Impact investments surpassed $502 billion in 2018 while philanthropic giving is conservatively estimated at $485 billion, adding up to about a trillion dollars in impact. But the dollars are easier to budget than the impact. Post-facto studies and longitudinal data collection methods are too costly and belated to provide investors with data they need to compare investments and allocate funds to maximize social returns. Upfront analysis is necessary not just to evaluate whether something is a good investment, but—often more critically—whether it’s a better investment than something else. In the absence of timely assessments, investors often rely on the “bad science” of simply counting outputs (the number of lives impacted or solar panels installed) and assuming a correlation between outputs and impact.

Enter the burgeoning field of predictive impact analysis. At Thoughts in Gear, we began exploring the possibilities when a private investor challenged us to measure what impact installing a solar-powered refrigerator for vaccines in a health center would have on the surrounding community. We discovered that it could be done: The social value of the vaccines that passed through each unit could be determined by using current public health research to calculate the potential illness and mortality—and the associated costs—and focusing on a specific geography where we had direct health center data. Through a series of iterations, we created a model that associated each action with an indicator and assigned a value (cost in $ PPP) to that indicator based on global health research. With the summary of those costs, we quantified most of the social costs averted by the expected vaccine doses stored in each cold chain unit.

This discovery has fundamentally changed how we think about impact measurement. Instead of relying on measurement to prove the value of a past investment, determining the value of an intervention before it starts allows investors to consider social value as part of the total cost of ownership (TCO), making it possible for decision-makers to factor in social impact alongside calculations of financial value. What we hadn’t expected was that this decision-making benefit would also help Ministries of Health to advocate for their public health systems. Capturing the social value helped make a clear case for investment in immunization programs and infrastructure: When pitching both internally or to international funders, governments could show the future cost savings that dwarfed the cost of immunization interventions. Recognizing how powerful this was, we have gone on to predict impact in sectors beyond health, including how English-language education can increase lifetime earnings for underserved students and how replacing kerosene with solar energy sources can reduce public costs.

Read the rest of the article at Stanford Social Innovation Review