Both ER analysis and an ODG process require a clear definition of goals in terms of explicit outcomes that can be measured and used to evaluate all potential programs. Global development chose two metrics to quantify their impact: the number of individuals living on $2/day whose incomes at least doubled as a result of Hewletts programs, and the value of a multidimensional metric global development index that included measures of literacy and health. Population took a different approach, specifying two desired outcomes: stabilization of global populations at levels that promote social and economic well-being, and sustaining the environment and enhancing and protecting reproductive health and associated rights. To conduct the ER analysis, the population program also needed outcomes that could be clearly measured and chose to use different metrics for different clusters of grants. For instance, the ER analysis for one cluster was measured in terms of expected unwanted births averted through 2050.
With a common yardstick to measure the success of each potential program investment, Hewlett attempted to calculate ER for each cluster of potential investments. The ER calculation depends on four measures: benefits in the perfect world, likelihood of success, philanthropys contribution, and the costs of a particular strategy. In effect a benefit-cost ratio, the calculation adjusts the benefits to reflect the reality of risk and the role of other funders. The formula for the calculation is:
Expected Return = (Benefit in the Perfect World * Likelihood of Success * Philanthropys Contribution) / Cost
The benefit in the perfect world is the Foundations best estimate of the effect of the investment on the outcome metric. The benefit component of the ER analysis is informed by the professional judgment of Foundation staff and existing academic research. The likelihood of success component reflects the presence of risk, which takes many different formsthe link between the investment and the outcome may not be correct, the grantee may not have the ability to successfully implement the program, or the success of the program may be affected by external political or economic considerations. Again, the Foundations estimate of risk is based on existing evidence, professional knowledge, and field interviews, but it is fundamentally a subjective assessment. The philanthropys contribution seeks to measure the importance of its involvement in driving the outcome relative to other actors roles. While the contribution might be measured by the share of the total funding provided by Hewlett, foundations can also play roles as conveners or leaders where their significance to a project may exceed their financial contribution. The cost includes the program cost to implement the strategy and the overhead cost to administer the grant. Dividing by the cost creates a benefit-cost ratio.
The Foundation does not use ER calculations to determine whether to fund one organization over another, rather they are used to determine the most effective strategies for achieving particular goals. For example, the global development program considered a wide range of strategies including supporting impact evaluations of public services, scaling up literacy interventions, and reforming trade regulations in emerging economies. Using ER calculations, Hewlett determined that the first two strategies had higher expected returns than the third. At this point, Hewlett has not used ER calculations to determine which organizations to fund because the information on the potential benefits and risks is not accurate enough to allow for the comparison.