Someone: “What do you do for a living?”
You: “I am the country director for a global non-profit organization.”
Someone: “Ah, sweet. What kind of a non-profit?”
You: “Providing education to underprivileged adolescents in Africa.”
Someone: “Are you able to make an impact?”
You: “Last year our programs impacted approximately 236000 adolescents across 7 countries in Africa and we attained a social return on investment of 4.7 i.e. $4.7 of social returns for every $1 investment. We are looking to improve on that this year. So, I guess the answer is yes. :-)”
SROI or Social Return on Investment is similar to the concept of Return on Investment (ROI), however it includes Social and Environmental outcomes along with the economic outcomes. SROI is about value, rather than money. Having said that, money is the common unit that is used, simply because it’s the widely accepted way of conveying value. According to The New Economics Foundation, SROI “captures social value by translating outcomes into financial values.”
In some explanations, SROI is explained as ROI but having an extra bottom line representing the social impact of your non-profit’s work.
Over the past decade, early adopters of SROI in the non-profit sector have realized it to be one of the best ways to gauge the impact an organization is making – be it an NGO, a Government body or a social enterprise.
SROI is not just a number; it’s the whole framework and the process of how you arrive at that number. It’s not right to base your decisions purely on economic returns when social and environmental factors and outcomes have such a big role to play. SROI tells a story how change is being created. The framework tells you what factors to base your decisions on and it includes qualitative, quantitative and financial information. SROI can take different forms – can be done for a specific program or can be done for the whole organization.
There are broadly two types of SROI – Forecast and Evaluative.
Forecast SROI predicts the social value assuming activities meet their social outcomes. Its extremely helpful in the initial planning stages since it tells you what outcome data needs to be collected. This way the team is well prepared and knows before the start of the project how they are supposed to measure them.
Evaluative SROI is done using actual outcomes that have already taken place. Good outcome data is the key to perform this kind of SROI.
Best practice is to do Forecast SROI first so that you have the proper data collection systems in place and you are in perfect shape to do the evaluative SROI with the real outcome data after the project is over.
SROI was developed from social accounting and cost-benefit analysis and is based on seven principles –
- Involve stakeholders
- Understand what changes
- Value the things that matter
- Only include what is material
- Do not over-claim
- Be transparent
- Verify the result
I will not delve into the individual principles – they are self-explanatory and you have a lot of resources online that will explain how to apply these principles in an SROI project.
A lot about SROI methodology is about practitioner’s judgment. There will be situations while doing the analysis when one needs to assume certain aspects and use judgment. Misrepresenting some information may impact the calculations in a big way.
I will keep the blog really simple and won’t go into the detailed steps but will illustrate the concept of the value of non-economic factors. Taking the same example that I used in the beginning of the post “Providing education to underprivileged adolescents in Africa “– the outcome of the program is multifold –
- The participants know how to read and write
- They are healthier since the program involves some physical sports
- Decreased teen pregnancy cases
- Decreased crime rates in the community due to better awareness
Now the tricky bit is to find the indicators for these outcomes and a suitable financial proxy for each of them to be able to convert all of them to a dollar value. For the outcome b) – healthier participants, the financial proxy can be the cost saved on number of hospital visits over the year. For c) decrease in teen pregnancies, some of the economic benefits are realized immediately while the others unfold during the later life of the teens. A particular research has shown that reduction in teen pregnancies lead to increased high school graduation and reduced use of public assistance by the mother. Conversely, children born to teen mothers have lower high school graduation rates, are more likely to repeat grades, are more likely to commit crimes, and are more likely to experience child abuse or neglect.
So the size of these effects can be multiplied by the value of each outcome to produce an estimate of benefits. For example, the reduction in the probability of a teenager dropping out of school can be multiplied by the value of completing high school set forth in a previous section to yield an estimate of the value of that benefit.
The formula for SROI in simple terms is
SROI = (Tangible + Intangible value to community) / Total resource investment
In cases, where the cost or benefits span multiple years, the concept of time value of money is used and we calculate the NPV (Net Present value).
I have kept the most important part till the end.
How Can You Use SROI?
As complicated as calculating the SROI seems, it’s actually pretty easy to communicate this, as your nonprofit’s value, to grant makers and other supporters.
- An NGO can put this statement in the annual report as the headline – “Every $1 invested in X Nonprofit saves $2.75 in community resources.”
- From a grant’s perspective, they can infer that “Program X is more sustainable/better/has a greater impact than other programs because it has the best evaluative SROI value”.
- If you are representing an NGO, use the SROI as part of your argument for funding and while writing tenders. Use this messaging in reports, direct mail campaigns, media campaigns, and social media.
- Apart from these obvious reasons stated above, SROI helps an NGO in taking strategic decisions and maximizing the social value an activity generates. It is a great way to initiate a formal dialogue with the stakeholders.
Please feel free to write any questions you have in the comments section or directly mail them to me.