Measuring Social Value 
By Geoff Mulgan
 
 
 

Stanford Social Innovation Review 
Summer 2010
 
 
Copyright © 2010 by Leland Stanford Jr. University 
All Rights Reserved 
 

Stanford Social Innovation Review

Email: [email protected], www.ssireview.org
 Measuring
S ocial
Over the last few decades, metrics in a variety of roles:
many people have attempted as director of policy and
to measure what is sometimes strategy under United King-
called social, public, or civic dom Prime Minister Tony

Value
value—that is, the value that Blair; as director of the Young
nongovernmental organiza- Foundation, an NGO that
tions (NGOs), social enter- has created dozens of ven-
prises, social ventures, and tures, some for-profit, some
social programs create.1 The social enterprises, and some
demand for these metrics has public; and as an advisor to
come from all sectors: Foun- many other governments. In
dations want to direct their these positions, I’ve seen not
Funders, nonprofit
grants to the most effective only why social value metrics
executives, and policy- programs; public officials, poli- are ignored, but also how to
makers are very cymakers, and government make them more useful.
enthusiastic about budget offices have to account One recent project that
measuring social for their spending decisions; proved particularly informa-
investors want hard data anal- tive was a collaboration be-
value. Alas, they can-
ogous to measures of profit; tween the United Kingdom’s
not agree on what it and nonprofits need to demon- National Health Service
is, let alone how to strate their impact to funders, (NHS) and the Young Foun-
assess it. Their main partners, and beneficiaries. dation. The NHS commis-
obstacle is assuming Metrics to meet these needs sioned the Young Foundation
have proliferated over the last to develop a practical tool
that social value is
40 years, resulting in hundreds for assessing service innova-
objective, fixed, and of competing methods for cal- tions and guiding investment
stable. When people culating social value.2 decisions. The NHS is a vast
approach social value Despite the enthusiasm for organization with a budget of
as subjective, mallea- metrics, few people actually around $150 billion, a work-
use them to guide decisions. force of some 1.2 million em-
ble, and variable, they
In the nonprofit sector, good ployees, and contracts with
create better metrics managers are very rigorous more than 30,000 social en-
to capture it. about tracking costs and in- terprises. It needed a set of
By Geoff Mulgan | Illustration by Luke Best come. But few use sophisti- tools that would be both
cated metrics to help allocate
resources. Meanwhile, in the
public sector, political judg-
ment counts more than cost-
benefit assessments. In the
rare cases when decision mak-
ers do use metrics of social
value, it’s far from clear that
they should.
I’ve dealt with social value

38 Stanford Social Innovation Review • Summer 2010

Summer 2010 • Stanford Social Innovation Review 39
 robust and flexible, and that could be used for decision making as can’t be. Finally I recommend better ways to make social value met-
well as evaluation. rics. My main advice is that nonprofits and foundations should resist
We started by scanning existing social value metrics, such as the the current trend of developing assessment tools entirely separately
ones described in the table “10 Ways to Measure Social Value” on from public policy and academic social science, and instead should
page 41. We found hundreds of competing tools, of which founda- collaborate across sectors.
tions and NGOs generally use one set, governments another, and
academics yet another. In addition to discovering this segmentation, Elusive Quarry
our survey suggested two more reasons why so few metrics guide The failure of the social and public sectors to measure the value
real decisions. First, most metrics assume that value is objective, they create does not stem from a paucity of intelligence or good
and therefore discoverable through analysis. Yet as most modern intention. Rather, it reflects four unavoidable complexities that
economists now agree, value is not an objective fact. Instead, value bedevil the measurement of social value. First among these is the
emerges from the interaction of supply and demand, and ultimately lack of hard-and-fast laws and regularities in the social field. Many
reflects what people or organizations are willing to pay. Because so people would love the social field to be more like natural science,
few of the tools reflect this, they are inevitably misaligned with an so that they could definitely predict the effects of, say, a $10 million
organization’s strategic and operational priorities. investment in a crime prevention program.
The second reason that current measures of social value fail to But unlike molecules, which follow the rules of physics rather
influence decision makers is that they conflate three very different obediently, human beings have minds of their own, and are sub-
ject to many social, psychological, and environmental forces. Sev-
eral decades of involvement in evidence-based policymaking has
measuring social shown me that although evidence should inform all action, very
value is hard because few domains allow precise predictions about what causes will lead
in many of the impor- to what effects. The social sciences (including business) simply do
tant fields of social not have laws in the way that physics has. Even seemingly solid eco-
nomic principles, such as the rule that demand falls when prices rise,
action, people do not have many exceptions.
agree about what the A second reason that measuring social value is hard is that, in
outcome should be. many of the most important fields of social action—such as crime
prevention, childcare, and schooling—people do not agree about
what the desired outcome should be. In other words, the public
roles: accounting to external stakeholders, managing internal op- argues not only about social value, but also about social values. For
erations, and assessing societal impact. In the business sector, deci- example, many people want to imprison criminals to punish them,
sion makers use different tools for each of these tasks. An airplane even when incarceration costs more and confers fewer benefits than
manufacturer, for instance, would use one set of metrics, mandated do alternatives to prison. Psychologists call this willingness to sac-
by laws and regulations, to explain to external stakeholders how it rifice a lot to penalize others altruistic punishment.
spends its money. The company would then use a second set of met- Because people’s ethics, morals, and priorities vary, social value
rics to allocate resources in the building of airplanes. (It is a brave assessments that look only at costs and benefits are bound not to
manager who would let investors see these internal accounts.) The influence many members of the public and the politicians who
company would then use entirely different kinds of measures to represent them. Philosophers (from John Dewey to Luc Boltanski)
explain how its activities affect larger economic indicators such as have long recognized that societies are made up of competing and
gross domestic product. conflicting systems of valuation and justification. But measurers of
Yet in the social and public sectors, some proponents of new social value have often tried to deny this.
social value measures claim that their metric can play all three Even without these problems, many social value metrics are in-
roles. Not surprisingly, and despite courageous efforts, these at- herently unreliable. Measurements of social return on investment
tempts to do three things at once have resulted in the failure to (SROI), for example, often quite arbitrarily estimate costs and pay-
do any one of them well. backs, which dramatically affects the final calculated value. SROI
Here, I describe a better way to think about social value: the calculations can help in broad-stroke predictions, but they can’t
product of the dynamic interaction between supply and demand in help with finer-grained decisions.
the evolution of markets for social value. I then show how decision Revealed preference and stated preference methods are also no-
makers in the nonprofit and public sectors can use these insights to toriously unreliable. Although they try to provide precise numbers,
measure what can be measured without pretending to measure what they are not very rigorous about the means of deriving these numbers.
Geoff Mulga n is director of the Young Foundation; a visiting professor at the
As a result, these methods confuse rigor with precision—a point that
London School of Economics, University College London, and the University of REDF and others in the SROI field increasingly recognize.
Melbourne; and chair of the Carnegie Inquiry into the Future of Civil Society in A final reason that measuring social value is difficult is the problem
the United Kingdom and Ireland. He was previously director of the U.K. govern-
ment strategy unit, and head of policy for Prime Minister Tony Blair. His most re- of time—estimating how much good an action will bring about many
cent book is The Art of Public Strategy, published by Oxford University Press (2009). years in the future, relative to how much it will cost to implement

40 Stanford Social Innovation Review • Summer 2010

10 Ways to Measure Social Value
Method Description Example Problems

Cost-Benefit Analysis/ The most widely used family of tools; counts A recent study in the United Kingdom found that using Disagreements about the actual numbers
Cost-Effectiveness Analysis up costs and benefits (usually using some a mix of drug treatment, surveillance, and behavioral and weightings in the calculation, as well
of the methods described below), and then interventions instead of prison saved taxpayers up to as the conclusions of the analysis.
applies discount rates. Often used for large $130,000 per offender (and up to $300,000 if savings
public programs. to victims were included).1
Stated Preferences Asks people what they would pay for a A typical example would ask people what they might pay Stated preferences often do not correlate
service or outcome. to preserve an endangered species or to build a park. with actual behaviors.

Revealed Preferences Examines the choices that people have A researcher analyzes house-buying patterns and real es- Few fields have enough usable data.
actually made to infer the relative worth of tate prices to infer how much people value public parks.
different options.

Social Impact Assessment/Social Estimates the direct costs of an action, There are literally hundreds of tools of this kind, in- Disagreements about numbers, weightings,
Return on Investment Assessment the probability of it working, and the likely cluding Acumen Fund’s Best Available Charitable and conclusions; values; how to handle time
change in future outcomes, sometimes with Option Ratio methodology, Jed Emerson’s blended and discount rates; and intended audience
discount rates. value methods; and various Center for High Impact of the calculation.
Philanthropy methods.

Public Value Assessment 2 Judges how much the public values a The British Broadcasting Corporation assessed its pub- Not rigorous enough.
service. lic value.

Value-Added Assessment In education, assesses how much a school Recent uses often show that apparently successful Sometimes too complex for parents or the
adds to the quality of its pupils. schools are actually good at attracting clever pupils. media to understand.
Quality-Adjusted Life Years/Disabil- In health care policy and research, accounts Widely used set of measures. Provides a common way Can be controversial when a particular
ity-Adjusted Life Years Assessment for patients’ objective health and patients’ to judge the relative effectiveness of clinical treatments treatment is not cost-effective.
subjective experiences. and public health measures.
Life Satisfaction Assessment Judges social projects and programs by An imaginative study in Wales showed that modest in- New approach that remains unproven;
how much extra income people would vestments in home safety, which cost about 3 percent highly sensitive to input assumptions.
need to achieve an equivalent gain in life as much as home repairs, generated four times more
satisfaction. life satisfaction. 3
Government Accounting Measures In government, accounts for government France’s bilan sociétal is a set of 100 indicators show- Much variability across regions; disagree-
spending and its effects. ing how enterprises affect society. Italy has a similar ments about which indicators to include.
bilancio sociale.
Other field-specific assessments Every field has its own cluster of metrics. A recent Young Foundation study identified nearly 30 Diversity of these measures means that they
measures of value in the built environment, includ- are little used for public decision making.
ing artificial neural networks, hedonic price models,
fuzzy logic, autoregressive integrated moving averages
methods, and triple bottom line property appraisals.4
1 “The Economic Case for and Against Prison,” London: Matrix Knowledge Group, 2007. 3 Paul H. Dolan and Robert M. Metcalfe, “The Impact of Subjective Wellbeing on Local Authority Inter-
2 See also Mark Moore, Creating Public Value: Strategic Management in Government, ventions,” unpublished manuscript, 2008. The OECD’s Beyond GDP program has also collected a huge
Cambridge, Mass.: Harvard University Press, 1995. range of work on the measurement of well-being and societal progress.
4 “Value Maps Literature Survey,” Young Foundation and CABE, 2006 (available on youngfoundation.org).

it now. In predictions of commercial returns on investment (ROI), generations should not be disadvantaged relative to older ones.
businesspeople use discount rates to account for the assumption that Governments ignore discount rates when investing in education
a given amount of money will be worth less in the future than it is and defense technologies. And in climate change policy, a furious
in the present. With a 5 percent discount rate, for example, $100 of debate has raged about what discount rates to apply—again in part
today’s money will be worth only $35.85 in 30 years, and only $7.69 in a moral argument about how to weigh the needs of future genera-
50 years. Many current measures of social value, such as SROI, like- tions against the needs of current ones. These examples reflect
wise use commercial discount rates—perhaps because of a mistaken my broader point: Social value is not an objective fact. Instead, it
belief that treating social discount rates as equal to commercial ones emerges from the interaction of supply and demand, and therefore
will make social value metrics seem more rigorous. may change across time, people, places, and situations.
But it’s not clear why social organizations and governments
should use commercial discount rates, especially as these rates Constructing Value
radically devalue the future. Indeed, we should hope that the peo- Borrowing practices from business and economics has led to many
ple in these organizations give greater weight to the interests of mistakes in the measurement of social value. Yet these fields still
future generations than do commercial markets. A closer analysis offer some important lessons for the field of social innovation.
of discount rates suggests that they do.3 In health, many countries For much of human history, philosophers and economists be-
apply a very low or zero discount rate, on the grounds that younger lieved that value was an objective fact. Aristotle thought that there

Summer 2010 • Stanford Social Innovation Review 41

was a “just price” for everything, for instance. And Karl Marx thought Healthy Numbers
that value came from labor. All of these points have become particularly clear in our work for the
But more recently, most economists have accepted that the only NHS, which is involved in everything from routine checkups, to sur-
meaningful concept of value is that it arises from the interaction of geries, to behavior-change interventions, to community programs.
demand and supply in markets. In other words, something is valuable The advantage of a single, integrated health service like the NHS is
only if someone is willing to pay for it. This blunt approach upsets many that it has to be explicit about its demands, that is, what it needs and
people because it implies that there may be no economic value in a beau- what it is willing to pay for. The NHS’s effective supply side is also
tiful sunset, an endangered species, or a wonderful work of art. But this reasonably easy to define, and it includes doctors, nurses, managers,
definition of value is useful because it forces economists to observe real social enterprises, private providers, and members of the public.
behavior, rather than trying to uncover hidden realities. To help the NHS make better decisions and allocate its resources
The time is ripe for the social field to take an equally simple start- more effectively, we at the Young Foundation created a tool that
ing point, and to view social value as arising from the interplay of makes explicit the social value of various alternatives. Earlier on I
what I call effective demand and effective supply. Effective demand described the three very different roles metrics can play—external
means that someone is willing to pay for a service or an outcome. accountability, internal decision making, and assessment of broader
That “someone” may be a public agency, a foundation, or individual social impact. The tool we developed focuses squarely on the sec-
citizens. Effective supply means that the service or outcome works, ond of these goals. It attempts to capture the value that accrues to
is affordable, and is implementable. I use the qualifier “effective” be- the individual from being healthy, rather than sick; to caregivers; to
cause social problems will always invite simple supply and simple
demand. But to measure social value, the supplies and demands
must be effective in the senses described above. As the collapses of
Markets, conversations, and negotiations then link, on the one both Enron and lehman
hand, people and organizations with needs and resources, with, on brothers revealed,
the other hand, people and organizations with solutions and services.
Social value metrics are useful if they give shape to these markets,
even such seemingly
conversations, and negotiations. objective metrics as
In some fields, the links between supply and demand are mature. profit are not The facts
For example, many voters are willing to pay taxes for police forces
they appear to be.
and primary schools, and many governments are able to supply
these services. Likewise, many donors are willing to fund health care
for children in developing countries, and many local charities and the wider community (for example, from the control of infectious
churches are able to deliver this care. In these domains, analyzing diseases); and to the taxpayer.
social value is not difficult, because the links between what funders The tool we created is not a simple computer program or cal-
want and what providers know they can offer is clear. culator. Instead, it is a framework for thinking about value. Like
But for other social issues, the links between supply and demand many of the tools used to assess social value, this one requires a
are missing. In some cases, effective demand may be lacking because series of judgments. The judgments fall into four main categories:
funders, politicians, or private citizens do not view a need as press- 1) strategic fit (how well the proposed innovation meets the needs
ing enough to warrant their resources. For example, some states are of the health service); 2) potential health outcomes (including likely
unwilling to fund sex education or drug treatment. In other cases, impact on quality-adjusted life years and patient satisfaction); 3)
effective demand may be present—for instance, many governments cost savings and economic effects; and 4) risks associated with
are willing to pay to reduce obesity—but the supply of cost-effective implementation.
interventions is limited. In these situations any descriptions of social When faced with a proposal, users of the tool apply a 0 to 5 scale
value are bound to be more tentative and exploratory. to rate the proposal on items in each of these categories. Proposals
In still other cases, both sides of the supply-demand equation may range from a promising idea from a group of doctors or nurses, to
be murky or complex. Many social policy makers, for instance, un- an idea that has already been piloted on a small scale or a venture
derstand that more holistic solutions often yield better results. But that is ready for scaling up. Users can also provide commentary
holistic approaches necessarily have to deal with purchasers—that is, along with their ratings.
demand—that are split across many different public agencies and NGOs, In some cases, decision makers can draw on strong data—for ex-
each with its own view of what really counts as valuable. The supply ample, evidence from a randomized controlled trial. In other cases,
side may also be fragmented: Helping homeless people, for example, they must rely on less certain numbers. To capture this variability,
may depend on the contribution of many different agencies to provide the tool also includes measures of the reliability of the evidence on
therapy, alcohol treatment, job training, and housing. In these fields, which judgments are based. The visual presentation of the results
too, social value can become clearer only through iterative processes then makes judgments and their reliability very clear.
that bring together supply and demand in deliberation and discussion. Once mastered, the NHS tool is quick to use and transparent. Mul-
Even the most brilliant researcher cannot measure or even describe tiple users can interrogate the judgments, and in due course compare
social value if she is not immersed in these discussions. them with what actually happened. It is also publicly available. Ten

42 Stanford Social Innovation Review • Summer 2010

regional innovation funds (worth around $350 million in total) are Some foundations are likewise developing the market for address-
using it as a basis for decisions and encouraging applicants to use ing elder abuse. On the demand side, they have funded research on
the tool to assess themselves. Decision makers can also use the tool the extent of the problem and influenced commissioners to allocate
to review each other’s work, to ensure consistency in their decisions, resources and attention to it. On the supply side, they have supported
and to communicate with other public agencies. innovative programs to prevent or mitigate abuse.
The net result of the NHS tool is a picture of social value that is In both cases, governments’ resources vastly outweigh those of
explicit about what’s valued and what isn’t; that doesn’t try to combine foundations and NGOs. This is almost always the case. Just about
everything into a single number; that is transparent and interrogat- anyone wanting to make a big social impact has to engage with the
able; and that is simple enough to help decision makers having to cope worlds of politics and public provision.
with a large volume of examples. It also avoids the flaw of trying to
impose a single discount rate onto diverse measurements. Good Accounts
The field of social innovation can learn some lessons from business
Making Markets and economics. But it should not be naive. As the collapses of En-
I describe this tool because it is one approach to operationalizing so- ron and Lehman Brothers revealed, even such seemingly objective
cial value that balances coherence, consistency, and simplicity with the metrics as profit are not the facts they appear to be in economics
flexibility needed to cope with messy and complex phenomena. Devel- textbooks. And in business, accounts are just that: accounts. They
oping it was helped by the fact that the NHS is an organization with are ways of explaining what is being done, with an eye toward the
clear supplies and demands. But for most NGOs, supply and demand often conflicting interests of investors, managers, regulators, and
are fuzzier, and each field brings with it a different set of concerns. consumers. They involve judgments as well as facts.
For example, primary, secondary, and tertiary educational insti- Anyone who wants to finance social goods and anyone who
tutions create value for students and the wider society. They rely on wants to provide them should use metrics to clarify how inputs can
a strong research base to decide which types of education deliver contribute to outcomes, as well as to clarify choices and trade-offs.
which returns to whom. Vocational education, in contrast, presents a But they should abandon metrics that obscure these choices or that
different set of considerations. Certain kinds of skill may be of value pretend to offer a spurious objectivity. And they should use metrics
to only one sector, or to a small set of employers. A program offer- only in proportionate ways. It’s not sensible for a small NGO to
ing intensive support to a chaotic drug user will have a still more invest scarce resources in apparently elaborate estimates of social
complicated set of values, including value for the individual (both value—not least because these estimates are bound to crumble un-
financial and health-related), value for the community (for example, der serious scrutiny.
from lower crime), as well as value for a wide range of public agen- Meanwhile, larger NGOs that do need measures of social value
cies (from hospitals whose emergency services will be used less, to should clearly distinguish between those that are primarily about
police, prisons, and welfare agencies). external accountability, those that help internal management, and
Seen through this lens, the job of funders is not to alight on one those that support assessments of broader patterns of social impact.
particular method for measuring value. Although common frame- If an organization is using the same method for all three, its findings
works for thinking about value are useful, funders must adapt these are almost certainly flawed.
frameworks to the organization and field under consideration. People involved in funding social value, whether at the stage of
Indeed, the greatest contribution that funders can make is promising innovations or of large-scale practice, likewise need sharper
often not to measure value, but to forge the links between sup- common frameworks. Greater use of these shared frameworks would
ply and demand that will later generate value. For example, they be more valuable than proliferation of ever more assessment tools.
can invest in effective supply by supporting promising projects Building on these frameworks, what matters is the quality of the dis-
and collecting evidence of what works. They can invest in ef- cussion and negotiation, and the depth of the learning several years
fective demand by persuading governments to use their much later, when participants reflect on what worked and what didn’t. n
greater resources to pay for new services. And they can use their
convening power to connect purchasers and providers and then Note s
1 This article draws on several main sources, including Geoff Mulgan, Gavin Kelly, and
encourage them to talk.
Stephen Muers, Creating Public Value, London: U.K. Cabinet Office, 2002; and Geoff
Foundations can also help less powerful players have a voice in Mulgan, Gareth Potts, Matthew Carmona, Claudio de Magalhaes, and Louie Sieh, “A
the market. Many groups, such as homeless people, migrant work- Report on Value for the Commission on Architecture and the Built Environment,”
London: Young Foundation, 2006. The Young Foundation Web site also provides de-
ers, and people with mental illnesses, have clear needs but lack the tails about many measurement methods.
resources and political power to translate their needs into demand. 2 The following books provide a good overview: C.J. Barrow, Social Impact Assessment:
Foundations can turn this latent demand into effective demand. For An Introduction, London: Hodder Arnold, 2000; Henk A. Becker and Frank Vanclay
instance, several European foundations that support undocumented (eds.), The International Handbook of Social Impact Assessment, Cheltenham, U.K.:
Edward Elgar Publishing, 2006; “Identifying the Environmental Causes of Disease:
migrants have developed the demand side of this emerging social How Should We Decide What to Believe and When to Take Action?” Academy of
market by encouraging larger NGOs and public authorities to allo- Medical Science, 2008; John Dewey, Theory of Valuation, University of Chicago Press,
1939; and Luc Boltanski, Laurent Thévenot, and Catherine Porter, On Justification:
cate resources (for example, for housing and health care) to it. On Economies of Worth, Princeton, N.J.: Princeton University Press, 2006.
the supply side, these foundations have funded promising projects 3 For a fuller analysis of discount rates, exponential rates, and hyperbolic rates, see the
that are more effective at meeting the needs of this group. chapter on value in my book The Art of Public Strategy.

Summer 2010 • Stanford Social Innovation Review 43