Foundation Grants and their Return on Investment.
Return on investment (ROI) is a traditional financial metric used to analyze the efficiency of an investment. ROI = profit from an investment/investment cost and is usually expressed as a percentage. For instance, if you invest $1,000 in creating a website and it increases your sales by $1,500, then the ROI = (500 / 1,000) x 100 = 50%.
Grantmaking is another type of financial transaction, but what about the ROI, Return on Investment, of those grants? One of the most common worries for our donors how is their investment going to be used, and is it going to make a difference. How do we measure the return?
In normal financial analysis, Return on Investment is the measurement of money gained or lost relative to the money invested. In grantmaking, the Return on Investment is an attempt to measure the financial values created by the organization through delivery of services to the community.
A grantmaking ROI is built on the logic of cost/benefit analysis; and is different in that it is designed to measure the comparable accountability and value of organizations whose results cannot always be easily measured in money.
There are two types of analysis that can be used to determine the ROI:
• Evaluative analysis – which is based on actual outputs and outcomes that have already taken place or are currently in process;
• Forecast analysis – which predicts how much financial social value will be created if the activities meet their intended outcomes.
As an example, the Imagination Library Program is housed at the Wexford Missaukee ISD, and is part of their Early Childhood Education Program. The Program has been awarded multiple grants through unrestricted and restricted funds held at the Foundation.
These grants were made because we know, through program research and data collection, that participating children develop a higher degree of literacy, an improved attitude toward reading, earlier mastery of literacy skills, and greater success in the educational system.
But where is the return on our investment? In this case, it is a Forecast Analysis situation. We know the immediate benefits, but we need to know long term, and the data is available through the Literacy Foundation.
We know that the consequences of illiteracy on individuals and society include: higher unemployment; lower income; lower-quality jobs; precarious financial position; little value is given to education and reading within the family often leading to intergenerational transmission of illiteracy; low self-esteem leading to isolation. There is even an impact on health: Illiterate individuals have more workplace accidents, take longer to recover and more often misuse medication through ignorance of health care resources and because they have trouble reading and understanding the relevant information (warnings, dosage, contraindications, etc.).
The cost for a single child to participate in the Imagination Library Program is $24 a year x 5 years = $120 for the full program. The cost to the individual, and to society, for a single illiterate adult is well into the thousands of dollars. In this case the ROI is very high.
Every grant awarded by the Foundation is required to complete a comprehensive evaluation of the program/project for which the grant was awarded. By reviewing these evaluations, and sometimes continuing program tracking beyond the initial grant evaluation period, we are able to determine if the program/project met its objectives and has a significant Return on Investment.
If you would like information about investing in the Cadillac Area Community Foundation to make a positive impact for generations to come, please feel free to contact me.