BACO Ratio
Also written Best Available Charitable Option · BACO
Acumen Fund's ratio, used in the Fully Integrated Model, for judging whether a social enterprise investment is a viable use of capital based on financial, technological and social leverage.
In plain language
A philanthropic investor often looks at several social enterprises at once. Gut feeling is not a good way to pick between them. Acumen Fund built a ratio to help with this choice. It is called the BACO Ratio. BACO stands for Best Available Charitable Option.
The workbook says BACO is used for one job: deciding on a social enterprise investment. It checks three things at once. These are financial strength, technology, and social impact.
BACO belongs to the workbook's Fully Integrated Model of social impact assessment. This model is used by social venture capital firms and impact investors. They track their investments on an ongoing basis. They do not just check once, after the fact.
How it works
Two things matter about BACO in this workbook, and one of them is a deliberate criticism of it.
What it is meant to measure. BACO evaluates a potential investment's viability across three lenses: financial leverage, technological leverage, and social impact — helping an investor decide whether a given social enterprise is the "best available" use of its limited charitable or investment capital compared to alternatives.
Where the workbook flags it as a cautionary example. In section 7.4 (Issues or Challenges in conducting SIA), under "Lack of Standard Use of Terminologies," the workbook singles out BACO by name: "Acumen Fund writes about its BACO Ratio as a ratio of cost per outcome or cost per social impact but it actually focuses on output." In other words, the workbook uses BACO as its concrete illustration of a wider problem — organisations naming a metric as though it measures outcome or impact, when what it actually captures is output.
A worked example
Illustrative figures.
A social impact investor is comparing two clean-cookstove enterprises before deploying ₹3 crore of investable capital.
| Enterprise | Cost per unit sold | Units sold | Claimed metric |
|---|---|---|---|
| Ujjwal Stoves | ₹1,200 | 25,000 | "Cost per social impact: ₹1,200" |
| Nirmal Chulha | ₹950 | 30,000 | "Cost per social impact: ₹950" |
On the face of it, Nirmal Chulha looks like the better BACO score — lower cost, more units. But following the workbook's own caution, "units sold" here is an output, not a verified outcome (such as confirmed reduction in indoor air pollution exposure, or fuel cost savings actually realised by households). Before deploying the ₹3 crore based on the BACO comparison alone, the investor would need to check whether either enterprise has outcome-level evidence behind its cost-per-unit figure — exactly the gap the workbook warns BACO can paper over.
Why NISM asks about it
Chapter 7, section 7.2.3 (Fully Integrated Model), introduces BACO as Acumen Fund's investment-decision ratio; section 7.4 revisits it as a named example of terminology confusion between output and outcome. Expect a question on who developed BACO (Acumen Fund), what it stands for (Best Available Charitable Option), and the workbook's specific criticism of it (it is presented as measuring outcome/impact but actually measures output).
Common exam traps
- BACO stands for Best Available Charitable Option — do not confuse the expansion with a description of what it measures.
- The workbook explicitly criticises BACO's own framing — a question may test whether the candidate knows this is one of the workbook's named cautionary examples, not simply a neutral tool description.
- BACO evaluates financial leverage, technological leverage and social impact together — a question listing only one or two of these as the full definition is incomplete.
- BACO sits under the Fully Integrated Model, used by social venture capital firms and impact investors for ongoing tracking — not under the Outsourcing Model or the DIY model.
- Do not confuse BACO with the Benefit-Cost Ratio, Robin Hood Foundation's separate methodology, which the same section of the workbook discusses immediately afterwards.
Check yourself
1.Acumen Fund's BACO Ratio is given as an example of the fully integrated model. What does BACO stand for, and what is the ratio used for?
- a)Benefit And Cost Outcome — the collective benefit to poor individuals created per dollar of grant
- b)Baseline And Current Outcome — the change in indicators between baseline and end-line
- c)Best Available Charitable Option — identifying the viability of an investment based on financial leverage, technological leverage and social impact
- d)Best Available Charitable Option — the number of beneficiaries reached per rupee spent
Show the answer
Answer: (c) Best Available Charitable Option — identifying the viability of an investment based on financial leverage, technological leverage and social impact
BACO is the Best Available Charitable Option. Acumen designed it for decision making on social enterprise investment, and it is used to identify viability of the investment based on financial leverage, technological leverage and social impact.
Option A describes Robin Hood Foundation's Benefit-Cost Ratio — the benefit to poor individuals per dollar cost to the foundation. Option B is invented. Option D has the right expansion but the wrong basis. Note also that the workbook later says BACO, although described as cost per outcome, actually focuses on output — an example of the terminology challenge.
Where this is taught
Free preparation for NISM Series XXIIIRelated terms
- Benefit-Cost RatioA methodology developed by the Robin Hood Foundation to convert the outcomes of many different programmes into a single, monetised value of benefit created per dollar of cost.
- Direct impactA change seen in the intended target group of a programme as a direct result of the intervention — material to assessing the social enterprise's performance and required in every impact report.
- DIY (Do-it-Yourself) modelAn organisational model where a social enterprise develops its own social impact assessment tools in-house, customised to its stakeholders, drawing on tools other organisations have already built.
- OutputThe tangible, countable product or service a project's activities directly produce — immediate evidence of progress, but no guarantee that the project's actual purpose has been achieved.
- Monetisation approachOne of three approaches to Social Impact Assessment, converting social outcomes into a rupee value so investors can compare returns, using methods like Social Return on Investment and cost-benefit analysis.
- Fully integrated modelThe organisational model in which impact assessment is built into a programme and run continuously rather than at the end, used mainly by social venture capital firms and impact investors.
- InterdependenciesThe problem that one intervention's outcomes depend on other interventions or on external factors, so the change observed cannot be credited to the project alone.
- Investment efficiency KPIThe cost-per-unit-of-outcome measure in a project's KPI set — in the workbook's housing case study, total project cost divided by the number of families benefited.