Impact analysis is critical to being able to make good investment decisions. The analysis is considerably enhanced when backed up by an explicit methodology that adopts standard, objective processes where possible, and produces evaluative results.
The details of any particular methodology, including its scope and emphasis, will be determined by the individual investor, and will reflect that investor’s aims and strategy. However the key areas for attention when devising a methodology, and performing analysis, are a systematic attention to the impact plan, an assessment of impact risk and impact generation, and due attention to process.
Work through the organisation’s impact plan. It is an integral part of the business plan, and must be conceived and articulated by the organisation as fully as any financial projections.
Impact risk is a measure of the certainty that an organisation will deliver on its proposed impact (as detailed in the impact plan). The question implied is: How sure is the impact plan to work, and what is the risk that the impact won’t be generated? Assessment focuses on:
- 2.2.1 Explicit
Is the impact plan explicit in all particulars?
- 2.2.2 Reasoned
Does the impact plan present a compelling and well-reasoned theory of change?
- 2.2.4 Integral
Is the generation of impact integral to the organisation’s business and operations?
- 2.2.4 Feasible
Is the impact plan feasible?
- 2.2.5 Evidenced
Is there evidence to support the impact plan’s approach to impact generation?
- 2.2.6 Evidenceable
Will the impact be evidenced by carrying out the impact plan?
Impact generation addresses the potential for real change that the organisation and the investment opportunity together present. Essentially: if the investment is made and the impact plan proves to be successful, how much impact stands to be generated as a result?
2.3.1 Direct Impact on Beneficiaries
Assessment balances consideration of:
- Vulnerability of Beneficiaries: How vulnerable or excluded are the beneficiaries, and how great is their need?
- Change Achieved for Beneficiaries: What does the impact mean for beneficiaries, and how great is the change effected thereby?
- Scale and Capital Intensiveness: How widely are the organisation’s activities, outputs and outcomes being rolled out, and what is the unit cost?
2.3.2 Wider Impact on the Community, the Sector and Society at Large
- Wider Economic Impacts: What is the contribution to the local and national economy?
- Wider Knowledge Impacts: What is the contribution to the wider understanding and awareness of the problem, and of how to solve it?
- Internal Impact of Operations: What is the incidental internal impact of the operations of the organisation?
2.3.3 Investor Impact
- Scale of Investment: What is the scale of the investment (relative to the project or organisation)?
- Growth and Strength of the Organisation: Does the investment grow the organisation and its impact, and strengthen its financial position?
- Access to Other and Further Capital: Is capital available to the organisation from other sources? Is investment capital new to the organisation? Is the investment leveraging in further capital?
- Expertise and Networks: Does the investor offer valuable expertise on financial and impact issues, and access to relevant networks?
Ensure analysis is well-managed, and that a designated “Head of Impact” is responsible for overseeing the process and results. Management includes attention to:
- 2.4.1 Transparency
Is there transparency toward investees regarding the analysis? Do investees know: what to expect; how and on what grounds they will be analysed; and how the process can be of use to them?
- 2.4.2 Quality Control
Are there procedures in place to review and improve the consistency of results? Is the system itself subject to regular review?