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#4 Ten tips for an effective impact

Impact-based investment and social impact bonds (SIBs) are still in their early stages in Finland. However, experience is being accumulated all the time. The list below reveals the most crucial lessons and recommendations from over the five years.

Kuva: Minna Hemmilä, Sitra

Writer

Kati Haapakoski

Business consultant, Founding Partner at HNY Group, HNY Group Oy

Published

The recommendations to the parties involved in an outcomes-based financing agreement or SIB agreement have been compiled on the basis of interviews, from Sitra’s publications and from a summary of interviews with municipalities and officials carried up in the spring of 2019. Views were also expressed by the treasurer, FIM Impact Investing Ltd’s director Jani Kempas; the City of Lohja’s Director of Welfare, Katri Kalske; and training and expertise firm Live Palvelut’s Development Director, Miika Keijonen. The asset management company FIM is involved in all outcomes-based financing agreements, that is, the SIB projects; the City of Lohja is launching the Children SIB; and Live Palvelut is, among other things, promoting employment in the Integration SIB that aims to promote the integration of immigrants.

Recommendations

1. Develop modelling

Modelling is a tool for creating shared understanding of those economic and operational starting points that create the frameworks for impacts and, in the longer term, for effectiveness. SIB modelling features three stages: 1) social benefit modelling; 2) impacts modelling; and 3) operational modelling. The use of modelling also makes it possible to specify the indicators required for effectiveness monitoring.

Modelling depicts how the objective will be achieved and is carried out at different stages of the impact chain. The aim is to show that the impacts achieved have actually been generated as a result of the work carried out, and not (for instance) merely by chance.

With modelling, the aim is first of all to describe and clarify the current situation, and to find out what could be changed in order to achieve a greater impact. One example of this could be how the City of Hämeenlinna started to investigate the increase in child protection expenses and discovered the point at which intervention would probably be worthwhile.

2. Draw up clear targets and indicators

Results are only achieved via targets and objectives. For example, the objective of the Integration SIB is to help immigrants to find work quickly. In this programme, participants can also learn the Finnish language and skills for working life, and also obtain guidance and training for working life in accordance with their own needs. Even so, the sole objective of the programme is employment. If, for example, the learning of Finnish was a target, the activity could take on the wrong emphasis, stressing not actual employment but rather language learning. This lesson has been learned by, for example, Live Palvelut, one of the Integration SIB’s service providers. The outcomes target must be clear and be approved and recognised by all parties. If the targets and objectives are unclear, it will be hard to assign indicators.

The use of social benefit modelling can make it possible to specify the outcomes targets and also the indicators required for effectiveness monitoring. Indicators can also be set after the targets have been determined. Indicators, too, can be further developed where this is necessary. These show how the SIB project will lead to an effective and long-term impact.

Measurement is essential. A wrong indicator will tend to lead to the wrong kinds of outcome. If the aim of the SIB project is employment, then the indicators will measure the success of people finding jobs. In the Well-Being at Work SIB project, for instance, the selection of indicators was one of the project’s stumbling blocks. The public-sector organisations and service companies involved learned that indicators and targets need to be aligned in the same direction, and that the baseline situation of the organisations needs to be properly examined.

In addition to outcomes indicators, it is also a good idea to utilise operational guidance indicators, which assist in the correct allocation of resources, and process indicators, which are useful when evaluating the quality of activities.

3. Report, describe, draw up examples

As an aid to decision-making for new projects, municipalities and effectiveness service providers need information on the outcomes of previous SIB projects. If there is no evidence of outcomes, the municipalities will have less interest in proceeding with the creation of new projects. Lack of outcomes will weaken the credibility of SIBs and impact-based investment. Consequently, results ought to be highlighted and described. It is worth remembering, however, that the various SIB projects are different. The targets and objectives of some projects are such that their outcomes will become apparent only after some years have passed. Before then, however, lessons can be drawn up; for instance, how the planning and implementation of the projects proceeded, such as at the modelling stage.

If people fail to understand the importance of effectiveness, or how impact-based financing and SIBs work, then they will not initiate new projects. Essential questions include the following: How has the situation in Finland been genuinely improved via impact-based investment or the SIB model? Why is it a good idea for the performance of anticipatory and preventative work to be founded on an outcomes basis? What sort of outcomes can be achieved with the SIB model?

In a SIB project, from the viewpoint of municipal officials the hardest things to understand are the financing model, accounting and investment logic: How does the cash flow? How does one interpret mathematical cash flow statement equations? One big challenge is how officials can justify to decision-makers the payment of a bonus to investors, and what this all means (for instance) from the viewpoint of the residents of the municipality. In the service provider organisation, on the other hand, the important thing is to teach people to understand what the provision of impact-orientated services means: Why are effective services provided? What are the desired goals of effective services? What is achieved by these?

It is a good idea to run through the challenges that have emerged in the projects, so that others can prepare for these in advance. In order to avoid municipalities remaining on the defensive in their discussions with investors, it is a good idea to prepare officials and decision-makers for working together with investors.

4. Reserve the necessary time

When a SIB project is launched, it is advisable to reserve lots of time, particularly in its early stages. Doing anything new requires patience. Adapting to new things and new approaches takes time. If the timetable is too tight, the project may go wrong. As the project progresses, people must be ready to change courses of action if the means chosen turns out to be ineffective.

5. Engage in co-operation

Engage in co-operation wherever possible. All responsible nominees appointed to each SIB project by the public sector, the service provider and the investor must offer their participation and commitment. By working together, they can, for example, create practical tools. From the aspect of success, effective co-operation between the purchaser of outcomes and the seller of services, and/or the public-sector organisation and the service provider, is crucial; they work together on their joint project in order to achieve an impact. If both sides only care about their own “domain” and there is little interaction, things will not progress.

6. Choose the right people for the right posts

In order to implement a SIB project, it is a good idea to choose people within the organisation that are genuinely interested in the matter in hand. Once experts have been selected, it is advisable to give them the authority to manage things in the way that they deem best. Time needs to be allocated for specific work, and old practices and duties need to be eliminated for the sake of the new ones. The experts are messengers. They also prod other people in their organisation towards changing their ways of thinking. Even if one person is appointed as the person in charge, all responsibility for action should not be loaded onto his or her shoulders – “many hands make light work”.

7. Support practical experts and decision-makers

A public organisation, for example a municipal authority, must also provide an adequate description of the SIB project both to officials and trusted parties at the committee level. The management must support practical experts and hold open discussions regarding effective services with the entire organisation, and – in the municipalities – with the residents, that is, the taxpayers, whenever questions arise. The same commitment applies to service providers: with Live Palvelut, for example, which is involved in the Integration SIB, effectiveness is the main objective of the entire organisation, and the aim is to create this as part of all activity.

8. Allow the process to live and breathe

In the case of effective services, the process cannot be set in stone. Procedures need to evolve. Experts must be prepared to change their approach, and to amend the process. When problem points are found, these can and should be corrected immediately. The goal should be to link up “effective services thinking” as part of everyday life and everyday activity. This will be made easier if, for example, the impact-related targets are taken into account in the experts’ own targets.

9. Encourage research

Aim to increase research into SIB projects and into effective activity in general. The research will increase awareness of what is worth investing in, and how. Ensure that high-quality research on SIB projects is carried out at state research institutes or universities. SIB projects are accurately measured, and so they offer good material for research and help to increase understanding of effectiveness and knowledge-based management. Research also provides new information on the results of anticipatory and preventative measures.

10. Increase knowledge-based management approaches in municipalities

Many of the difficulties in SIB projects relate to the fact that municipalities lack data on the impact of their own services. Searching for, and adding to, data can be an onerous task. Utilisation of the SIB model, and the associated simulations, will be facilitated if the municipalities have access to better data on their activities.

Three viewpoints on SIB projects

Topic

Impact investing

Impact investing helps promote well-being effectively and in a resource-wise way. It is a means of channelling private equity to projects whose aim is to achieve positive, measurable social benefit.

Writer

Kati Haapakoski

Business consultant, Founding Partner at HNY Group, HNY Group Oy

Published

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