of that NGO’s work is included—their sROI with respect to that challenge.

This sets up a system of incentives:

  • NGOs align themselves to what is needed to move the needle based on a broader, more reliable definition of what needs to be done, a definition that is achieved through active participation of the stakeholders. Instead of saying, “We’re doing X because X is what we do best,” the NGO can now say, “We’re doing X because the problem description called for X as a functional solution that was needed to move the needle in the right direction.”
  • The NGOs want to increase their sROI to attract more funding now that their sROI, which includes the effective and efficient use of money to move the needle, is presented plainly and transparently and without risk of bias.
  • Philanthropists have the incentive to seek out brokerages to help them find the best way to make a difference with their contributions—how most effectively to move the needle in the right direction.

Philanthropy Brokerage Benefits

  • If you have a reliable measure of sROI, you can catalog and present these efforts as social investments or challenge-solving investments just as you would a financial investment.
  • You can offer donors and philanthropists different portfolios to invest in.
  • You can specify what the historical sROI has been as a number, and can thus easily present past performance.
  • You can tailor investment based on risk, e.g., high-risk investment for new efforts, and low risk for challenges with a proven track record of moving the needle.

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