How To: Applying impact adjustments (deflators) in social impact assessments

The first step in any social impact assessment is to identify all stakeholders affected by the project:

• Direct Beneficiaries: Individuals or groups the project intends to support.
• Indirect Beneficiaries: Those who may benefit indirectly from the project’s activities.
• Negative Stakeholders: Individuals or groups who might experience adverse effects.

For each stakeholder group, map out the expected outcomes, both positive and negative. Estimate how many stakeholders will experience each outcome, ensuring assumptions are transparent and based on reliable data.

Valuing Outcomes

Assign a monetary value to each outcome to quantify the social value created. This involves:

• Using Financial Proxies: In the Social Value Engine, select the appropriate proxies that reflect the stakeholders’ perspectives.
• Engaging Stakeholders: Consult with stakeholders to validate the values assigned.

This process ensures that the valuation is relevant and accurate, aligning with stakeholders’ experiences.

Applying Impact Adjustments (Deflators)

After setting the outcomes, apply impact adjustments to account for factors that could overstate the project’s impact. Within the Social Value Engine, you can either enter these yourself or use the validated preset values. The adjustments, known as deflators, are:

Deadweight

Purpose: Estimate what would have happened without the project.

Application: Subtract the proportion of outcomes that would have occurred anyway from the gross outcome.

Example: If 25% of the outcome would have happened without the project, apply a 25% deadweight adjustment.

Attribution

Purpose: Determine the extent to which external factors contribute to the outcomes.

Application: Reduce the outcome by the percentage attributed to other organisations or factors.

Example: If other organisations contribute 30% to the outcome, apply a 30% attribution adjustment.

Displacement

Purpose: Assess any negative impacts the positive outcomes may have caused elsewhere.

Application: Subtract the proportion of the outcome that displaces existing benefits.

Example: If 10% of the new jobs created replace existing jobs, apply a 10% displacement adjustment.

Leakage

Purpose: Account for benefits that reach individuals or groups outside the target population.

Application: Reduce the outcome by the leakage percentage.

Example: If 5% of the benefits go to non-target groups, apply a 5% leakage adjustment.

Drop-off

Purpose: Adjust for the decline in impact over time.

Application: Apply an annual drop-off rate to outcomes in future periods.

Example: If the impact diminishes by 20% each year, apply a 20% drop-off adjustment annually.

Calculating Net Outcomes

Apply these adjustments to arrive at the net outcomes attributable to the project. The Social Value Engine will automate this for you, but if you wish to do it yourself, the formula would be:

$$\text{Net Outcome}=\text{Gross Outcome}\times (1-\text{Deadweight})\times (1-\text{Attribution})\times (1-\text{Displacement})\times (1-\text{Leakage})$$

This calculation ensures that the project’s impact is not overstated and provides a realistic assessment of the social value created.

Analysing Positive and Negative Outcomes

Evaluate both positive and negative net outcomes for all stakeholder groups:

• Positive Outcomes: Benefits experienced by stakeholders as a result of the project.
• Negative Outcomes: Adverse effects or costs incurred by stakeholders.

This comprehensive analysis helps identify areas where negative outcomes can be mitigated and positive outcomes enhanced.

Aligning with Social Value Principles

Applying these impact adjustments aligns with several Social Value International (SVI) principles:

• Principle 4: Only Include What Is Material: Adjusting for deadweight, attribution, displacement, leakage, and drop-off ensures that only significant and relevant outcomes are included.
• Principle 5: Do Not Overclaim: The adjustments prevent overstatement of the project’s impact.
• Principle 6: Be Transparent: Documenting the methodology and assumptions enhances credibility and accountability.

Achieving Sufficient Precision for Decision-Making

The goal of applying these adjustments is to achieve enough precision to inform decisions effectively:

• Proportionality: Ensure the assessment is appropriate to the project’s scale.
• Data Quality: Use reliable data and clearly document assumptions.
• Stakeholder Engagement: Maintain ongoing communication with stakeholders to validate findings.

Conclusion

Understanding and applying leakage, deadweight, attribution, drop-off, and displacement is essential for accurate social impact assessment. These impact adjustments refine the calculation of net outcomes, ensuring that the social value reported reflects the true impact of the project on its stakeholders.

By integrating these concepts into the assessment process, practitioners can provide stakeholders with credible and meaningful insights. This supports effective decision-making and enhances the social value generated by projects, aligning with best practices in the field.

About the Social Value Engine

The Social Value Engine is a platform designed to help organisations measure and maximise their social impact. By applying these impact adjustments within the Social Value Engine, practitioners can ensure that their assessments are robust, transparent, and aligned with industry standards.