User:Sascha.murillo/Cost per Impact

Cost per Impact

Definition
Cost per impact is a measure that provides philanthropists with an idea of the cost to achieve a particular desired social outcome. This “back of the envelope” estimate is critical to the concept of high impact philanthropy in that it helps a donor make decisions based on an empirical definition of success for a given objective. Compared to other evaluation tools that are input-focused, cost per impact looks particularly at outcomes in order to give a meaningful sense of what it costs to effect positive change in a given program area.

Calculation
To consider how much change realistically costs, cost per impact calculations are based on a program’s estimated costs as well as empirical results from past implementations. The philanthropic capital necessary to achieve a particular outcome is divided by the incremental impact expected. For example, if a philanthropist is looking to invest in a non-profit organization whose mission is to improve high school graduation rates, the cost per impact ratio would take into consideration the costs to the non-profit service provider (i.e., direct costs including salaries, supplies, evaluation); the number of students involved in the program; and the number of students changed by the program (i.e., graduated from high school on schedule).

Uses
The cost per impact tool is intended to be a starting point for philanthropists as they evaluate what social issue matters most to them, how particular challenges – e.g., teacher quality, malaria, hunger – are being addressed, and which models are particularly effective and cost-effective in realizing a positive impact. The measure is rarely the sole determining factor in a philanthropist’s decision-making. Other factors might include the compatibility between the donor and the service provider as well as a donor’s personal interests: one philanthropist may feel particularly committed to early childhood education while another may be interested in adolescent development.

Origins
The concept of cost per impact was developed by the Center for High Impact Philanthropy, housed in the School of Social Policy & Practice at the University of Pennsylvania. The Center was founded in 2006 by alumni of the Wharton School at the University of Pennsylvania “who were frustrated by the difficulty of measuring and maximizing the impact of their charitable gifts.” To determine where philanthropic dollars can be invested to yield the greatest social return, analysts at the Center approach the topic areas of urban education, global public health, and international economic development by asking first what the major challenges/risks are in that area and then determining what models have been particularly successful in addressing needs. They then look at specific organizations and programs as examples to develop an understanding of the essential components to the model, what it costs to deliver those services to the community, and what outcomes can be expected. These factors inform the cost per impact figure.

Benefits
Cost per impact provides a relatively simple-to-calculate estimate of what it costs to achieve a desired social outcome. This measurement can be applied within various different sectors and contexts, requires minimal data collection by nonprofits, and can be easily understood by philanthropists.

Limitations
Cost per impact focuses on one primary impact which, according to Katherina Rosqueta, Executive Director of the Center for High Impact Philanthropy, “…limits comparability to those programs or activities that have set out to achieve the same primary goal” and also “…means that important secondary or related impacts are not captured.” Within the social sector, it can be difficult to achieve uniformity in measurements – including cost per impact – in part because of a lack of common measures across sectors and also because of limited data on impact, outcome, and cost collected by nonprofit organizations.