19/12/2013

Costing the Benefits

Social Innovation is important however, we need to be pragmatic about what works and what does not. Two important questions need to be asked in this process, 1. Does it create change? 2. Are the costs less than the benefits?

The first part is understanding what the problem is for the customer and whether we are creating change. If you are not better outcomes and in some cases negative results (e.g. older people dying earlier in a program focussed on extended their life) then we have problem at hand.

Every new program  costs something in terms of people, resources and time and secondly, there is an opportunity cost of what else we could do with that money and resources. This is where the benefit-cost analysis is important to understand what works and why and how does it compare with other programs.

In Australia and many parts around the world, this focus on outcomes and quantifying the benefits is really missing. Steve Aos and his team from the Washington Policy Institute do some good work around this. He explains his model here.

His model, he says, is the same that investment advisers on Wall Street would use. There are three steps. The first is to know what works. What are the possibilities that currently exist? What will give me the outcomes I want? So if you’re an investor you might be looking for long-term investments that will allow you to retire in 15 years. In children’s services you’re looking for interventions that show definite results in reducing youth crime for example. Secondly I need a cost-benefit analysis on those options. I want a list of all of these options and I want them ranked based on potential return on investment. Much in the same way as a consumer magazine like Which? will rank consumer products based on value for money. Lastly I want to invest in a bunch of these ideas, so which ones are the most complementary? What kind of portfolio of investments should I have? What combination will net me the largest return on my investment?


Humanomics


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