The PPI™ estimates the likelihood that an individual falls below the national poverty line, the $1/Day/PPP and $2/Day/PPP international benchmarks. The PPI uses 10 simple indicators that field workers can quickly collect and verify. Scores can be computed by hand on paper in real time. With 90-percent confidence, estimates of groups' overall poverty rates are accurate to within +/-2 percentage points. The PPI can help programs target services, track changes in poverty over time, and report on poverty rates.

PPI indicators are derived from the most recent national household income or expenditure survey or the country-specific World Bank Living Standards Measurement Survey, depending upon which dataset has the most complete information, for each country. For instance, the Philippines PPI indicators are derived from the 38,014 households surveyed in the 2002 Annual Poverty Indicators Survey (APIS). This is the best, most recent household survey available with income or expenditure data.

Selecting Indicators

Indicator selection criteria include:

• Inexpensive to collect, easy to answer quickly, and simple to verify
• Liable to change over time as poverty status changes
• Strongly correlated with poverty

Generally from 200 to 1,000 indicators are collected in the housing surveys. That large number is narrowed to those potentially indicative of poverty level, including:

• Household and housing characteristics (such as cooking fuel and type of floor)
• Individual characteristics (such as age and highest grade completed)
• Household durable goods (such as electric fans and telephones)

Each indicator's ability to predict poverty is tested. From the original full set of indicators, about 50-100 indicators are selected for further analysis. The number of indicators chosen during the analysis depends on the survey and vary from country to country.

Frequently, many indicators are found to be similar in terms of their link with poverty. For example, most households which have a television also have electricity. If a PPI already includes "has a television", then "has electricity" is superfluous. Thus, many indicators strongly linked with poverty are not in the PPI because similar indicators are already included.

The PPI also aims to measure changes in poverty through time. Thus, some powerful indicators (such as education of the female head/spouse) that are unlikely to change as poverty changes are omitted in favor of slightly less-powerful indicators (such as the number of radios) that are more likely to change.

After all indicators are tested, one is selected based on several factors. These include the improvement in accuracy, the likelihood of acceptance by users (determined by simplicity, cost of collection, and "face validity" in terms of experience, theory, and common sense), the ability of the indicator to change values as poverty status changes over time, variety vis-à-vis other indicators already in the PPI, and ease of observation/verification. The selected indicator is then added to the PPI, and the previous steps are repeated until 10 indicators are selected.

Finally, the responses are weighted and scores are derived such that the lowest possible score is 0 (most likely poor) and the highest is 100.

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* This description quotes from: The Progress out of Poverty Index^TM: A Simple Poverty Scorecard for Bolivia, Mark Schreiner, December 2009.