Now that you have an impact rating, what do you do with it? Integrate it with your measures of financial risk and return to make decisions!
In Module 3, we introduced the practice of integrating financial return and impact on a single scatterplot, with an investment or portfolio’s risk-adjusted financial return on the y-axis, and its risk-adjusted impact on the x-axis.
The impact rating you built in Modules 6 – 12 will help you determine an investment or portfolio’s position on the x-axis. In this module we will look at some of the ways that investors can use integrated scatterplot analysis to identify new insights that can inform investment decision-making.
- Analyzing integrated scatterplots can help you explore a range of different questions:
- Where to focus your deal-sourcing efforts
- Which deals to screen out of / into your pipeline
- Which deals to approve
- How to evaluate and set direction for portfolio performance
- The relationship between different aspects of impact and financial performance in your past, current, and/or prospective investments
- Impact-financial integration is a frontier practice in impact management, and there is ample room for investors to identify new and innovative use-cases for integrated scatterplot analysis.
5 Steps to Impact Financial Integration
At this point in the curriculum, the third peak of impact management is in sight. We’ll review where we are in the five steps to impact-financial integration, and how we’re going to cover the remaining steps in this module.
Risk-adjusted Financial Return Metrics
There is no one ‘right’ metric for risk-adjusted financial return. Investors can use a five-step process to identify the financial metric that is right for the kinds of integrated analysis they want to undertake:
- Identify the insights and/or decisions you want to explore with integrated analysis
- Decide whether you are going to analyze past or prospective investments for those purposes
- [If past investments] decide whether you are going to use the information you had before you invested or the information you have now
- Identify the financial factors that are relevant for your analysis
- Select or create the formula you will use to combine those factors
Integrated Scatterplot Analysis
Past Impact Frontiers cohort members have identified a wide variety of different ways to use integrated scatterplot analysis to inform decision-making. Now that you have all of the tools you need to integrate impact alongside financial considerations, it’s your turn to push the frontier of impact management forward!