The Ultimate Development Equation by HR&S (DEq)

The HR&S Development Equation (DEq)

The HR&S Development Equation compiles the different categories of  stakeholders and how to assess, during the ROPE design phase, the size of risk that each stakeholder is willing to take in relation to the size of their investment and to their expected benefit. 

The stakeholders are the:

  1. Financial investors
  2. International managers
  3. Country managers
  4. Programme Manangement Partners (PMPs)
  5. Target Partners (TPs)
  6. Customers.

The investment is:

  1. Financial capital
  2. Tools, innovations
  3. Coaching, training
  4. Knowledge, expert advice
  5. Work hours, administration, coordination

The benefit is:

  1. Financial profit
  2. Social good, sustainable development in SSA
  3. Togetherness, friendship among stakeholders
  4. Branding for companies

The development plan/equation must acknowledge and respect:

i) what are the stakeholders willing to contribute with,
ii) what they expect in return and the accepted time until return, and
iii) what the risks are and how much risk are the stakeholders willing to take.

It is agreed by many that a transition from aid donation dependency to private sector sustainable economies is necessary. For the creation of effective capital markets, future development opportunities involve finance institutions, institutional investors, and entrepreneurs in partnership with states. Such transition is a major change and involves a number of challenges, and we must thus be prepared to experiment regarding business collaboration, and to innovate while working together transparently.

The PMP, TP as well as customers/clients, are those persons, communities or institutions that we aim to serve, those who are benefitting from our services and products and who are willing to invest in / pay for what we offer.

ROPE

Ambition

To design initiatives with sustainable development impact:

    • All partners understand and respect each other.
    • The finances balance.
    • The progress markers score above the accepted level.
    • The risk is below the accepted level.

From the point of view of the PMP, Target Partner and customer we build the collaboration programme on their ambitions , on their their challenges and on their network and understanding of the local situation. We aim to  be a trust-worthy and capable partner.

From the point of view of the investors we work with risk/return&impact ratios. Investors need to know that the funds and effort they contributed with is well managed so that money is not lost and sustainable impact is ensured.

HR&S offers the service of both the international and national implementing partners; HR&S HQ in Sweden operated as the international implementing partners and HR&S Country branches operates as the national implementing partners. We empower every key stakeholder; through our development programmes, our target partners in lower income countries and our investors, as well as the international and the national implementing partners.

Outcome challenges

  1. The risks related to the realities on the ground.
  2. The competing Aid industry, which fails to measure evidence-based impact, but is generous with giving out donations.

Activities

the Risk/Reward Ratio

The risk/reward ratio marks the prospective reward an investor can earn for every dollar they risk on an investment. Many investors use risk/reward ratios to compare the expected returns of an investment with the amount of risk they must undertake to earn these returns. A lower risk/return ratio is often preferable as it signals less risk for an equivalent potential gain.

Consider the following example: an investment with a risk-reward ratio of 1:7 suggests that an investor is willing to risk EURO 1, for the prospect of earning EURO 7 (14%). Willing to risk EURO 1 to earn 0,1 (same as 10%interest) is 90%!

Equation Units

We use funds as unit for the financial aspect and we use
Progress Markers* scoring for the social aspect.
– Funds (Euro).
– Progress marker scoring (1-5).

* Progress Markers are parameters within the ROPE management strategy, and Real-time Outcome Planning and Evaluation, ROPE, is a development management strategy developed by HR&S.

Reflection

Our operations are two-fold, we address operational impact, thus implementing social good, and we address financial impact, thus ensuring a sustainable economy. 

Prior to involving ourself in a new project we assess the risk-success ratio, the potential sustainable impact with the perceived risks of low impact, and we compare the risk-return ratio, the risk of losing funds instead of generating funds. HR&S operates by turning unfavourable risk-return ratios to favourable ones.

As the institutional capacity often is fragile in the countries where we operate the risks are high when we establish new partnerships. Even if we do not give out donations, but sell our services and offer business loans, the price we can ask for is low and the business loans we provide are not always paid back. Moreover, the time invested in support can be wasted if the risk for low impact is high. The business loans are not paid back, the price we can ask for is low, and the effort invested may be not matched, as most institutions have an aid mindset, expecting financial donations as well as products and services for free. Moreover, the exchange rate is unfavourable for HR&S Sweden. We are also challenged by operating in a fragile rule-of-law environment. We work with risk management and risk reduction by coaching institutions and enterprises to establish their own efficiency, transparency and accountability agency. Risk reduction has been found to require several years to achieve, if at all. HR&S is willing to take risks, as we have found that mistakes made that is affecting a team, is an excellent pilot project for the team to work with, together with HR&S, in order to install procedures for this not to happen again. We seek locally developed procedures to avoid mismanagement of funds and corrective measures if it happens and benefit from the general facts such as “the opportunity makes the thief”, “the aid expectations mind-set”, “learning from failure makes us stronger”, “fragile rule-of-law”, and “solid community awareness”. Eventually, we have a team of efficient, self-motivated development stakeholders with a long-term vision and institutional operational and financial capacity.

As we risk losing effort (work-hours) and funds during the first few years of a collaboration with a new partner and as we always work with new partners, we depend on financial donation as means to build operational and financial stable institutions and partnerships with favourable risk-return ratios, and thereby be able to sustainable impact on development. Donation can be restricted if need be.  It can target for example topping up coaching services provided to institutions that cannot afford the actual cost.

Return on investment (RoI)

To calculate ROI, the benefit (or return) of an investment is divided by the cost of the investment. The result is expressed as a percentage or a ratio; the net profit/the investment cost.

For example, suppose the investor invested $1,000 in a project and received $1,200 one year later. To calculate the return on this investment, divide the net profits ($1,200 – $1,000 = $200) by the investment cost ($1,000), for an ROI of $200/$1,000, or 20%.

Time until return

Important also is the expected time until return.
If it takes 6 months, one year or two matters as we can have four 6 months project during one two years project.
 

CSR

It is generally agreed that the private sector has an important role to play in driving the  development in the world, in parallel with the politicians. As companies continue to invest in corporate social responsibility (CSR) initiatives they must combine improving the state of the world, with improving the state of the business. This impacts how they define and measure success, as well as how they approach various challenges. And a good first step toward alignment is to gain a mutual understanding of some common terms. Terms may not be universally understood take on new meaning when used in a i) business setting by the CSR company, ii) social impact setting by the CSR companies, and iii) social impact setting by the local stakeholders. The underlying mindset may be required to overcome challenges in cross-sector collaboration, starting with clarity in communication. With sincere intentions and a lot of patience, communication, and transparency, even the most money-driven companies can become serious forces for good.

The intent behind the words “return” and “investment” must be agreed on exhaustively as a group, for a positive outcome and strong relationship.

CSR businesses: i) How much money will this cost, how much money will this make, and how much time will we recoup after the initial investment, as well as
ii) how will this improve our brand in terms of satisfaction among staff, customers, suppliers etc.?
CSR professionals within the business: i) input/output, amount of funds,time and capacity invested; ii) outcomes, number of people served and how well they were able to reach their goals; and, iii), sustainable impact, the duration of outcome and firmness of implemented procedures over time.
Implementation businesses for social good (CSR software, international and local development stakeholders): i) amount of funds, time and capacity invested, ii) how much money will this make, iii) level of outcome and sustainable impact.
Local targeted stakeholders: i) How much effort must we invest, ii) how will we benefit and how soon?

Risk reward ratio for investors

The risk reward ratio is calculated by dividing the risk by the reward and is a tool for investors to use to compare the potential profits and losses of an investment. It is the profit that can be expect on an investment per amount invested worth of risk involved in a trade.

Recruiting Branch & RISEmembers with mind-sets in-line with the HR&S mission.

We acknowledge the difference between different stakeholder’s mind-set. Some are already in operations with social impact for the country, whereas the others are asking for help with everything. If we partner with a social entrepreneur who already have impact. we will help this person to scale impact, but if we partner with those asking for help to start something, the risk is actually big that we may not have a measurable impact at all. It is all in the mind-set of the stakeholders we bring to our team. Some are in line with the HR&S mission, and some are not (very likely they are in line with the aid industry). It is key to success that both Branch team and RISE members  very well understand the difference and that they agree with the HR&S mission and not the aid mentality.
Testimony “In fact, there are a lot of young people who want to fight for the best. they create businesses that may or may not have a social impact. We can manage to take into account the social aspect at any time. they are receptive as long as they are respected. In fact they do not have the mentality of assistance or help. they need advice, guidance and support. Personally, I don’t work with those who haven’t initiated anything. It is first necessary to note a beginning before accompanying someone.”

Collaboration

With unlimited access to people and information, the idea of connecting and combining resources fosters infinite hope for success and impact. But collaboration has its blind spots. Often when two people enter a collaborative relationship, they focus on “how” and “when” they will accomplish their objective. They often skip the “who” and “why.” And by that, we mean who is sitting at this table right now, and why are they here? 

Once we get those answers, we develop not just understanding, but empathy, which is critical to any relationship that unites people from vastly different backgrounds. This empathy leads to consistent understanding of the other’s approach and methodology, which will lead to smoother collaboration over the long-term relationship. Constantly reminding one of the perspective of others’ desired outcomes gives the partnership a better chance of success. 

Business: We will combine skills and background and make us look amazing and deliver a win for the company.
CSR professionals: This is the beginning of a strong, long-lasting partnership. Together we can change the world!

Innovation

Innovation can be very exciting. It represents the opportunity to turn our imaginations into reality. But with innovation comes change, and change is hard. It requires clearly discussing what transformations will occur and how they will impact all parties involved, including the community. 

Business: An exciting execution of ideas, technology, and intelligence.
CSR professionals: A process that could potentially increase operational cost or affect the donor base.  With philanthropic engagements, the key is to focus on the end game and the means to achieve it rather than the innovation itself. If everyone has a clear picture of the goals, they can accept some of the disruption required to reach those goals. However, when it comes to social responsibility, it’s important to remember that the decisions you make can – and likely will – affect communities in great need of help. Thus, it’s important to keep people and community service programs at the center of discussions. That’s not to say that innovation cannot thrive in the social responsibility space; but it may look a little different than what businesspeople are used to. Indeed, some of the most effective impact changes have come from not creating new technology but by thinking of problems differently and using existing technology. 

Equation design
Revenue vs impact

Measurement

  • Funds (EURO) (f)
  • Programme progress marker scoring (pm)

Investment

  • Investor for development
    (philanthrope, private sector CRM or institution in Africa served)
    • Funds, procures consultancy services from HR&S HQ         IPf
    • Funds, core funding to HR&S                                                     ICf
  • HR&S Sweden HQ
    • Funds ActionInvest                                                                     AIf
      with annual interest 10%, and reward per transfer 10%           
    • Work hours, project management
    • Work hours, Progress Marker scoring
    • Innovations & tools
  • HR&S Country Branches
    • Work hours, project management
    • Work hours, Progress Marker scoring
    • Local knowledge, innovations and tools
  • RISEmember
    • ActionInvest annual interest                                                 AIf x 0,1
    • RISEfees                                                                                   RMf
    • Annual Work hours 
    • Business plan, local knowledge

Expected Return

  • Investor
    • pm from projects paid consultancy services for                Ipm
    • services paid for                                                                      Iserv
  • HR&S Sweden HQ
    • Consultancy services fees                                                      HSf
    • PM from projects invested in through ActionInvest           AIpm
  • HR&S Country Branches
    • Work hour Reimbursment                                                        BRf
    • Enabling own sales, RISEmembers fees                               RMFf
    • Enabling own sales, RISE services                                         RSf
  • RISEmember
    • Loan                                                                                             AIf
    • Training
    • Profit                                                                                           RMPf
    • Sustainable business                                                               Bpm
     

Risk accepted

  • Investor
    •  0 % of investment (consultancy fees)
    • PM scoring 2 after one year if scoring 4 after three years.
  • HR&S Sweden HQ
    • 1st loan if followed by lesson learned and informed decision.
    • 0 % of reimbursement
    • PM scoring 1-2 after one year if scoring 4-5 after 3-5 years.
  • HR&S Country Branches
    • 0 % of reimbursement
  • RISEmember
    • Profit if profit is generated after 3-5 years.
    • 0% balance
     
 

Balances

External investor & HR&S
IPf + ICf = HSf + Ipm + Iserv + AIpm

ActionInvest investor & HR&S
AIf =  AIpm

Local HR&S Branch
AIf x 0,1 + AIf reward per transfer + RMFf + RSf = BRf + AIpm

Local RISEmember
AIf x 0,1 + RMf = RMPf + Bpm


 

Impact vs risk ratio

The social impact/risk ratio

We aim to support companies with as much social impact as possible. At the same time lessons learned have shown that high social impact often comes with high risks.
We measure i) social impact with Progress Marker scoring, average (times 10) and we measure ii) risk with % , how much (money) have we lost per amount invested. We multiply the ration with 10. We do the calculations at the end of the year and it thus reflects the strategies we have been using during that year. That years strategy will then be adjusted through lessons learned and informed decisions.

Example
20 % of the funds were lost, and the scoring was average 3, that gives a ratio of 15
Loss 50% score high 5 – ratio 10
Loss 20% score 5 – ratio 25
Loss 10% score 5 – ratio 50
Loss 50% score 1 – ratio 2

 

The Stakeholders

The investors

The investor contributes with

  • Funds
  • Work hours & Knowledge (a senior person’s time is more costly than a junior’s)
  • Material: Meeting venue, visibility (social media etc)
The investor expect in return
  • Profit, 10% annual, no risk.
  • Sometimes also sustainable development/social impact as a contribution to branding. If impact is also expected the accepted risk can sometimes be high (90%) and/or the expected profit low (0-5% annual).

The investor wants to know

  • The risk
  • Risk mitigation measures
  • How much money will this cost in total
  • How much money will this make
  • How much time it will take until funds are paid back with profit after the initial investment
  • How many work hours at the side of the investor this will cost and at what level
  • How will this improve the brand in terms of satisfaction among staff, customers, suppliers etc.
  • Which development impact will this have
    • Outcomes, number of people served and how well they were able to reach their goals
    • Sustainable impact, the duration of outcome and firmness of implemented procedures over time.

Institutional investors controls much of the capital worldwide and can play an important role in reaching the Sustainable Development Goals (SDG). This is in agreement with the views of Carin Jämtin, Director-General at Sida Sweden, who stated in 2022 that there is a need for a new financing architecture that contributes towards the SDGs, and referred to the private sector. Jämtin thought claimed that the investments by the private sector are slow, and shared that this is due to the related risk, lack of bankable projects, weak institutions, weak regulatory environments as well as lack of data, partnerships, and innovation. This has been confirmed by the Swedish Investors for Sustainable Development (SISD), a group of 21 financial institutions with the common objective of encouraging more capital towards the SDGs, who explains that as a result of the fragile harmonization and standardization, lack of data on investments and their impact, and lack of alignment between investment assets to sustainability, little progress has been done regarding financing since 2015.

 

The Swedish Investors for Sustainable Development (SISD) is a partnership comprising 21 of the largest financial actors on the Swedish market and was formed by Sida in 2015 to explore the role of investors, risks and opportunities related to the 2030 Agenda and the Global Goals for Sustainable Development (SDG). Sida claims that the SISD partners have made a joint commitment to strive to invest in accordance with the SDGs. Later in a panel discussion in 2022, Magnus Billing, CEO, Alekta, representing the Swedish Investors for Sustainable Development (SISD), noted that little progress has been made regarding financing since 2015. He stressed the need for: harmonization and standardization; increasing the availability of data on investments and their impact; and aligning investment assets to sustainability.

The International Implementing partner

HR&S offers the services of the international implementing partners; HR&S HQ In Sweden operates as the international implementing stakeholders. Action10 contributes with ActionInvest and CROSS.

The HR&S HQ  empowers every key stakeholder; through their development programmes, target partners in lower income countries and our investors, as well as the international and the national implementing partners.

HR&S HQ is developing tools for risk assessment and risk mitigation. We always seek contact with new potential investors to work with.

The International implementation partner (HR&S Sweden) contribute with

  • ActionInvest funds
  • Work hours
  • Tools
  • Innovations for successful implementation
  • Innovation of how the investor will benefit
  • Network
  • Knowledge
  • Risk mitigation measures
  • Impact surveys
The international implementing partners expect in return:
  • Income that covers costs.
    • Action10 5% of donations.
    • HR&S consultancy fee. Costs include salaries.
  • Sustainable evidence base impact, as Action10 is a development organisation and HR&S is a social enterprise.
The implementing partner wants to know
  • The risk
  • Accepted consultancy fee
  • How many work hours and other resources this will require, and at what level.
  • How will this improve the brand in terms of satisfaction among staff, customers, policy makers, development stakeholders, other investors.
  • Which development impact will this have (as above).

About the relations between Action10 volunteer staff and the Country Branches volunteer staff.  We are both the investors.

Action10 invests time, skills, knowledge, efforts…
and manages the link to financial investors.
Some of us are financial investors as well.

HR&S Country Branches Action10 invests time, skills, knowledge, efforts…
and manages the links to the loan-takers (RISEmembers)

Action10 and Country Branches volunteer staff are in this together, we depend on and support each other to reach and empower entrepreneurs offering social good in sub-Sahara African countries.
 The Country Branches can inform Action10 about the amount that they will be able to manage, meaning they have found trustworthy entrepreneurs to give loans to. Country Branches manages the transactions on-site, visits and empowers the entrepreneurs, addresses challenges, and provide training.
For this they are not paid.

Action10 shall preferably be able to transfer the amount that the Country Branches inform that they are able to give out as loans, to keep the Action10 brand high, so that loan-takers trust Action10.
This is very serious matters, we raise expectations and we raise hope when we offer services to under-served communities. The people we reach out to, must be able to to trust us.

Each and everyone of us must be honest and trust-worthy about doing our very best to fullfil our assignments. Out of respect for the under-served people we have reached out to and agreed to empower.

HR&S Sweden offers management strategies designed to empower fragile infrastructures in sub-Sahara African countries and management strategy coaching.

Long-term
HR&S Sweden and HR&S Country Branches shall be able to employ staff, so that we will have the capacity to scale and manage the programme in a way that it creates significant sustainable impact and firm infrastructures.

Action10 will always remain Action10, an amazing volunteer driven organisation, and the ActionInvest capital will grow and grow and grow (never to be consumed) together with the cross-cultural awareness and respect that we create a platform for.

The National Implementing partner

HR&S offers the service of the national implementing partners through the HR&S Country Branches. 

The Country Branches are in charge of the ActionInvest Capital and perform the country programme risk/return&impact ratio assessments. The Country Branches need to secure that the funds and effort they contributed with is well managed so that money is not lost, interest and fees are paid timely and sustainable impact is ensured.

The Country Branches develops yearly business plans, and can thereby assess the level of risk they are able to take, taking into account that the running costs of the country branch and the reimbursement of the team members must be secured.

National implementing partners (HR&S Country Branches) contribute with

  • Work hours
  • Ideas and innovations
  • Local network
  • Local knowledge
  • Risk mitigation measures
  • The type of guarantee required
  • The type of corrective measures if need be
  • Business plan
  • Accounting

The local implementing partners expect in return

  • Income that covers costs, including team-member reimbursement.
    • Interest
    • RISE centre fees
    • Training fees
    • Other business ideas
  • Sustainable evidence base impact, as HR&S is a social enterprise.
The local implementing partners want to know
  • The risk
  • The size of the investment transfers and when it can be delivered
  • The interest rate and duration of loan
  • The level of access to support; products and services
    • Training, coaching, expert advice, tools and equipment

The Target partners

From the point of view of the Target Partner we build the collaboration programme on the ambition of our partner, on their their challenges and
on their network and understanding of the local situation. We aim to be a trust-worthy and capable partner.

The target stakeholders contribute with

  • Work hours
  • Ideas and innovations
  • Local network
  • Local knowledge
  • Business plan
  • Accounting
  • Risk mitigation measures

The target partners expect in return

  • Income that covers costs, including salaries, preferably profit.
  • The implementation of their ideas and innovations.
  • A scaled stable sustainable business.

The targeted stakeholders want to know

  • The risks
  • The size of the investment and when it can be delivered
  • The level of access to support; products and services
  • The interest rate and duration of loan
  • The type of guarantee required
  • The type of corrective measures if need be.