Metrics
LM3 ... Local Multiplier 3

A tool developed by New Economics Foundation (NEF) ... LM3 Online enables calculation about an organisation’s local economic impact on its community

Burgess COMMENTARY

Peter Burgess

LM3 Online enables you to calculate your organisation’s local economic impact on its community Whatever your reason for measuring your local economic impact, LM3 Online is the fastest, most user-friendly, and most cost-efficient method available. Now completely redeveloped to show for the first time not only your average LM3 but also the difference that using local or non-local suppliers makes to the local economy. This makes LM3 the key tool in delivering both coherent Corporate Social Responsibility programmes and Sustainability Measurement. The new model now also works anywhere in the world making it available for all forms of international grant aid impact, and global Corporate Social Responsibility uses. LM3 measures the multiplier effect of income into a local economy over three 'rounds' of spending. The tool takes into account: Round 1- Any organisation’s turnover or project cost including procurement and employee wages and other forms of cost. Round 2- Where and with whom the company spends that money. Round 3 - Where and how suppliers and employees re-spend their incomes. The multiplier is then calculated for every unit of currency spent within a ‘local’ area selected by the user. For example, an LM3 score of 1.50 would indicate that every $1 earned by your company generates an additional $0.50 for your local area. LM3 has been applied in the UK public sector at local government levels, and been used to demonstrate the local economic impact of over £13 billion of public, private, and not for profit spending.

Who is the tool for? LM3 Online enables any organisation to measure its economic impact by analysing any expenditure on any geographic area using current data. LM3 Online automates the whole process. Simply upload the spending data of the budget you wish to measure, such as a contract or company turnover; specify the target local area, and the system does all the surveying and calculations. The tool is used by: The public sector - To provide objective evidence of community benefit, sustainability measurement, and social value The private sector - To demonstrate added value of contract work and local benefit and to deliver auditable Corporate Social Responsibility (CSR). The not for profit sector - To evidence the value generated by grants and contracts to the local community meet International funders and foundations – To evaluate grant aid impact and select projects with the greatest local economic impact

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About LM3 LM3 (the Local Multiplier 3) is a methodology that can be used by companies, government, or community organisations to measure how their spending generates local economic impact. More importantly, LM3 enables people to identify where changes need to be made to improve that impact. LM3 takes its name from the Keynesian multiplier, which has been used since the early 20th century to measure how income entering an economy then circulates within it. The theory is that a change in income has a multiplied impact on that economy. The New Economics Foundation nef originally adapted the model for use at the local level, and this version measures three 'rounds' of spending: hence Local Multiplier 3 but has also been improved so that it differentiates between local and non local impact. The tool was first applied on a large scale within Northumberland County Council where it was shown that: Every £1 spent with a local supplier is worth £1.76 to the local economy, and only 36 pence if it is spent out of the area. That makes £1 spent locally worth almost 400 per cent more. A ten per cent increase in the proportion of the council's annual procurement spent locally would mean £34 million extra circulating in the local economy each year. If councils across the UK made a ten per cent increase, it could mean an additional £5.6 billion re-circulating in local economies across the UK. Many large and medium sized enterpises now use the tool both to demonstrate the Social Value of their activity on local economies and as part of their Corporate Social Responsiblity sustainability programmes LM3 has now been applied to over £13 billion pounds of spending in public private and not for profit sectors. More information can be found at these locations: New Economics Foundation - Background and use of the tool Measurement of Sustainable Procurement- Use of objective measures of social, economic, and environmental benefit Case History A local authority was interested in using some land that it owned for development purposes. Potential developers were asked to make proposals and to demonstrate how these would maximise social, economic, and environmental benefit to the local economies and communities. With the introduction of the Public Services (Social Value) Act tendering companies were asked to provide a measure of the Social Value provided. The company decided to use this opportunity as a way of generating an evidence base that they could apply to all their public sector work and embed this approach into their emerging Corporate and Social Responsibility Policy. They used LM3 to demonstrate an auditable measure of benefit that showed that on average every pound spent generated £1.48 in the local economy and communities. Crucially by using this approach they were also able to show that where they used local suppliers this increased dramatically to £2.64. The use of the model has increased tender success rate, reduced bid costs, and set the standard for their CSR policy.