Lessons From Flint: Why We Miscalculate Investments

The Flint Water Plant in Flint, Michigan. 

By Shubha Kumar

What was the grand total cost of the water crisis in Flint, Michigan?  One straightforward and common measurement, used by the city itself, would account for the expense of replacing the infrastructure: an estimated investment in over 6,000 water pipes.

Retroactively, however, it’s easy to view headlines and understand avoiding this situation would have saved the city on a seemingly endless list of consequential costs, including 12 deaths, the felony convictions of government employees, lifetime birth defects from lead poisoning, and the hygienic health effects of residents too scared to use their water.

Ironically, the grave miscalculation to switch water systems in Flint centered around the desire to save money.

Michigan Attorney General Bill Schuette voiced his explanation for this error during a Flint press conference, saying: “This fixation [on money] has cost lives. This fixation came at the expense of protecting the health and safety of Flint. … It’s all about numbers over people, money over health.”

Flint, however, is far from the only government or business to miscalculate the return-on-investment of a new program, policy, or organizational investment. History is littered with stories where the desire to earn or save money has led to investments going over-budget and time.

Famous PR disasters share stories of the slew of social, economic, and environmental consequences that are hard to calculate. Whether the Big Dig or Western Union passing over the patent for the telephone, everyday for-profit and nonprofit business and organizational decisions are often made with a cost-benefit analysis (CBS) and met with far more complex results than monetary difference. Whether or not an investment makes headlines, hidden costs and impacts could arguably affect the return-on-investment (ROI) of organizational initiatives with each decision made.

An innovative framework for calculating ROI, called social return on investment (SROI) analysis, may be a more productive tool for evaluating new investments such as clean water access. Initially used to measure the results of social enterprises, SROI is gaining ground across diverse sectors, especially in the international development and global health arenas. SROI provides a useful tool to calculate complex investments such as water infrastructure and provides a more holistic picture of sustainable impacts.

By definition, SROI analysis is a process for understanding, measuring and reporting on the social, environmental, and economic value (otherwise known as the triple bottom line) of an organization, program or policy.  One of the key differences compared to the CBA is the involvement of stakeholders in the analysis process.  By incorporating stakeholders across relevant organizations and teams, a more encompassing picture of varying values, cost factors and end goals appear.

Continuing with clean drinking water as a case study, investment in water infrastructure typically involves cost and impact across the triple bottom line of social, environmental and economic values.

Whether in Michigan or in less developed locations around the world, we can observe the innumerable costs of a lack of access to clean drinking water across these three areas. Impacts can include the obvious health effects, but also far-reaching and complex implications, including time spent collecting water, sanitation consequences, lost school and work days, increased poverty levels, the list goes on. Often, these results are compounded in already economically challenged areas.

In the case of Flint, the cost to replace pipelines burdened a state already massively in debt. Of course, underdeveloped international areas often face additional consequences, where the lack of access to water is often caused by the inability to invest in infrastructure and compounds economic issues such as farming, production, energy, food and more.

SROI analysis provides a critical tool to assist in preventing or addressing such water crises. In a largely impactful investment like water infrastructure, the SROI framework includes input from key stakeholders, including intended beneficiaries, governments, NGOs, corporations, donors, investors, and more. As a mixed methods and participatory approach, a final SROI report includes quantitative, qualitative, and financial information upon which to base decisions. Compared to a cost-benefit analysis, SROI is holistic enough to capture the various costs and benefits of clean water access and also a common language for communicating impact across the stakeholders.

Carried out during the planning stage of a clean water investment, or as an evaluation method for past projects, the SROI framework can include additional triple bottom line measurements, costs and demonstrate the wide-ranging values of an investment. As a result, use of SROI analysis for water infrastructure investments can:

  • Demonstrate wider values correlated to contributions
  • Attract funding and achieve greater buy-in to share costs
  • Strengthen communication, accountability and relationships for stakeholders
  • Reveal insights and potentially unintended consequences
  • Promote improved implementation and opportunity for success
  • Create a common language between private and social sectors

Overall, SROI changes the game of what gets measured and, therefore, what gets valued. Personally, I have seen an SROI framework lead to successful design and oversight of several programs beyond water, including, healthcare systems, disaster relief, and education initiatives.  For example, as COO for an international humanitarian NGO, I saw SROI analysis provide a critical gateway to the strengthening of emergency medical systems in sub-Saharan Africa.

Here, an SROI analysis extended the investment of staffed ambulances by not only including the value of lives saved but also including the value of correlated debt of disability cases, skills acquired through medical training, and patient welfare spending. We were able to identify an allocation of resources that would provide the most bang for our buck, in staffing and upgrading ambulances that already existed as well as implementing new technology to facilitate coordination between key constituents.

Whether assessing the investment opportunity of a new water pipeline, adding medical services in underserved areas, or perhaps, someday, a technology investment in the boardroom, SROI encourages accountability, transparency and sustainability in decisions that extend beyond the mere dollar amount. While not an exact science, SROI provides a more complete view of what should be valued and acts as a systematic measurement tool to incorporate a holistic perspective into an economic investment.   

Image credit: Flickr/Ben Gordon

Shubha Kumar, Ph.D., MPH, is Assistant Professor of Clinical Preventive Medicine and Director of the Online Master of Public Health Program at the Keck School of Medicine, University of Southern California.

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