Local Multiplier 3 (LM3)

LM3 onlineLM3Local Multiplier 3 (LM3) is a structured way to assess the local impact of a project or organisation, measured in terms of its own spend and the spend of its suppliers and beneficiaries.  In other words, the “3” refers to the number of steps – how much does the project or organisation spend/ give locally, then how much do each of the suppliers or beneficiaries spend locally, etc. 

This page is part of a longer article on how best to measure and report social good.  I hope you enjoy it and I'd be delighted with comment and criticism.  You can find out more about the whole series at this page.

Although these standard approaches take more work and often require an independent consultant or auditor to verify the work done, this makes them much more credible with organisations that provide the funding, or with Council Members/ Trustees/ the concerned Public who want to be sure that their money is being spent wisely.

So a new build spends £50,000 on the materials and £50,000 on work to build it.  The materials are brought in from elsewhere so they aren’t counted, but the £50,000 is spent on wages which go to people who live locally.  They in turn spend on housing and rates (eg £20,000), necessities (food, energy) (eg £10,000) and entertainment (going to the pub, the theatre, the cinema, shops, etc) (£20,000).  The places they spend in turn spend on labour (using local people, summed together £30,000) and on bringing in goods from outside (£20,000).  That’s our three stages of the local multiplier. 

For £100,000, at Stage 1 (spend) £50,000 is spent locally.  Of this, £50,000 is spent locally by the  building staff (we’re assuming no-one goes on holiday or travels) (Stage 2).    Of this, £30,000 is spent locally (on wages) and £20,000 goes away (Stage 3).  So LM3 multiplies the original £100,000 to give a return of £130,000 (the amounts at each stage which are local, added).  It's a little complicated and relies on a few assumptions, but it gives a financial value which can be compared to the original investment.

www.lm3online.org

SWOT

Strengths

Weaknesses

Presents financial values which are instantly comprehensible to investors – the language of finance

Structured and relatively easy to use reference values (eg “a supermarket spends 30% of its sales income on wages locally”)

Can appear to be quite “creative”, especially deciding where the money goes after Stage 1 (we know where Stage 1 money was spent, but do we know what happens to Stage 2 money and how do we allocate a whole person’s spend when only part of their income comes from this source?). Very difficult to get returns from the Stage 2 and Stage 3 beneficiaries (no commitment – perhaps this could be written into the contracts?)

Requires specialist support, and often quite intensive support

Concerns were raised that the maths don’t add up – inclination to go for big numbers

Focussed on financial value, and strictly in terms of what happens to the money spent (rather than did the outcomes make a difference?)

Opportunities

Threats

Can both develop and make use of reference values which means as the method develops, each appraisal takes less and less time and becomes more and more consistent and comparable

Limiting the assessment to “what happens to the spend?” assumes that a project has no intrinsic value other than the distribution of money

Limiting the assessment to Financial value ignores qualitative or soft benefits

 

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