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Social Return on Investment (SROI) - New Approach

SROI assesses the social impact of investments by quantifying social, environmental, and economic outcomes in monetary terms.

Social Return on Investment (SROI)

Social Return on Investment (SROI) is a framework that quantifies the value of social, environmental, and economic outcomes generated by an organization's activities. By assigning monetary values to these outcomes, SROI provides a comprehensive view of the impact created per unit of investment, enabling stakeholders to assess the effectiveness and efficiency of projects and initiatives in delivering tangible societal benefits.

The Importance of SROI in Decision-Making

Investors and project leaders use SROI not just to justify their expenditures, but also to make informed choices about future investments. It helps them see the real impact of their work, including improvements in people's lives and the environment. This kind of insight is especially important in impact investing, where the goal is to achieve positive social and environmental changes.

How SROI Works: A Step-by-Step Process

The process of calculating SROI is methodical and involves several key steps:

  1. Identifying Stakeholders: The first step requires understanding who is affected by the investment. Stakeholders can be anyone from the investors themselves to the local community and even society at large.
  2. Mapping Outcomes: This involves listing the changes brought about by the investment, whether they're good (like better health or a cleaner environment) or bad. It's about seeing the full picture of what the investment has done.
  3. Valuing Outcomes: Each change identified is given a monetary value. This step might use market prices or surveys asking people how much they're willing to pay for certain benefits.
  4. Calculating SROI: Here, all the values assigned to the outcomes are added up and compared to the investment's cost. The result is the SROI ratio, which shows how much social and environmental value is created for every dollar spent.
  5. Communicating Results: Finally, these findings are shared with everyone involved. This transparency helps stakeholders understand the impact of their investment or participation.

What is Social Return on Investment (SROI)? It's a special tool that helps us see the good things in business projects. It's not just about the money they make but also about the benefits to people and nature. This way, people who put their money into these projects can see all the good they are doing beyond just earning more money.

Social Value Principles

Social Value Principles refer to ethical guidelines organizations and individuals can use to create a positive social impact. The principles are based on the idea that businesses and individuals are responsible for contributing to society beyond just making a profit or pursuing personal interests. The Social Value Principles encompass various values and behaviors, including fairness, accountability, transparency, and community involvement.

Why Do Social Value Principles Matter?

Social Value Principles matter because they help organizations and individuals positively impact society. By following these principles, businesses can build trust with their customers, employees, and stakeholders. They can also improve their reputation and increase their brand value. For individuals, Social Value Principles can help guide personal decision-making and actions and contribute to a more just and equitable society.

Applying Social Value Principles

There are many ways to apply Social Value Principles in different contexts. For example, businesses can incorporate these principles into corporate social responsibility (C.S.R.) programs. This might include initiatives such as volunteering, charitable donations, or environmental sustainability efforts. Businesses can demonstrate their commitment to Social Value Principles and build positive community relationships by engaging in these activities.

Individuals can also apply Social Value Principles in their personal lives. This might include supporting local businesses, volunteering, or participating in community events. Individuals can contribute to their community and create a positive social impact by taking these actions.

In conclusion, Social Value Principles are essential to creating a positive social impact. By following these principles, businesses and individuals can build trust, improve their reputation, and contribute to a more just and equitable society. We hope this article has provided a helpful overview of Social Value Principles and how they can be applied in different contexts. 

Social Value Principles Examples

The 7 Social Value Principles encompass a set of ethical guidelines that organizations and individuals can follow to create a positive social impact. Let's explore each principle in detail, along with examples of how they can be applied in different contexts:

1. Fairness: Fairness ensures equal opportunities and treatment for all individuals. Organizations can demonstrate fairness by implementing fair hiring practices, promoting diversity and inclusion in the workplace, and providing equal access to resources and benefits. For example, a company may establish a scholarship program to support disadvantaged students, ensuring education fairness.

2. Accountability: Accountability means taking responsibility for one's actions and being transparent about the impact of those actions. Organizations can practice accountability by regularly reporting on their social and environmental performance, addressing negative impacts, and actively seeking stakeholder feedback. For instance, a company may publish an annual sustainability report that outlines its progress toward reducing carbon emissions and improving labor conditions.

3. Transparency involves being open and honest in communication and decision-making processes. Organizations can demonstrate transparency by sharing information about their policies, practices, and performance with stakeholders. For example, a nonprofit organization may disclose how donations are used and provide financial statements to ensure transparency in their operations.

4. Community Involvement: Community involvement refers to actively engaging and collaborating with local communities to address their needs and aspirations. Organizations can foster community involvement by supporting local initiatives, partnering with community organizations, and involving community members in decision-making processes. For instance, a company may organize volunteering programs for employees to contribute their time and skills to community projects.

5. Environmental Sustainability: Environmental sustainability focuses on minimizing negative environmental impacts and promoting the responsible use of natural resources. Organizations can promote environmental sustainability by adopting eco-friendly practices, reducing waste and pollution, and supporting conservation efforts. For example, a hotel may implement energy-saving measures, such as using renewable energy sources and installing energy-efficient appliances, to reduce its carbon footprint.

6. Ethical Governance: Ethical governance entails establishing and upholding ethical standards in an organization's operations. This includes promoting integrity, preventing corruption, and ensuring compliance with laws and regulations. For instance, a company may have a code of conduct that guides employees' behavior and includes policies against bribery and conflicts of interest.

7. Stakeholder Engagement: Stakeholder engagement involves actively involving and considering the perspectives of all individuals and groups affected by an organization's actions. Organizations can engage stakeholders by soliciting feedback, conducting surveys, and involving them in decision-making. For example, a city government may hold public consultations to gather input from residents on urban development plans.

By following these 7 Social Value Principles, organizations and individuals can make a meaningful difference in society. Applying these principles in various contexts, such as corporate social responsibility programs, personal decision-making, and community engagement, can contribute to a more just, equitable, and sustainable world.

Social Return on Investment (SROI) Methodology

Social Value U.K. outlines six stages to an SROI analysis, providing a comprehensive framework for evaluating investments' social and environmental impact.

  1. Establishing Scope and Identifying Stakeholders: The first stage involves identifying the scope of the investment and all the stakeholders affected by it. This includes the investors, the business or project, and the broader community. By understanding the stakeholders involved, it becomes easier to assess the impact of the investment on different groups.

  2. Mapping outcomes: The next step is to map out all the outcomes produced by the investment, both positive and negative. These outcomes can range from economic benefits, such as income generation, to social and environmental changes, such as improved health or reduced carbon emissions. By mapping out these outcomes, investors can gain a holistic view of the impact created.

  3. Evidencing outcomes and then availability: Once the outcomes are identified, the next stage is to gather evidence to support their existence and availability. This involves collecting data, conducting surveys, and using other research methods to validate the outcomes. It is essential to have robust evidence to accurately demonstrate the investment's impact.

  4. Establishing impact: After gathering evidence, the next step is to develop the impact of the investment. This involves analyzing the data collected and assessing how much the asset has contributed to the desired outcomes. By establishing impact, investors can understand the effectiveness of their investments in creating social and environmental change.

  5.  Calculating SROI: The fifth stage is to calculate the SROI by dividing the total social and environmental value created by the investment by the financial cost of the investment. This calculation provides investors with a clear understanding of the financial return on their investment and the broader social and environmental benefits generated. It enables investors to make informed decisions and prioritize investments with the most significant positive impact.

  6. Reporting and embedding: The final stage is communicating the SROI results to stakeholders, including investors, business or project leaders, and the broader community. By reporting the findings, investors can demonstrate their commitment to social and environmental impact and build trust with stakeholders. Furthermore, embedding the SROI methodology into investment processes allows for ongoing evaluation and improvement, ensuring that investments continue to drive positive change.

    In conclusion, the SROI methodology offers a comprehensive approach to evaluating the impact of investments. Investors can make informed decisions and contribute to positive social and environmental change by considering financial returns and broader social and ecological outcomes. The six stages outlined by Social Value U.K. provide a structured framework for conducting an SROI analysis and ensuring that investments align with social value principles.
social return on investment process

How to calculate SROI?

Forecast

As the name suggests, this type of SROI analysis is implemented before the program or activity itself has been implemented. It is a predictive tool to determine the social value that might be created given the outcomes sought.

When to use a Forecast approach to calculate SROI:

It is most useful when going through the planning process of a program or activity because it encourages organizations to put in place the infrastructure needed to adequately measure change (relevant indicators, data collection processes, etc.). It also helps determine how capital can be leveraged for the most impact.

Evaluative

This type of SROI analysis is implemented after a program or activity has already had time to affect change. In other words, there are already outcomes to be measured.

When to use an Evaluative approach to calculate SROI:

It is most useful and best leveraged when an organization is already tracking outcomes data correctly or already has a process accounting for the social value of currently running programs or activities. An evaluative approach needs quality outcomes data.

SROI Calculation Example

To calculate the Social Return on Investment (SROI), a specific formula is used to determine the financial value of the social and environmental impact created by an investment. The procedure for calculating SROI is as follows:

SROI = (Social and Environmental Value Created / Financial Cost of Investment) x 100%

In this formula, the social and environmental value created is the total value of the outcomes produced by the investment, including both positive and negative impacts. This value can be measured in various ways, such as improved health outcomes, reduced carbon emissions, or increased educational opportunities.

The financial cost of the investment refers to the amount of money invested in the project or program. This includes direct expenses, such as salaries, materials, and operational costs.

By dividing the social and environmental value created by the financial cost of the investment and multiplying it by 100%, the SROI ratio is obtained. This ratio represents every financial investment unit's social and ecological value.

For example, if an investment produces $100,000 worth of social and environmental value and the financial cost of the investment is $50,000, the SROI would be calculated as follows:

SROI = ($100,000 / $50,000) x 100% = 200%

This means that every dollar invested has a social and environmental return of $2.

Calculating the SROI provides investors with valuable insights into the effectiveness of their investments in creating positive social and environmental change. It allows them to compare different investment options and prioritize those with the highest SROI ratios, maximizing their impact and contributing to a more sustainable and equitable world.

Social return on investment example (1) (1) (1)
Fig:SROI Calculation

The Pitfalls of Traditional SROI Assessments

While effective in proving impact, standard SROI assessments, particularly those conducted by third parties, rarely contribute to improving programs or initiatives. They don't facilitate a responsive approach that allows organizations to tweak or modify strategies based on current data or evolving stakeholder needs. This static model can lead to a lack of genuine progress despite what the numbers might suggest.

A Progressive Approach to SROI: Leveraging Data and Stakeholder Insights

Progress lies in recognizing your data as a valuable asset and utilizing stakeholder insights to refine your projects or programs continuously. This dynamic approach underscores the importance of your unique value proposition, encouraging a focus on what sets your efforts apart rather than conforming to investor-driven standardization.

Here’s how to revamp your SROI strategy:

  • Focus on Impact Dimensions: Rather than broad metrics, focus on specific impact dimensions that reflect your organization's influence. Own your data, understand its implications, and use it to drive substantial program improvements.
  • Adopt a Lean Approach: Implement a lean data collection strategy, emphasizing quality over quantity. This method streamlines the process and ensures meaningful insights that directly contribute to enhancing outcomes.
  • Embrace Qualitative Analysis with AI: Leverage advanced impact management platforms in this AI era. These systems can distill months of data analysis into actionable insights within days, promoting a more agile, responsive approach.
  • Innovate Your Data Collection: Traditional surveys are no longer your only option. Employ faster, more interactive tools like chatbots, WhatsApp, SMS, QR codes, and campaign-based methods to gather data swiftly and in a manner that resonates with today’s stakeholders.
  • Integrate Real-time Analytics: Use cutting-edge tools that connect data sources with real-time analytics, eliminating time-consuming tasks and facilitating immediate insight-driven actions.
  • Utilize AI-Based Analytics: Advanced AI-driven analytics tools can provide rapid, in-depth insights, drastically cutting the time from data collection to decision-making.
  • Become Data Owners: By owning your data, you gain control over continuous improvement processes, steering your projects in a direction that ensures impactful and sustainable outcomes.
  • Prioritize SROI Principles Over Calculations: While traditional SROI calculations are informative, embracing SROI principles offers a holistic growth and impact pathway. It’s about continuous achievement and enhancement, not just a justification of your efforts.
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SROI Resources

Resources to Calculate Economic Value for SROI

Calculating SROI or estimating the economic value of social and environmental outcomes is quite context-dependent. While Impact Cloud can help you calculate the SROI ratio, finding the right metrics and financial proxies for your valuation requires a deep understanding of the outcomes and stakeholder involvement. Some organizations involve SROI practitioners in the process to guide them through.

The following is a preliminary list of resources that might help refine your SROI valuation process.

The Social Value Self Assessment Tool is designed to help users judge how well they measure and report on their social value, in line with the Principles of Social Value.

Industry-wide calculators

Social Impact Calculator: estimates community development projects' economic and social value. 

Grounded Solutions Inclusionary Housing Calculator enables exploration of the connection between mixed-income housing development and local incentives in the housing sector.

U.K. Social Value Bank calculator: used by housing associations, councils, government departments, for-profit organizations, and the National Lottery to measure uplift in well-being. 

Networks

Largest international network for social value and worldwide chapters

Practitioners

Social Value U.K. Members Directory

Outcomes

Social Accounting

The U.S.A. Financial Proxies

Job Creation:

Indicator: Jobs Created at Directly Supported/Financed Enterprises: Total (IRIS PI3687)
Financial Proxy: Wisconsin Yearly Minimum Wage: $15,080 (minimum wage.org)
Rationale: We can assume that the new businesses' jobs will pay the minimum wage to their employees. By multiplying $15,080 by the total number of jobs created, we will get the approximate economic value of those jobs. Please look at the Bureau of Labor Statistics for a more specific financial proxy based on occupation.

Indicator: New Businesses Created: Total (IRIS PI4583)
Financial Proxy: The median income for self-employed individuals at their own incorporated businesses in Wisconsin was $43,432 in 2014 (U.S. Small Business Administration).
Rationale: We can assume that the new businesses created will have the same income as those made in 2014 (the latest reference available). We will approximate the new businesses' total economic value by multiplying $43,432 by the total number of companies created. 

Indicator: Full-time Employees: Minorities/Previously Excluded (IRIS OI8147)
Financial Proxy: The average wages by race and ethnicity in Wisconsin in 2016 were $65,493 for Alaska Native, $54,823 for Asians, and $46,641 for White (Data U.S.A.: Wisconsin). The numbers and ethnicities vary for each state of Wisconsin; for a more accurate value, visit the source and search by state.
Rationale: We can multiply the jobs given to a minority group by the average wage to approximate the jobs' total economic value.

Indicator: Full-time Employees: Female (IRIS OI6213)
Financial Proxy:
The average female salary for a full-time everyday job in Wisconsin is $46,170 (Data U.S.A.: Wisconsin)
Rationale: We can multiply the total jobs given to women by the average female salary to approximate the jobs' total economic value. 

Business Creation:

Indicator: Total Jobs Created by Women-Owned Businesses
Financial Proxy:
Women-owned businesses employ over 8.4 million workers and generate $264 billion in payroll (U.S. Department of Labor Blog)

Rationale: If we divide the $264 billion paid in payroll by the 8.4 million workers, each worker generates an average income of $31,429. By multiplying this value by the total number of jobs created by women-owned businesses, we get the approximate economic value of the jobs created by women-owned businesses.

Microfinance:

Indicator: Microfinance: Interest saved from not using loan shark (Robin Hood)
Financial Proxy: Percent of interest saved * average loan amount

Rationale: Calculate the percent of interest held by subtracting the percent interest your grantees typically charge on loans to women/minority/low-income borrowers from the interest charged by loan sharks, which is approximately 100 percent. 

By multiplying the percent of interest saved by the average loan amount, we get the average amount saved in interest per borrower. Then, we multiply the average interest saved per borrower by the total number of borrowers.

Housing:

Indicator: Number of Housing Units Improved (PI058)

Financial Proxy: A change in living area square footage increases the appreciation by approximately 23 percent. Adding beds or baths increases the growth rate by roughly 15 percent. The average gain associated with an increase in effective year built is roughly 6 percent, although this may understate the total value of a property renovation. A change in lot size increases appreciation by roughly 5 percent (Property Renovations and Their Impact on House Price Index)

Rationale: We get the average appreciation value per house by multiplying the units' average value improved by the appreciation percent according to the improvements. Then, we multiply the result by the total number of housing units improved to appreciate the full value. 

Indicator: Reduction in risk of dropping out of school
Financial Proxy:
Every individual dropout cost Wisconsin more than $1,377 in 2011 (Maclver Institute)

Rationale: Homeowners have less risk of having their children drop out of school. By multiplying the number of students in the community of homeowners by the approximate cost of every individual dropout, we get the economic value of children not dropping out of school.

Indicator: Reduction in risk of homelessness
Financial Proxy:
H.U.D. secretary says a homeless person costs taxpayers $40,000 a year (PolitiFact)

Rationale: Homeowners have less risk of suffering homelessness. By multiplying the number of housing loans by the cost of a homeless person, we get the economic impact of not having those persons going into homelessness. 

Indicator: Reduction in risk of mental health treatment-Adults
Financial Proxy: The adult psychiatric services rate in Wisconsin is $1,039 (Department of Health Services, Division of Care and Treatment Services)
Rationale: Homeowners have less risk of suffering stress and anxiety. By multiplying the number of homeowners by the cost of psychiatric services, we get the homeowners' total cost for not receiving mental treatment.  

Car Owners:

Indicator: Reduction in risk of emergency medical care

Financial Proxy: The average charge for an emergency room trip is $1,233 for the following conditions: sprains and strains, open wounds, normal pregnancy or delivery, headache, back problems, upper respiratory infection, kidney stone, urinary tract infection, intestinal infection (The Washington Post)

Rationale: Car owners are more likely to get regular/preventive medical care due to mobility. By multiplying the average charge for an emergency room by the number of car owners, we get the car owners' total cost of not taking emergency trips.  

Indicator: Reduction in risk of stress treatment

Financial Proxy: The cost of cognitive-behavioral therapy effective for treating anxiety disorders is $100 or more per hour (Anxiety and Depression Association of America)
Rationale: Car owners are less likely to experience stress and anxiety attributable to long commutes. By multiplying the number of car owners by the cost of cognitive-behavioral therapy, we get the total price saved by the car owners for not having to be treated for stress and anxiety. 

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Conclusion

A better alternative is needed for traditional SROI that allows us to understand and demonstrate social impact better.  SoPact supports both approaches, but we are biased toward continuous learning and improvement.

Frequently asked questions

Who Uses SROI?
SROI is used by a wide range of organizations, including non-profits, social enterprises, government agencies, and corporations involved in corporate social responsibility (CSR) initiatives, to assess and enhance the effectiveness of their programs
Can SROI Influence Decision Making?
Can SROI be applied to any type of organization?