| Primary purpose
Who can use the tool?
What resources are needed?
Development, ownership and support
Third sector examples
Further sources of information
LM3 – Local Multiplier 3
LM3 was developed by nef (the new economics foundation) as a simple and understandable way of measuring local economic impact. It is designed to help people to think about local money flows and how their organisation can practically improve its local economic impact, as well as influence the public sector to consider the impact of its procurement decisions. It was designed to be quick and relatively easy, and to highlight where an organisation can improve its impact.
The measuring process starts with 1) a source of income (say total income into a social enterprise) and follows how it is 2) spent and then 3) re-spent within a defined geographic area (that is called the ‘local economy’).
These three steps are the ‘3’ in LM3. The ‘multiplier’ is an economics concept that puts a label on a concept we understand intuitively: money that enters an economy has a multiplied impact on that economy based on the way people spend and respend money. More re-spending in the local economy means a higher multiplier effect because more income is generated.
There are five general stages to an LM3 analysis:
Some organisations, such as Rolls on Wheels and Gorbals Initiative, write up a report of the process and results. Others, such as Northumberland County Council, incorporate the results into future strategic planning documents. The process can be revisited on a periodic (say annual) basis and progress compared.
By 2008, all 25 North East Local Authorities had completed an LM3 exercise as they recognised that public sector procurement spend could have significant economic impact within local communities. Likewise, using LM3 The Princes Trust (North East ) was able to demonstrate that £1.9 million disbursed in 2006/2007 generated £4.1 million per annum within the North East regional economy via the impact of grant funding, development awards, supplier spend and expenditure on staff salaries.
All third sector organisations, regardless of sector or size can use LM3. It is most effective for organisations seeking to understand or demonstrate its effect on local economic regeneration.
LM3 requires a leader, generally from within the organisation, though many have been carried out by external organisations or people. The organisation will need to buy into improving the results of subsequent LM3 measures at a high level for this improvement to occur. It is also important for the organisation to have a good rapport with suppliers and staff, who will be surveyed as part of the process.
Proficiencies or skills
LM3 requires one person to lead who is comfortable with numbers. The LM3 process requires only basic maths skills, and the person must feel comfortable discussing figures relevant to things like turnover, overhead, salaries, etc. Generally, the process requires accessing financial accounts, so the person involved must know how to use Sage (or whatever financial accounting software the organisation uses) or be able to get someone to do the work for him/her.
The amount of time spent by each organisation has varied widely. Some organisations can complete the process in a week, while other organisations have let the process stretch out over time. Some organisations were able to build some real momentum in the community around the work, so the timeframe in which it is completed matters. In terms of time, the first two rounds can be quite quick. The third round, usually surveying suppliers and staff, can take longer depending on the size of the organisation. Some of the best LM3s have entailed visiting suppliers in person and working through the survey.
Courses, support, and information
The money trail is intended to be a how-to and troubleshooting guide. The Plugging the Leaks website contains additional documents, such as survey templates and PowerPoint presentations. There is no training or consultancy needed, and you can repeat LM3 whenever you want to. nef may be able to provide limited telephone and email support depending on funding.
There is also an online version of the LM3 tool. It provides the all the materials necessary and detailed guidance for carrying out an LM3 study. Users can choose from three customised versions of the tool for the private, public or non-profit sectors.
nef developed the tool with significant support from the Countryside Agency from 2000–2004, and is in the public domain. nef holds the copyright to the how-to manual, The Money Trail, but it is downloadable from the nef website for free. A spiral-bound hard copy can be ordered on the website for a fee.
Examples from other sectors
Other organisations that have completed LM3s can be found in The Money Trail.
Additional uses and users of the tool include:
The following publications can be downloaded for free at: www.neweconomics.org