SOCIAL RETURN ON INVESTMENT

(SROI)

Helen Casey

Cynthia Mulenga

Francisca Reutter

SROI - Just another attempt to turn social programs into commercial transactions?

“Dear Mr Ghandi,

We regret we cannot fund your project because the link between spinning cloth and the fall of the British empire was not clear to us”

Capturing Cost

• versus

versus

“Measure what is

measureable, and make

measurable what is not so”

Galileo

Galileo – godfather of SROI?

Stakeholders

• George Segal, the Tightrope walker, Carnegie Art Museum

If no market value exists...

Presentation outline

1. What is SROI?

2. Contexts

3. How is SROI Implemented• Stages

4. Uses (inappropriate)

5. Weaknesses

6. Strengths

1. What is SROI?

• Approach to program, project and policy evaluation that aims to account for non-financial outcomes using monetary values to represent them.

• A way of reporting on value creation measuring social, environmental and economic results.

• Includes a consistent approach with standard steps.

• Strong emphasis on involving stakeholders.

(Nicholls, Lawlor, Neitzert, & Goodspeed, 2012)

SROI measures the value of social benefits created by an organisation, in relation to the relative cost of

achieving those benefits, expressed in a SROI ratio:

SROI ratio = present value

value of inputs

(Rotheroe & Richards, 2007)

Two types of SROI

Evaluative • Conducted

retrospectively

• Based on outcomes that have already taken place.

• Preferred use in ongoing evaluation and not as a final outcome measure.

Forecast

• Conducted before hand.

• Predicts how much social value will be created if the activities meet their intended outcomes

(Nicholls, Lawlor, Neitzert, & Goodspeed, 2012)

Brief history and context

• In 1997, REDF (Roberts Enterprise Development Fund, USA) launched an

initiative to asses impact of non for profits. In 2000 SROI was first documented.

• A Network of practitioners was formed in 2006: SROI Network (UK and USA).

• New Economics Foundation in the UK edited a DIY Guide to Social Return on

investment in 2007.

• Office for the Third Sector (UK) developed a Measuring Social Value project

in 2008, aiming to develop SROI.

(Flockhart, 2005)

(Lingane & Olsen, 2004)(Arvidson, Lyon, Mc Kay & Moro, 2010)

PurposeIts fundamental purpose is to provide a model for allocating monetary expression of the value of outcomes for which no agreed market value exists.

It can de used for a range of evaluation purposes:

• Assess projects. (Forecast)

• Demonstrate achievements (Evaluative).

• Help improve organisational operations.

(Nicholls, Lawlor, Neitzert, & Goodspeed, 2012)

7 Principles of SROIInvolve stakeholders.

Understand what changes.

Value the things that matter.

Only include what is material.

Do not over-claim.

Be transparent.

Verify the result.

Involve Stakeholders

Understand what changes

Value the things that matter

$ 2 $ 8

Only include what is material

Do not over claim

Be transparent

Verify the result

How is it different to Cost Benefit Analysis?

SROI

• Used by managers to inform the practical decision-making optimizing their social and environmental impacts.

• Strong explicit emphasis on stakeholders and the types of involvement they can have.

• Comparison is not recommended, unless certain precautions are taken.

CBA

• Used by funders outside an organization to determine whether their investment or grant is economically efficient.

• Does not necessarily include stakeholders.

• Aimed at comparison.

• (Arvidson, Lyon, Mc Kay & Moro, 2010)

2. Context • Designed originally to be used among NGOs and not for profits (“Third

Sector”).

• Growing interest in social value measures in the contexts of increased outsourcing of the delivery of public services, and the increased need of funders to secure real value for money.

(Wood & Leighton. 2010)

• Can be used by:

• Private businesses.• Non for profit and social organizations.• Government departments (Public Service Commissioners) • Funders.

(Nicholls, Lawlor, Neitzert, & Goodspeed, 2012)

3. How is SROI Implemented

4. Inappropriate uses

It is NOT appropriate to compare the social return on investment ratios alone.

Also NOT appropriate when:

• A strategic planning process has already been undertaken and is already being implemented and there is no chance of modifying;

• Stakeholders are not interested in the results;

• It is being undertaken only to prove the value of a service and there is no opportunity for changing the way things are done as a result of the analysis;

• Resources are scarce.

5. Weaknesses• Social Impact can be a personal or political measurement. (Lingane & Olsen.

2004)

• Needs considerable resources to be implemented. (Flockhart, 2005)

• SROI “readiness” mainly involves being able to identify and measure organisational outcomes adequately in a quantitative way. (Wood & Leighton, 2010)

• Can easily be misused focusing solely on SROI Ratio (Arvidson, Lyon, Mc Kay & Moro, 2010)

• The “if it can not be measured it can not be managed” trap. (Arvidson, Lyon, Mc Kay & Moro, 2010)

• Quantifying inputs can be very tricky. (Arvidson, Lyon, Mc Kay & Moro, 2010)

“ An SROI analysis is only as good as the data that is put in. In addition to properly resourcing

organisations to collect outcomes data, SROI analyses can be strengthened by shared research

on outcomes, proxies, and indicators”

(New Economics foundation, 2008. in Wood, Leighton. 2010. p 28)

6. Strengths• Fosters a commitment towards transparency and accountability (Rotheroe &

Richards, 2007)

• Promotes better communication and engagement between different stakeholders

• Expected to foster improvement of quality data

• Evaluative process promoted by SROI includes making organisations aware of their own values

(Arvidson, Lyon, Mc Kay & Moro, 2010)

• SROI principles have widespread approval, provide a benchmark for organizations to set their goals and review their activities. ( Wood & Leighton, 2010)

• Method includes specific guidelines that refer both to technical aspects as social interaction / political aspects, allowing relatively consistent procedures.

A case study of SROI on

Kalomo FMNR project

6 steps to implement SROI

• Funded by WVA

• Project implemented in 9 villages

• Project implemented over 3 years

Project Objectives

Project Objectives

• Project goal: To improve the livelihoods of the people of Kalomo area.

• Project Outcomes: Farmers adopt sound natural resource management practices

Project interventions

1. Community mobilisation around FMNR

2. Intensively training of community members on FMNR practices

3. Promotion of complementary natural resource management (NRM) techniques

4. Strengthening of community structures

Rationale• 1. To find out what project outcomes impacted on key stakeholders

2. what these impacts are worth to the key Stakeholders

All as a way of interpreting the project’s value as a result of the investment made

Data collection methods

•Focus Group discussions of primary stakeholders

•Key Informant interviews of selected•Household survey stakeholders•Visual data of geographical area•Shadow pricing

SROI stage 1: Scope and stakeholder

•Measurement over the 3 yr implementation period

•Primary stakeholders – Lead farmers

•Neighbouring farmer households•Comparison group

• Stakeholders validated and identified the following outcomes

1. Increased household and communal assets in the form of trees and livestock

2. Increased household consumables sourced from natural resources

3. Increased household income

4. Improved health

5. Psychological Benefits – increased hope, aesthetics

6. Economic assets

7. Environmental Benefits

SROI stage 2: Map Outcomes

SROI stage 3: Evidencing and Valuing Outcomes

• Step 1: Develop outcome indicators:• Remember outcome: Increased household and communal

assets in the form of trees and livestock. Indicator is

• Nº of Households reported increased availability of and accessibility to the resources (rafters for re/construction, firewood for cooking, thatch for roofing, and herbal medicines for basic treatment)

• Amount of trees in the area

• Step 2: Collect outcomes data• How many experienced this change? 52 Households• How many trees in the area had regenerated? 1 000 000

• Step 3: Establish how long the outcomes last• 6 years (2 years of project + 4 years post-project)

• Step 4: Put a value on the outcome.• Market value of rafters, firewood, thatch, and herbal medicines (not

for trade) • Communities thought about how they used to collect it before and the

risks involved• They valued this particular outcome at $100,000

2009

FMNR intervention

2012

Pre-intervention

• Impact is only what is a result of the intervention

• DeadweightWhat would have happened anyway?

• 9% of those not accessing FMNR said access to more wild resources had increased

• Displacement• 0% displacement

SROI stage 4: Establishing Impact

• AttributionHow much of the outcome is because of other

organisations or interventions.

10% - One community was already partly organised around tree protection

• Drop off0% drop off - Community commitment unlikely to drop in

the short period of analysis due to the extent of benefits, therefore trees will continue to be there or even increase in number

To calculate the impact of this outcome:

= (Financial proxy x qty of outcome) minus dead weight minus attribution

(100,000 x 52) - 9%

5,200,000 – 468,000

4,732,000 - 10%

4,732,000 - 473,200

= $4,258,800 in that year

• Five steps involved:1. Projecting into the future – drop off rate.2. Calculating the net present value – discount rate (time

value of money)3. Calculating the SROI ratio = Present value/value of

inputs4. Sensitivity analysis – Which assumptions have the

greatest effect on your model?5. Payback period- At what point does return value >

investment.

SROI stage 5: Calculating the SROI

• Communicate meaningfully• Short Report• Transparent and concise• Consistent

SROI stage 6: Reporting Using and Embedding

Challenges

• SROI methodology is silent on whether to define ‘value’ in terms of money funds’ origins or the recipient community

. E.g. a benefit in Choolwe, worth $500, is the equivalent of 50% of the average per capita income in Australia.

Should it be expressed like that? Or should it be expressed as the equivalent in the financier economy?

• SROI literature is weak on providing guidance on how to facilitate stakeholder identification of meaningful values for non-marketable benefits.

Challenges (continued)

• Evaluators found it difficult and time-consuming to explain to stakeholders groups the notion of proxy financial values for social, environmental and cultural returns.

• Interviews and focus groups took a lot longer or covered fewer topics in the allotted time due to the cultural disconnect of trying to elicit proxy market/financial values from people who have an almost entirely non-economic culture, livelihood and value system.

References• Arvidon, M., Lyon, F., McKay, S., & Moro, D. (2010). The ambitions and challenges of SROI . UK: Third Sector Research Centre, University of Birmingham.

Retrieved from http://www.tsrc.ac.uk/LinkClick.aspx?fileticket=QwHhaC%2br88Y%3d&tabid=500

• Davidson, J. (2005) Evaluation Methodology Basics – The nuts and bolts of sound evaluation Thousand Oaks California: Sage Publications

• Flockhart, A. (2005). Raising the profile of social enterprises: The use of social return on investment (SROI) and investment ready tools (IRT) to bridge the financial credibility gap. Social Enterprise Journal, 1(1), 29.

• Lingane, A., & Olsen, S. (2004). Guidelines for social return on investment. California Management Review, 46(3), 116-135.

• London Business School, New Economics Foundation and Small Business Foundation (2004). Measuring social impact: the foundation of social return on investment (SROI). Retrieved from http://sroi.london.edu/Measuring-Social-Impact.pdf

• New Economics Foundation (2008) Investing for Social Value: Measuring social return on investment for the Adventure Capital Fund. London, UK: NEF.• • Nicholls, J., Lawlor, E., Neitzert, E., & Goodspeed, T. (2012). A guide to social return on investment (2nd ed.). UK: The SROI Network. Retrieved from

http://www.thesroinetwork.org/publications/doc_details/241-a-guide-to-social-return-on-investment-2012

• Rotheroe, N., & Richards, A. (2007). Social return on investment and social enterprise: Transparent accountability for sustainable development. Social Enterprise Journal, 3(1), 31.

• SROI Network. (2011). The seven principles of SROI The SROI Network. Retrieved from http://www.thesroinetwork.org/publications/doc_details/140-the-seven-principles-of-sroi

• Shergold, P., (2012) The Social Return on Universities Retrieved from http://www.onlineopinion.com.au/view.asp?article=13605

• Wood, C., & Leighton, D. (2010). Measuring social value. London, UK: Demos

• World Vision Australia. (2012). Social Return on Investment. unpublished manuscript

• Zappala, G. (2011). CSI Briefing Paper no. 5. Solving social problems & demonstrating impact. A tale of two typologies. Centre for Social Impact, University of New South Wales, Sydney, Australia. Retrieved on 20/04/13 from http://www.csi.edu.au/assets/assetdoc/145e2b8d68c4a0b6/CSI_Briefing_5_Paper_-_Solving_Social_Problems_and_Demonstrating_Impact_2011.pdf