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We need to measure the “Return on Investment” for Development Cooperation

In every other business, an investment is expected to make economic sense. 

According to the Development Assistance Committee (DAC) of the Organisation for Economic Cooperation and Development (OECD), in 2006 some 104 billion US dollars were spent by the main donor countries on development cooperation. This is a massive investment, and any project or activity in those same countries which cost as much would be subject to very close scrutiny in terms of – at the very least – a cost-benefit analysis.

In the last few years, many people in the “development community” (and outside) have become increasingly critical of the sometimes very disappointing contribution of development cooperation despite years of investment and effort. Increasingly sophisticated monitoring and evaluation systems are regularly being introduced in an effort to measure the impact of individual programmes and projects. While these efforts are good, they don’t go far enough toward addressing the central issue of improving the overall performance of the development cooperation sector.

What is required is a paradigm change. The development cooperation sector needs to become part of the economy, and be subjected (subject itself?) to some of the basic operating principles that govern economic performance.

If a government invests, say, 20 million US dollars in building a bridge, it has calculated the return prior to starting, and will recalculate once the bridge is in place. How can it then turn around and spend 1 billion US dollars on development cooperation without calculating the returns on those monies? The first place to start is with the goals. If these are not specific enough, (what exactly is “good governance”?) then no before and

after measurements can possibly be established. If however, one clarifies exactly what good governance means and then measures the negative impacts and costs of the current governance in the country, one can begin to quantify the minimum returns an intervention would need to achieve in order to be viable.

I hear squeals: “But you can’t measure the improvement in the quality of life for disadvantaged peoples!” I disagree. Anything and everything can be measured; it is merely a matter of finding the right metrics, with quality data that can be backtested. And once the Return on Investment (ROI) is established for the recipient country, an ROI should be calculated for the donor country.

Depending on the sectors addressed, the benefit could be (for example) the reduction in costs for policing borders (outward migration reduced through economic improvements). The sums “freed up” and available for other purposes are amount to a direct return to the donor on the investment.

These arguments do not discuss the complexities, but the message is: for an investment to make sense, its return must be calculable.

2 Comments to “We need to measure the “Return on Investment” for Development Cooperation”

  1. Susanne Alfs says:

    You get what you measure! This is a well-known management paradigm, and I do believe it fully applies to development cooperation work. If we manage to get this challenge addressed to satisfaction, we will achieve two goals in one step: We will freeze up further donor monies and at the same time the monies will be directed to where they serve the developing world best.

    But to get to a “Return on Investment” the first thing to be discussed is not the mechanics of measuring. There are loads of papers on how to do that. The challenge will be to narrow down the various objectives attached to each project to a manageable set of objectives. This process should start at the top. It should start at the top of donor agencies and executing organizations.

    We should learn to agree on very few objectives. The management should focus their attention to the goals and the attached measurements; most likely this will require a hierarchy of objectives. Obviously the side effects of a project need to be managed. But even when building bridges, the calculations for the ROI don’t address the impact on each village in reach or every organization involved.

  2. Reavis Hilz-Ward says:

    Thank you very much for this constructive input. I could not agree with you more. In fact, I consider what I call “top-down governance” for development cooperation to be one of the major challenges of our day. I am just writing an article on this subject: please check back soon for more thoughts.

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