Return on Investment Nelson Soler MBA/MS/EDFP/ASFP Understanding our Nonprofit Framework Importance of ROI Calculating ROI Framing the ROI Message 1 Multicultural

Multicultural Entrepreneurial Institute Inc., Nelson Soler (c) 2015

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Return on InvestmentNelson Soler MBA/MS/EDFP/ASFP

Understanding our Nonprofit Framework

Importance of ROI

Calculating ROI

Framing the ROI Message

Module 1

Introduction About the Instructor The Framework Small Group Exercises

Nelson Soler©2010 for UWM School of Continuing Education

About the Instructor, Nelson Soler

MS Int. Business MBA – Finance BA – Economics BS – Electrical

Engineering Nonprofit Certificate Real Estate Broker Economic

Development Finance Professional

¼ of career in Corporate Banking International Mining Utility

¼ Nonprofit Sector ¼ Government

County University System

¼ Entrepreneur


Exercise

Break in groups of three and try to answer these questions:

What makes your organization unique? What are your organization three biggest

outcomes? How your organization impacts your

stakeholders?


About the Subject

Can be technical and application specific Difficult to cover in one interaction

Continued discovery and exploration is needed Requires a culture shift

Fairly new to the Nonprofit sector – about 7 years old Embraced in Europe and Canada Key organization in the US



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Module 1: Framework-Nonprofit Reality

Too Many Increased Regulation Higher Competition Funding

The Nimble Nonprofit Shift on Focus (More like a business)

Demand for Accountability and Transparency Imperative of Sustainability

Too many

Demand for funds continues to increase

Funding is shrinking

Good intentions are no longer enough

Impact

Outcomes

63% of donors want to know how their donation was used

Transparency


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Donor Base Expectations Shift

72%

Module 2

Importance of ROI as a tool



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Have you heard these phrases?

Do more with less? Why is your overhead and/or indirect cost too

high? What value will I get for making this donation? Or

How will the money be used? Why should I donate to you versus another

organization that do the same? Have you quantified social impact? What are your measurements? Or what is your

evaluation plan?


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All these questions are directly or indirectly

referring to your Return on Investment!

Exploring the Business Definition

Return on investment (ROI) is the benefit to the investor resulting from an investment of some resource

Measure of profitability Measure of efficiency

Calculation

For profit world is very simple

Benefit from Investment over the cost

ROI = (Gains – Cost)/Cost

ROI = (Impact – Cost)/Cost ***Social Impact


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Importance of ROI for Nonprofit Programs

Key to Evaluation and Measurement Needed for

Sustained funding (public sector and some foundations)

Social impact quantification New funding (private individuals, corporations)

Important for Organizational Branding and Communication Compelling Messaging Takes the subjectivity out of our work


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Challenges for ROI measurement in the Nonprofit Sector

Nonprofit traditional culture

Capturing true costs

Actual Calculation

What other challenges you feel can potentially arise?

Other Challenges


Nonprofit world

Benefits

tangibles and intangibles Outputs

Social Impact

Costs Labor

Volunteer Labor Materials Overhead

Costs you incur weather or not you run the program

Other Costs Cost of using your own

money (cost of capital)

Measuring Social Impact source: socialvalueuk.org


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Calculating ROI

Resources

http://nonprofit.about.com/od/foundationfundinggrants/ss/Using-Sroi-To-Show-Your-Nonprofits-Impact.htm





Module 3

Linking ROI to Evaluation and Program Measurement



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M3: ROI and EvaluationLets visit our evaluation models

Linear

Open Model

Open System Model

Nagajaran and Vanheukelen 1997

Needs

Objectives Inputs Activities Output

Actual Outcomes

Program

Open System Model

Nagajaran and Vanheukelen 1997

Needs

Objectives Inputs Activities Output

Actual Outcomes

Program

Technical Efficiency (aka Productivity)

Adequacy

Rel

evan

cyE

ffectiveness

Cost Effectiveness

Cost Benefit

Program Effectiveness

Check point

What value you notice in applying the different models?

Where does ROI fit?


Where does ROI fit?Outputs

• Quantitative• Qualitative

Outcomes

• Economic Impact• Social Impact• ROI



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Where does ROI fits?

You may be already calculating it but you are unaware you are

Concepts Social Impact Effectiveness and Efficiency Cost-Impact Analysis


Examples of Outcome: Entrepreneurial Training Program Need: Wealth Accumulation

Model: Education + Entrepreneurship leads to economic empowerment

Goal: Recruit 30 low income aspiring entrepreneurs Assessment – Financial and Business Training – 8 months Coaching Provided seed funding


Example: Ent. TrainingOutputs

Interviewed and assessed 86 of 290 applicants

Selected 30 28 individuals finished all

components Provided 1200 hours of

one on one coaching Provided $96,000 for start

up funding

Outcomes Identified the needs of

low income entrepreneurs in inner city

11 entrepreneurs established new enterprises creating 26 jobs

15 entrepreneurs grew their enterprise creating 38 jobs

Agency capacity was increased


Translate to Value Job Creation

Agency 1 FT job + 2 part-time jobs became FT Direct Impact: 45K +32K +28K = $105K Indirect Impact: 105 *1.25 Local Factor =131.5 K

Entrepreneurs New

Total Impact 297K Established

Total Impact 906K

96 K of dollars were additionally infused in the economy


ROI

Dollars Infused in the Economy (Benefit –Cost)/$437.5 $1535.5- $437.5/$437.5 = 2.5 times or 250%

For each dollar infused, we created 2.5 of local economic spending

Tax Base Increased Our local tax base was increased by 15%


Other Job Related

Job Retention or Underemployment 2 unemployed now employed and were able to

use the project experience to find a job Two subcontractors were employed and their

capacity was increased 35K & 40K

Three participants realized the world of entrepreneurship was not for them. This save the economy XXX dollars


Exercise

Output Educate 100 families

to deal with the stigma of disabilities

Outcomes ?



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Social Impact

Benefits

JOBS Created Employer attitudes towards disabilities changed

Tax Base Increased

Statue, Ordinance Change Incentive for Employer to hire individuals with disabilities


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Effectiveness and Efficiency

the degree to which something is successful in producing a desired result; success

the ability to accomplish an output with the least resources


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Cost-Benefit Analysis

Check Point

Have you applied any of these concepts? How?

Do you feel you can apply these concepts?



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Module 3- ROI and SustainabilityFundraising and Sustained Funding

Trends Need for articulating social impact Transparency Accountability SUSTAINABILITY


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Understanding your “Donors”

Traditional Feel Good Tax Saver Impact Seeker Entrepreneur

StakeholdersInvestors

Motivation Pyramid

Kay Sprinkel, Beyond Fundraising

Connected

Concerned

Capacity

ROI Message

Articulation of value1. Determine the motivation of your stakeholders

2. Develop programs with measurable outcomes

3. Translate outcomes into benefits

4. Demonstrate effectiveness using investment terms

5. Communicate results regularly

Adapted from Tom Ralser, ROI for Nonproftis, 2007

Outcomes to benefits

Societal costs avoided

Value of jobs created

Value of increased skills in the job pool

Value of adequate parental care

Value of increased productivity


Some ROI Terms

Social Impact per Dollar Invested Local Economic Impact Return per Dollar Spent

Cost Savings to Society


Exercise

Think of two to three outcomes and restate them as benefits


Examples

http://nghp.org/vision.html

University of Minnesota Extension

http://www.extension.umn.edu/youth/research/youth-programs/docs/economic-return-afterschool-programs.pdf

Nonprofit Roundtable of Washington

http://www.nonprofitroundtable.org/storage/documents/beyondcharity.pdf












Module 4

Framing the ROI Message



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Branding and CommunicationsFraming the ROI Message

Unique Proposition to our Communities Stakeholder sustained engagement New Stakeholders involvement Employee Empowerment

Messaging

Clients Stakeholders/Investors/Funders

Public v. Private Politicians and Policy Makers

Regulators Community at Large – Citizenship of your

Organization



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Exercise

Crafting a 60 second message

Message delivery

Traditional Reports Presentations White Paper

Non-Traditional Social Media E-brochures



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Resources

Some non academic sources to generate discussion: http://www.volunteerhub.com/blog/return-on-investment-for-nonprofits/ http://philanthropynewsdigest.org/off-the-shelf/roi-for-nonprofits

Example of federal agency requirement: http://www.fgdc.gov/grants/ReportFormats/ROIReports

Academic: http://mdi.missouristate.edu/assets/mdi/

Training_ROI_Non_Profit_Sector_dissertation.pdf http://scholarworks.umass.edu/cgi/viewcontent.cgi?

article=1021&context=gradconf_hospitality

Book: ROI for Nonprofits: The New Key to Sustainability By Tom Ralser, 2007

http://www.volunteerhub.com/blog/return-on-investment-for-nonprofits/

http://philanthropynewsdigest.org/off-the-shelf/roi-for-nonprofits

http://www.fgdc.gov/grants/ReportFormats/ROIReports

Resources

http://www.neweconomics.org/issues/entry/social-return-on-investment






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Questions

[email protected] 414-383-4633

mailto:[email protected]

Documents

Return on Investment Nelson Soler MBA/MS/EDFP/ASFP Understanding our Nonprofit Framework Importance of ROI Calculating ROI Framing the ROI Message 1 Multicultural