Over the past few years, one question has started appearing in almost every conversation we have with clients.
Not just what difference are we making (the impact)? – but:
What is the economic value of that difference?
Funders are asking it.
Commissioners are asking it.
Boards are asking it.
Policy-makers are asking it.
And increasingly, organisations themselves want to know the answer.
Economic evaluation is the process of attributing financial values to activities or the results of them. In the field of impact (where the focus is on change that has been deliberately achieved – the outcomes), it has long been used in government, public policy and formal appraisal, particularly through approaches such as cost-benefit analysis. What has shifted more recently is its growing use beyond those spaces, as charities, social purpose organisations, funders and mission-led businesses increasingly look to understand impact, investment and sustainability in more rounded and robust ways.
Economic evaluation is a way of understanding the social and economic value created through a programme, service, intervention or organisation by identifying the outcomes achieved – and estimating the associated costs avoided or wider value generated. For example, this might include the value created when someone moves into employment, experiences improved wellbeing, or avoids needing more intensive public services.
So why has it become so popular?
Why economic evaluation is in demand
Across the public and social sectors, systems are under enormous pressure. Budgets are tight. Demand for services is rising. And decision-makers are being asked to make increasingly difficult choices about where resources should go.
In that environment, organisations need to demonstrate not only that their work creates positive change, but that it creates value within the wider system.
Economic evaluation helps answer questions such :
- Can this activity or intervention reduce pressure elsewhere in the system?
- Can it prevent more costly problems in the future?
- Can it represent a good investment of public or charitable funds?
For stakeholders across health, education, local government and the voluntary sector, these are incredibly important questions.
Economic evaluation helps translate impact into a language that policy-makers, commissioners and system partners can understand.
But done well, it does something more important than simply produce a number.
It connects human stories with economic insight.
Different ways of doing economic evaluation
There are several recognised approaches to economic evaluation. Each has its place, depending on the context and the questions being asked. They fall into two areas of focus: 1) the value of what is achieved – of the outcomes – and 2) a measure of the cost of achieving that. In more detail then:
1.In the value of what is achieved, this is usually expressed in one of the following three ways:
- Overall benefit to one or more interested parties or stakeholders. For example, a youth employment programme helps a young person move into work. The value here is not just the salary they now earn, but also the wider benefit to that young person, their family and potentially their community through improved confidence, stability and future prospects.
- Costs saved (‘cashable savings’), or resources freed up for a given interested party or stakeholder. For example, an early support service helps people manage their wellbeing and mental health before they reach crisis point. This may reduce the number of GP appointments, A&E visits or referrals into more intensive services, creating savings or freeing up resources for the NHS or local authority.
- Avoiding an alternative cost of delivery to achieve the same outcomes. For example, a peer support model helps parents build confidence and reduce isolation. If similar outcomes would otherwise require more expensive one-to-one professional support, the value can be understood in terms of avoiding that higher alternative cost.
2.In the cost of achieving those, there are again, three ways of expressing it:
- A simple cash cost of delivering the activities, relating that to a time period of delivery or a number of people or units of delivery. For example, a programme costs £60,000 a year to run and supports 120 people. This gives a simple cost of delivery, which could be expressed as £60,000 overall or £500 per person supported.
- The opportunity cost of doing it, which also takes into account the ‘cost’ of having to make a choice between doing this, or doing another activity. For example, a team spends significant staff time delivering a new community project. Even if no extra money is spent, there is still a cost because those same people could have used their time on something else, such as another service or priority area.
- The full investment cost, which doesn’t just pick up running cost, and opportunity cost, but also the up-front investment necessary to design and develop the approach, piloting and refining it. For example, a service model may appear inexpensive once it is up and running, but it may have taken substantial time and money to design, test, pilot and refine. Looking at the full investment cost captures not just delivery, but also the up-front effort needed to make the approach possible.
Comparing Value and Cost: Four Common Approaches
So economic evaluation usually involves two building blocks: a way of expressing the value of what is achieved, and a way of expressing the cost of achieving it. In principle, any of the approaches valuing outcomes can be compared with any of the different ways of defining cost. In practice, however, there are a smaller number of combinations that organisations, funders and supporters tend to use most often when trying to answer real-world questions about value, efficiency and investment.
Currently, four broad approaches to comparing cost and value seem to be particularly common:
i. Not making a cost comparison at all
Some want to focus on the benefits and simply don’t want the distraction of a cost of delivery, an opportunity cost or a full cost. In these situations we tend to find organisations adding the cost comparison later.
ii. Cost-effectiveness analysis
Cost-effectiveness analysis compares the cost of an intervention to the alternative cost of delivering broadly the same outcomes. It is often used when comparing different approaches to achieving the same outcome, for example in healthcare or public service commissioning.
iii. Cost-benefit analysis
Cost-benefit analysis converts both costs and benefits into monetary values to understand whether the benefits of a programme outweigh the costs. This approach is widely used in government policy and investment decisions, as well as in pricing of services, and social sector decision-making. Any one of the three ways of valuing what is achieved may be used, depending on the decision being made on the back of this.
iv. Social return on investment (SROI) or other ways of comparing full benefit to full cost
SROI originated in the USA in the late 1980s, and remains popular. It focuses on the social value created for individuals and communities, often expressed as a ratio such as “£3 of social value for every £1 invested”. It compares overall benefit to full investment cost (or sometimes just one of the two annual costs).
While each of these approaches can be useful, they can sometimes feel quite abstract. Numbers alone rarely capture the full story of how change actually happens. That is why, at Sonnet, we take a slightly different starting point.
Starting with people’s journeys
At Sonnet, our economic evaluation work begins not with spreadsheets, but with people’s and / or organisations’ / groups’ experiences. Through this powerful approach to our impact work with organisations, we develop archetype storylines and journey maps that describe how different groups move through services and what changes along the way. These journeys help us understand:
- the needs or challenges being faced
- the support received and how this is delivered
- the changes that occur as a result
- the ripple effects into networks like families and communities, local and wider systems
Once we understand those journeys, we can identify the outcomes that occur along the way. Some of those outcomes create direct economic value – for example by reducing demand on health, social care or justice systems. Others generate value more indirectly by strengthening resilience, wellbeing and participation.
Using impact data to evidence value
The next step is to ground this understanding in evidence. We work with our clients’ existing data to demonstrate how these journeys and outcomes occur in practice. This can include:
- outcome measurement data
- service performance data
- stakeholder feedback
- qualitative stories and case notes
Together, these sources help us estimate how frequently outcomes occur and how journeys unfold.
We then combine this with established – such as national cost databases and research evidence – to estimate the economic or monetary value associated with those outcomes.
Crucially, we also work carefully through a number of assumptions to ensure the model remains realistic. These include:
- attribution (how much change is due to the service)
- stakeholder contribution
- deadweight (what might have happened anyway)
- drop-off over time
Being transparent about these assumptions is essential for ensuring the evaluation is credible and robust.
Understanding value across the system
One of the reasons economic evaluation has become so important is that it helps organisations demonstrate their role within wider systems of support. Many services do not operate in isolation. They sit within complex networks involving businesses, schools, health services, local authorities and community organisations. Economic evaluation enables us to explore how outcomes experienced by individuals can create benefits across multiple parts of that system – for example:
- reducing pressure on specialist services
- improving educational engagement
- strengthening community resilience
- preventing more costly interventions later
For system partners and commissioners, this kind of insight is extremely valuable because it highlights where investment in early support can create savings or value elsewhere.
Modelling value over time
Another important question is when value appears. Some outcomes occur quickly. Others take years fully to materialise. Working with our clients, we agree realistic time horizons – often five, eight or ten years or even a lifetime – to reflect how journeys unfold in real life. This allows us to explore the longer-term value created by interventions, while remaining transparent about where assumptions become more uncertain over time.
More than just a number
Economic evaluation can sometimes be reduced to a headline figure. But for us, the number is only part of the story.
What matters just as much is the narrative behind it: how services work, how people’s lives change, and how those changes ripple outward into communities and systems. By grounding economic evaluation in real journeys and real evidence, we ensure that the analysis reflects the lived reality of impact.
Why organisations find this valuable
For many organisations, economic evaluation provides a new way to articulate the importance of their work.
It helps them:
- demonstrate the wider value of their services
- strengthen conversations with commissioners and funders
- show how early support reduces pressure on systems
- make the case for continued or expanded investment
Perhaps most importantly, it allows organisations to connect two things that are often discussed separately:
the human impact of their work, and the economic value it creates.
…And when those two things come together, the story becomes much more .
Economic evaluation does not have to be abstract or overly technical. Done well, it can help bring together outcomes, value and real-world decision-making in a way that is practical and meaningful. If you would like to explore what that could look like for your organisation, we would love to hear from you.
