What does valuing social or environmental outcomes mean?
Outcome valuation refers to an activity that intends to understand the value an intervention brings to the stakeholders affected by it. This means moving beyond measuring outputs (like how many people engaged with the intervention) and beyond measuring the breadth of an outcome (i.e., how many people are experiencing a change after engaging with the intervention). Valuation means better understanding the depth and quality of the change you are generating to stakeholders.
Understanding the value of your products or service to those directly or indirectly affected by them yields many insights for design, marketing and communication purposes.
The 3 benefits of outcome valuation
Any organisation looking to maximise their positive impact on stakeholders can gain benefits from outcome valuation in 3 key ways:
- Allocate resources to what truly matters: Insights gained from valuation help you make operational, tactical and strategic decisions on what products and services should be scaled, changed, or removed. If a certain feature of your intervention has a lower value to stakeholders than another, you should think twice about its importance. At the end of the day, valuation should help you put more time and energy into what matters most to your stakeholders, and less time into what they care less about.
- Create stronger ties with your stakeholders: By asking stakeholders for their opinions, you express care and empathy for them. Furthermore, by acting on these insights, you are showing them that their experience is important to you, which helps to create brand affinity and potentially brand loyalty, as well as generate support further down the road (i.e., to run pilots or find ambassadors).
- Improve your communication by segmenting better: valuing outcomes helps you better segment your audience by identifying differences in the value of your intervention for distinct audience groups. If you discover that certain people value outcome A over B while another group values B over A, you will likely be in the presence of two distinct segments with different wants and needs. Your service, interaction, and communication with these two segments can then be tailored to improve their experience.
Is monetising a must?
A valuation of a social or environmental outcome can be expressed in a million different ways. You could use a scale of 1-to-10 or 100, a set of smileys or even a clapometer. There are virtually no limits to how you can express the value of an outcome. So monetising outcomes is certainly not a must.
But what needs to be remembered is that we aim to value social or environmental outcomes in a way that helps us better communicate with others to inform better decisions. Outcomes expressed in monetary terms have proven to effectively communicate value to others and nudge better decisions. Think about it: it is probably easier to see the difference in value between €100 and €1,000,000 (huge difference) than between a score of 60 and 80 on a scale of 100 points.
So monetisation is not about putting a price tag on critical societal outcomes but rather expressing them in a way that helps better appreciate their significance, compare them and take better decisions.
Valuation is not “knowing the price of everything and the value of nothing” (to paraphrase Oscar Wilde)
Approaches to valuation
There are three main monetary valuation approaches: cost-based, revealed preferences, and stated preferences.
- A cost-based approach takes into account the monetary saving a stakeholder incurs as a result of experiencing a change. For instance, how many antidepressants were avoided thanks to an activity that increased people’s well-being at work or at home? The value of the antidepressants that were not consumed can serve as a proxy for how valuable the outcome of the activity is.
- Revealed preferences look for ways to approximate the value by looking at side effects, for when directly asking the stakeholders proves to be difficult. For example, consider an organisation that focuses on installing good insulation in houses located in vulnerable communities. A cost-based approach could look into how much households save on their energy bills. A revealed preference approach could look at the difference between the market price of an insulated home versus an identical uninsulated home. The likely increase in home value (in the insulated home) can serve as a proxy point to estimate the value of the intervention.
- Stated preferences – This is when stakeholders are asked to benchmark the value of the social or environmental outcome compared to tangible things that can be valued or monetised. For instance, by questioning the stakeholder what they value most between (1) the stress level reduction resulting from having participated in a program versus (2) spending a week at a five-star hotel in a location of their choice. This approach could be repeated using other alternatives until one wins over the social effect. This approach gives you a good proxy for how valuable the outcome is to your stakeholders.
The value lies in the eye of the Beholder, as the saying goes. Hence outcome valuation is most accurate when based on direct interviews with those who experience the changes your organisation is having on them.
Want to discover how to apply valuation in your own work?
If you are interested in learning more about outcome valuation and impact measurement, check out Efiko Academy’s training Impact Measurement: Applying the Principles of Social Value and SROI.
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Applying the Principles of Social Value and SROI
Interesting read. Like the way examples are used to explain about the valuation.