In Step 7, companies will first identify the appropriate type of value to be used for each impact or dependency identified and then choose a fit-for-purpose valuation technique. This will guide the selection of indicators and metrics for measurement in Step 8.
To identify the appropriate valuation technique, a company should select the type of value most suited to the information needs of their audience, the objectives of the assessment, and the time and resources available. Based on this type of value, they can then select an appropriate valuation technique.
- Type of value - Is the audience interested in qualitative, quantitative, or monetary values or a mix of these values35 depending on the issue being assessed?
- Fit for purpose valuation technique - Which valuation technique aligns with the chosen scope and objectives?
Select the appropriate type of Value
Definitions of the types of value, are given below:36
- Qualitative valuation is usually descriptive and focuses on more subjective perceptions of change. Normally implemented through questionnaire surveys, deliberative approaches, or expert opinions, qualitative valuation is often useful for a preliminary identification of impacts and/or dependencies. Qualitative valuation may express relative value using terms such as “high, medium, or low”, “yes or no”, or ranking options using defined categories. Qualitative valuation may also take the form of stories, case histories, selected quotations, or expressions of emotional responses to changes in social capital.
- Quantitative valuation is about expressing the value of impacts and/or dependencies in numerical, non-monetary, terms. It is slightly different from quantitative measurement in that quantitative valuation relates to the importance, worth, or usefulness of the impact and/or dependency by taking into account the context and ideally including affected stakeholders. So, for example, a company creating 1,000 jobs in an area with high levels of unemployment may cause an impact of far greater value to other stakeholders than a company creating 10,000 jobs in an area where there is generally low unemployment. Quantitative measurement in physical terms (e.g. the number of jobs created) is typically required as an input for quantitative valuation, and is also normally a pre-requisite for monetary valuation (see below).
- Monetary valuation is used to determine the value of impacts and/or dependencies in a common unit of measure, like US dollars, euros, etc., for ease of comparison with financial values (e.g., business costs or revenue). It is best used to provide information on the marginal value/net costs or benefits of an intervention that alters the quality and/or quantity of social capital, either at a point in time or over a given period. It can be useful to assess how costs and benefits are distributed amongst different stakeholders, and to assess the magnitude of potential financing or revenue sources. Monetary valuation can also be used to assess trends in value as a function of changes in supply and demand conditions. Both market and non-market approaches to monetary valuation aim to measure social preferences—using observed prices in the market in the former case, and “revealed” or “stated” preference methods for impacts or dependencies that do not have explicit market prices. Monetary valuation of social capital impacts and/or dependencies is usually based on sophisticated statistical techniques and should be carried out by qualified experts.
Different audiences will have different needs and preferences about the information they use to make decisions, including preferences for quantitative measurement or qualitative, quantitative or monetary valuation.
- An approach designed for external stakeholders, such as local communities, might focus on qualitative and quantitative valuation data that are transparent and easily understood by non-experts, e.g. total jobs created or stated job satisfaction.
- If governments are an intended audience for the results, they may be interested in monetary valuation of social capital impacts. Certain forms of monetary valuation can reflect the preferences and priorities of citizens, or identify opportunities for governments to save costs as a result of welfare improvements or improved efficiency in use of resources. Examples include a company’s direct contribution to GDP through employment, government savings from the avoided spend on welfare and unemployment benefits, and the monetary value of welfare changes among citizens due to business activities.
- Internal stakeholders may be more interested in performance against targets or Key Performance Indicators alongside impacts on departmental budgets.
The table below highlights some advantages and disadvantages of capturing qualitative, quantitative, or monetary value.
Select a fit-for-purpose valuation technique
When choosing the valuation technique for the assessment, companies should consider:
- Type of valuation - For each social capital assessment, companies should select an appropriate valuation technique based on whether they will assess values in qualitative, quantitative, or monetary terms. If companies have multiple audiences and objectives, they may need to employ more than one method.
When using a mix of techniques and/or measuring different value perspectives, care should be taken to make sure that values are consistent with one another - especially if they are to be directly compared or aggregated. For example, when considering monetary values associated with providing a vocational training course, it is possible to measure in monetary terms both the resource cost to a company from running the course and the welfare value to an individual from the increased earnings they can expect as a result. However, these two monetary values represent entirely different things and should not be aggregated.
- Level of rigor and granularity - Companies should determine the appropriate level of rigor to apply. Some may decide that rough estimates are sufficient to inform key business decisions and will withstand critique from internal and external stakeholders, whereas other companies may choose techniques that have higher levels of accuracy and credibility but may be time and labor intensive. Whatever the judgement, it is advisable to be transparent about the level of uncertainty in the results, such as by conducting sensitivity analysis into the effect on results from changes in key data that may be reported with low confidence or accuracy, or from changes in key assumptions.
Valuation techniques should be carefully chosen in the context of the audience, key stakeholders, types of impact, and how the information will be used. Figure 16 sets out a number of categories under which different qualitative, quantitative and monetary valuation techniques can be organised. This is followed by a description of these techniques and in what situations they are most suitable.
1. Qualitative valuation techniques
- Opinion surveys provide a means of representing the views of a broad group of relevant stakeholders through a series of questions (e.g. through questionnaires or semi-structured interviews). The relative importance or worth of social capital in a given context can be elicited to estimate the value in a qualitative sense.
Questions may be based on actual or hypothetical scenarios and seek responses from a range of relevant stakeholders. Surveys can be delivered in person, or remotely via telephone or the internet. It is essential to consider potential sources of bias in survey design, including in sample selection, scenario framing, the wording of questions, and data analysis.
Surveys are often also used for quantitative analysis, but should always include qualitative questions to corroborate results and to validate respondents’ understanding of quantitative questions.
- Deliberative approaches are structured frameworks, such as facilitated group discussions or focus groups, for stakeholders to debate the relative values of social capital in a given context. They are particularly useful where there are divergent opinions that would benefit from facilitated discussion, in order to understand the key drivers of different points of view, and to work through these differences in an attempt to reach consensus around an appropriate qualitative valuation.
- Relative valuation involves allocating high/medium/low values, scales or scores to performance indicators in order to determine the relative value of costs and/or benefits in categorical terms. It can be done using workshops, available data and/or expert judgment. Scores can then be weighted and aggregated to give an overall view of performance.
2. Quantitative valuation techniques
- Multi-criteria analysis involves selecting a range of indicators and rating and ranking their value through scoring and weighting in order to derive a single number outcome. This can be done using workshops, available data and/or expert judgment.
- Structured surveys allow for quantitative information about respondents’ views or preferences to be collected, through the use of closed questions and predefined scales, such as Likert scales37, which can be aggregated over the sample and used to estimate the views or preferences of a population of interest - such as a specific stakeholder group.
- Health Adjusted Life Years (HALYs) are a family of techniques that can be used for measuring the morbidity and mortality associated with different health conditions (i.e. injuries and illnesses) using a consistent and comparable unit of measurement.
There are a number of different HALY measures, which have been developed by different health agencies over the years. Two such techniques, which have become particularly prominent, are Disability Adjusted Life Years (DALYs)38 and Quality Adjusted Life Years (QALYs). These techniques measure health states in different ways, so care should be taken when using more than one type of HALY, and they should not be directly compared or aggregated. However, there are approaches to value HALYs in monetary terms to facilitate this, if required.
3. Monetary valuation techniques
There are a number of ways of categorizing techniques for monetary valuation of social capital, where each category captures different dimensions of value. These categories are market-based approaches, revealed preference techniques, stated preference techniques, wellbeing valuation, cost-based approaches, and value transfer techniques.
- Market-based approaches: use existing market prices for specific goods and services, where relevant, to represent changes in social capital.
- Revealed preference techniques look at the way in which people reveal their preferences through market production and consumption. Where direct markets for goods or services exist, the value people place on the good is revealed directly using market prices, either for that or a similar good.
- Stated preference techniques ask consumers to “state their preference” directly for a good or service using survey techniques in order to define an appropriate value.
- Wellbeing Valuation (WV) values changes in life circumstances by calculating the increase in income which would be necessary for an equivalent increase in wellbeing.
- Cost-based approaches estimate the value of non-market goods or ‘bads’ in terms of the cost of compensating those affected, mitigating damage or providing repair or remedy following negative impacts.
- Value Transfer, also known as benefit transfer, is not a valuation technique in itself, but involves transferring value estimates from existing economic valuation studies to the study site or context in question, making adjustments where appropriate.
See the monetary valuation techniques table below39 for a detailed comparison of these methods, including their advantages and disadvantages, as well as the data, time, budget and skills required to perform them.
Putting Theory into Practice
35 Better Evaluation present examples of why a business may want to combine different types of value data
36 Adapted from the Natural Capital Protocol (p.37, p.82-83 and p.112-113).
37 A type of scale used to establish people’s preferences. A common version is to ask people to select their level of agreement with a statement on a scale of: Strongly Disagree, Disagree, Neither Agree or Disagree, Agree, Strongly Agree.
38 For more information on DALYs see: World Health Organisation, Health statistics and information systems
39 This draws on valuation techniques featured in the Natural Capital Protocol, and builds upon a table originally produced for the WBCSD Guide to Corporate Ecosystem Valuation.