Using Logic Models to Predict Risk

impact logic models

If you’re starting a social enterprise or nonprofit, you’ll naturally focus on the impact you plan to have. You’ll predict the effects of your work based on research and past successes in your field, and you’ll imagine the positive outcomes that motivate you to succeed.

You’ll also, however, have to anticipate the potential negative or unexpected outcomes, and predict your ability to successfully execute the business plan and deliver your intended value. You’ll need to account for risk.

Failure, unforeseen circumstances, and unintended consequences are possible in every enterprise. Acknowledging and measuring those risks — both the likelihood that they will happen, and the impact they could have — allows entrepreneurs and investors to plan ahead more safely.

Entrepreneurs aiming for social and environmental impact need to consider the possibility that their work will have unintended or insufficient impact on the planet, on specific groups of people, and/or on society as a whole.

The Impact Management Project has a great resource on impact risk, including a graphic illustrating all of the ways risk can show up in an enterprise.

Graphic created by the Impact Management Project.

As you can see, the types and dimensions of risk break it down much more specifically than just saying, “Something could go wrong” (or naively saying, “We’re going to absolutely crush this”).

For example, an ice cream shop that plans to hire and train people with barriers to employment could face typical business risks — maybe there’s an unusually cool summer that drives down ice cream sales, or a mold problem that forces them to relocate.

But a social enterprise also faces specific risks related to their intended impact. The shop faces stakeholder participation risk if they put together a training curriculum without consulting people affected by the problems they’re trying to solve, resulting in a program that doesn’t effectively meet their employees’ needs. They face unexpected impact risk if they fail to account for the heavy electricity usage and carbon footprint of their industrial freezers and other equipment, leading to a negative environmental impact.

By anticipating those potential outcomes, whether they are unconsidered social or environmental externalities or consequences of the ice cream shop’s operations, the entrepreneurs can proactively minimize avoidable risk and become resilient in the face of unavoidable risk.

Social enterprises can look for and identify those specific types of risk as part of creating their logic models, which we discussed in our last post. As a social entrepreneur maps out their plan for using specific activities to achieve specific impacts, they can pinpoint risk at each stage and show how they will protect against it.

One of Ecotone’s goals is to help our clients recognize and account for risk as part of their business models, so that they can strategically minimize or offset it.

Further reading:

Designing Your Impact: Logic Models for Entrepreneurs and Investors

network model

When social entrepreneurs launch businesses with the goal of creating impact, they have to determine how their business model connects to their mission. They must decide what the business does on a daily basis, how the business makes money, and how the operations and cost structure relate to the impact.

An organization’s logic model describes its intended impact, along with the intervention the organization’s leaders have chosen to achieve that intended impact. Entrepreneurs often use tools such as the Business Model Canvas to map out their activities, value proposition, and target audiences. However, an understanding of how costs and impact value are created is best developed using what is known as a logic model.

Logic models have traditionally been used by nonprofits and international aid organizations, but the convergence of social impact and business has seen them used by organizations such as the Impact Management Project to organize the costs and activities that make up a social enterprise.

Logic models lay out:

  • Inputs — the infrastructure, materials, and labor needed to make the organization run
  • Outputs — the products and/or services the organization creates, as well as the externalities, or side effects and unintended products of their work
  • Outcomes — the results the organization produces, from long-term stability for its employees to increased traffic and economic growth for its neighborhood

For example, a new organization might determine that their mission is to help people with developmental disabilities become independent. They look up research on the most important skills to teach people with disabilities, and review outcomes from similar programs around the country and the world. To achieve their mission, they choose as their social enterprise an ice cream shop, hiring and offering job skills training to adults with disabilities.

And now for one of Ted’s food service analogies…

In many ways, this ice cream shop is very similar to a conventional for-profit business. They rent a space that meets the needs of an ice cream shop and market to the public. They purchase large equipment such as mixers and freezers, and buy supplies including ingredients and packaging. They handle cash and follow health code requirements. They serve delicious ice cream to customers.

However, there are a few unique expenses that the social enterprise ice cream shop has to account for. Those include the cost of training materials, staff time and gas money to give employees rides home or to appointments, and other concerns specific to the population that the business serves.

One of the goals when creating a logic model — and our goal at Ecotone when we help social enterprises develop their logic models — is to account for those extra expenses and find sustainable ways to fund them. Laying out inputs, outputs, and outcomes in one blueprint allows organizations to attribute their impact to specific inputs. That, in turn, allows them to look for ways to fund those inputs so they can continue growing their impact.

Further reading

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