Closing my company has given me the time to pursue a number of small projects. One of those projects is a concept I wrote about last month called the Cash Transfer Equivalency (CTE). The CTE is a simple investment standard that a program officer or social investor can use to assess whether a social program might deliver more value than simply giving equal amounts of cash away.
To make the CTE easier to use, I wrote a web-based CTE calculator that allows users to enter a program’s cost, the number of people the program intends to serve, and the estimated value of that service to each of the intended beneficiaries. Based on those inputs, the CTE calculator estimates whether the proposed social intervention will provide more value than simply giving money away.
The CTE calculator is an easy use to initial assessment tool for grant making insitituions evaluating new grant opportunities. Importantly, because the CTE translates social value into monetary terms, one could use the CTE calculator to compare two or more unlike funding opportunities.
Example
There isn’t much to the CTE calculator, so if you are so inclined you can skip this quick tutorial and give it a try now. But for clarities sake, let’s run through the following example.
Let’s say we are approached to fund a youth focused musical enrichment event. The potential grantee is requesting $7,500 to hold a one day concert for low-income kids. Our first step in the CTE calculator is to enter the program cost, in this case $7,500.
The youth concert expects 200 kids to attend. In step two, we enter the expected number of people affected by the program as 200.
You’ll notice in step two we didn’t just enter the number of people, but we also need to answer the “average value” column. The “average value” is our best guess as to how much each kid would have been willing to pay to attend the concert, were the program not being provided free of charge. In this case, we put in an estimate of $35 per person.
With those three simple answers, the calculator calculates the CTE and suggests whether the program is worth investing in.
With our youth concert example, the system calculates a CTE of 0.93. Because the CTE is below 1 (the point of indifference between doing the program and giving away equal amounts of cash) the calculator determines that the program is not worth investing in.
More simply, the basic mechanics of the CTE are exposed in the average cost versus the expected average value. At a program cost of $7,500 with 200 concert attendees, the average cost per person is $37.50. However, the expected average value we entered was just $35 per youth. Therefore, the program cost more on average than the value we expect each youth to receive.
This is a pretty straightforward example. Where the CTE calculator gets more interesting is when a program targets more than one recipient group. Using the youth concert example, you could imagine not just calculating the return to the kids, but perhaps their parents as well. The calculator allows you to enter any number of target groups, calculating the CTE for each group as well as a weighted average CTE across groups.
Using the CTE calculator
I wish I had the CTE calculator when I was working in a financial intermediary making grants to community development corporations in Pittsburgh. The calculator would have allowed me to more quickly weed out bad investments, and more importantly would have provided a much needed standard method for preliminarily assessing the high volume of incoming grant requests.
If I was still working as a grantmaker I would make the CTE a part of our initial grant application assessment. Each application would be assigned a CTE score by an individual program officer. The grants with the highest CTE scores would then go to committee for further consideration.
Because the CTE score hinges on the assumed monetary value per program recipient, the investment committee would likely debate the value assumption in the model. This is a good thing and illustrates the CTE method’s strength. Because the CTE score is driven as much by our best guess of the monetary value to the beneficiaries as it is a function of cost, the CTE focuses investment committees to have frank discussions about the value they believe their grant making will create.
You can check out the CTE calculator here and use it as you’d like.