how and why to make a "return on investment" case june 2016

How and Why to Make a “Return on

Investment” Case

LEE HUANG

ECONSULT SOLUTIONS, INC.

JUNE 30, 2016

1

Then

NOT-FOR-PROFIT

SECTOR

PUBLIC

SECTOR

FOR-PROFIT

SECTOR

2

Now

NOT-FOR-PROFIT SE

CTOR

ENVIRONMENTAL SUSTAINABILITY

ECONOMIC DEVELOPMENT

SOCIAL CHANGE

RETURN ON INVESTMENT

FOR-PROFIT SE

CTORPUBLIC SE

CTOR

3

Then

DONORS WITH RESOURCES

4

NOT-FOR-PROFIT

ORGANIZATIONS

INDIVIDUALS/

HOUSEHOLDS/

COMMUNITIES

IN NEED

Now

REGIONAL

ECONOMIES

INDIVIDUALS/

HOUSEHOLDS/

COMMUNITIES IN

NEED

SOCIAL

JUSTICE

FOR ALL

ENVIRONMENTAL

SUSTAINABILITY

LOCAL

TAX BASES

5

NOT-FOR-PROFIT

ORGANIZATIONS

INVESTORS

SEEKING

SOCIAL RETURN

DONOR GIVES $

NON-RUNS

PROGRAMS

PEOPLE ARE

SERVED

Now

6

Then

7

NOT-FOR-PROFIT

ORGANIZATIONS

DONOR GIVES $

NON-RUNS

PROGRAMS

PEOPLE ARE

SERVED

PEOPLE ARE

CHANGED

SOCIETY AS A WHOLE BENEFITS

THEORY OF CHANGE

RETURN ON INVESTMENT

Why

8

Reconciles the Conversation

Increases the Universe of Beneficiaries

Convinces Those Who Think This Way

Provides Cover to Those Already on Board

Funder’s Perspective

9

I’m Trying to Maximize Impact

I Have Choices…Why Are You the Best Choice?

Return vs. Investment

10

Upfront and/or Ongoing

Outlay

• Direct economic activity and

jobs

• Spillover impacts

• Broader tax base

• Reduced social service cost

• Better (and quantifiable)

quality of life outcomes

Gains to Society

Example: Health Interventions

11

• “An ounce of prevention is worth a pound of cure”

• Substandard living conditions create costly negative health outcomes

• Philadelphia Department of Health and St. Christopher’s Hospital Pilot: removing asthma triggers from old houses at $3,500 per house = 70% reduction in hospitalization, 50% reduction in school absences

Rowhouse on Wallace Street in Mantua. (Courtesy Ian Freimuth/Flickr)Courtesy Jukie Bot/Flickr

Example: Early Education

12

• “Every dollar invested in early interventions rewards $8 over the life of a child”

• Mathematically equivalent to a 4% annual ROI

• Derived from reduced social service costs, increased energy potential

Example: Cultivating the Arts

13

• Direct Economic Activity: $700K budget produces $2M in statewide impact

• Tourism Implications: 30K attendees produce $425K in direct spending

• Feeding the Creative Economy: resident/business attraction and culture ecosystem

• Educational/Health/Wellness Enhancements: youth offerings create cultural capital

Mainstage Center for the Arts performance of Little Shop of Horrors, October 2015

Example: Preservation of Open Space

14

• Direct Economic Activity: $500M annual impact supporting 6,000 jobs

• Property Value Impact: $16.3B accumulated gain to homeowners

• Ecological Services Rendered: $133M in cleaner air/water, flood mitigation, and carbon sequestration

• Direct Use Value + Health Care Cost Implications: $577M in recreational benefits, $1.3B in health-related savings

15

NOT-FOR-PROFIT

ORGANIZATIONS

200-RM HOTEL w/70% OCCUP =

51,000 RM NIGHTS / YR

$5,000 TO TRAIN 100

HOTEL EMPLOYEES

EMPLOYEES HAVE BETTER

CUSTOMER INTERACTIONS

HAPPY CUSTOMERS

RETURN AND/OR TELL

THEIR FRIENDS

TRAINING PAYS FOR ITSELF IF

+50 RM NIGHTS (= 0.1% GAIN)

THEORY OF CHANGE

RETURN ON INVESTMENT

Example: Customer Service Training

Limitations and Caveats

16

Keep Your Eye on the Real Ball

Harder to Measure Less Important

Comparing Others’ Results Which Are Not as Rigorous

Investment by Whom vs. Return to Whom

Questions?

17

Lee Huang, Senior Vice President and Principal

Econsult Solutions Inc.

1435 Walnut Street 4th Floor, Philadelphia PA 19102

PHONE 215.717.2777 EMAIL huang@econsultsolutions.com

URL www.econsultsolutions.com TWITTER @econsultsolutns