Non-profits work on environmental or social value problems that cannot be measured through conventional financial accounting methods. Social Return on Investment (SRoI) is a way to measure the impact of a non-profit’s work in terms of financial ‘proxy’ values.
SRoI 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 and understood way of conveying value. According to The New Economics Foundation, SRoI “captures social value by translating outcomes into financial values.”
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 is 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 the story about how change is being created. The framework provides you the factors to base your decisions on and includes qualitative, quantitative and financial information. SRoI can take different forms – can be done for a specific program or for the whole organization.
There are two types of SRoI measurement – Forecast and Evaluative.
Forecast SRoI predicts the social value assuming activities meet their social outcomes. It is extremely helpful in the initial planning stages since it tells you what outcome data need to be collected. The team is therefore well prepared and knows how to collect them before the start of the program.
Evaluative SRoI is done using actual outcomes that have already taken place. Good outcome data is the key to perform this kind of SRoI assessment.
Best results are achieved through Forecast SRoI so that you have the proper data collection systems in place and you have everything to execute Evaluative SRoI with the real outcome data at the end of the program.
SRoI has 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
A lot about SRoI methodology is about practitioner’s judgment. There will be situations while performing the analysis when one needs to assume certain aspects and use judgment. Misrepresenting any information may impact the calculations in a big way.
Taking the example of “Providing education to underprivileged adolescents in Africa“ program – the intended outcome of the program are:
- 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
The trick for an effective SRoI study is to find the indicators for the 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 – healthier participants, the financial proxy can be the cost saved on number of hospital visits over the year. For decrease in teen pregnancies, some of the economic benefits are realized immediately while the others unfold during later life of those 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.
The size of these effects need to 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 should be multiplied by the value of completing high school to yield an estimate of the value of the benefit.
The formula for SRoI expressed simply 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 bring all monetary values to a base year value (using Net Present value).
How can a non-profit use SRoI?
As complicated as calculating the SRoI seems, the benefits lie in easily comprehended value a non-profit program is generating - to grant makers, funders, own staff and the community
- A non-profit can put a statement in the annual report – “Every $1 invested with us generates $2.75 of community benefits”
- From a grant’s perspective, a non-profit can infer that “Program X is more sustainable/has a greater impact than Program Y because it has the best evaluative SRoI value”.
- As a non-profit, use the SRoI for fund raising and grant proposals. You could use this messaging in reports, direct mail campaigns, media campaigns, and social media.
- SRoI helps non-profits make strategic decisions and maximize the social value an activity generates. It is a great way to initiate a formal dialogue with the stakeholders.
Non-profits should use SRoI as a more communicable way to measure the value their programs make and reap the advantages an SRoI study can provide.
Xtage Labs is an advanced analytics and machine learning based decision insights company. We work with businesses to derive insights from data, and improve the decision making processes.
Get in touch with us to find out what we can do for you.