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Social Return on Investment

Background

Social Return on Investment (SROI) is a framework for measuring a concept of value that is much broader than simply financial. It tells the story of how change is being created by measuring social, environmental and economic outcomes and uses monetary values to represent them.

It provides a financial proxy value of the impact made by an organisation or programme, which can be understood alongside traditional financial costs. It is transparent and consistent and aims to demonstrate the social value of activities in a tangible way that everyone can understand.

The SROI Project was a Scottish Government funded programme designed to develop, promote and support the use of Social Return on Investment across the third sector in Scotland. The work was undertaken by a consortium of organisations with Forth Sector Development as the lead partner.

The legacy from the SROI Project in terms of information, support and guidance (including a number of case studies) for funders, commissioners and third sector organisations is now available through Forth Sector Development's Social Impact Scotland website together with information on a range of other social impact measurement tools.

What is SROI?

Social Return on Investment (SROI) is a method for measuring and communicating a broad concept of value that incorporates social, environmental and economic impacts.

It is a way of accounting for the value created by our activities and the contributions that made that activity possible. It is also the story of the change affected by our activities, told from the perspective of our stakeholders.

SROI can encompass all types of outcomes - social, economic and environmental - but it is based on involving stakeholders in determining which outcomes are relevant. There are two types of SROI:-

  • Evaluative SROIs are conducted retrospectively and are based on outcomes that have already taken place.
  • Forecast SROIs predict how much social value will be created if the activities meet their intended outcomes.

Forecast SROIs are useful at the planning stage of a project, or if you have not been collecting the right kinds of outcomes data to enable you to undertake an evaluative SROI.

SROI was developed from social accounting and cost benefit analysis, and has a lot in common with other outcomes approaches. However, SROI is distinct from other approaches in that it places a monetary value on outcomes, so that they can be added up and compared with the investment made. This results in a ratio of total benefits (a sum of all the outcomes) to total investments. For example, an organisation might have a ratio of £4 of social value created for every £1 spent on its activities.

What does it measure?

SROI measures change in ways that are relevant to the people or organisations that experience or contribute to it. It tells the story of how change is being created by measuring social, environmental and economic outcomes and uses monetary values to represent them.

This enables a ratio of benefits to costs to be calculated. For example, a ratio of 3:1 indicates that an investment of £1 delivers £3 of social value. In the same way that a business plan contains much more information than the financial projections, SROI is much more than just a number. It is a story about change, on which to base decisions, that includes case studies, qualitative, quantitative and financial information.

Why use It?

An SROI analysis can serve many purposes and can help with a range of activities: strategic planning, raising the organisation's profile or making a stronger case for future funding. It provides useful information not only to the third sector organisations but also to funders, investors, and policy makers.

If you are a third sector organisation, using SROI will give you a management tool to guide resource allocation and improve performance, to monitor a project or activity and evidence impact and to communicate added value if competing for a tender.

If you are a funder or investor, using SROI will give you a method of assessing the performance of an investment against your objectives, and of measuring the overall returns from the support and funding you provide.

If you commission public sector services, using SROI will give you a means of assessing the value beyond the financial return of a contract, and as a means of tracking the benefits of a commission against singe outcome agreements.

If you are a policy maker, using SROI allows you to measure understand and communicate the value of the third sector and the activities of organisations within it.