Maximize Your Social Return on Investment SROI with Sopact

SOCIAL RETURN ON INVESTMENTS

Social Return on Investment (SROI) is an organizational method of accounting for value creation, primarily social or environmental value. SROI enables organizations to measure how much change is being created by tracking relevant social, environmental, and economic outcomes. The key difference between SROI and other methodologies is assigning monetary values to the amount of change created.

To give a very simplistic example: SROI assigns a monetary value to inputs and outcomes and uses that assignation to calculate a ratio. If that ratio is 5:1, it means that every dollar allocated will generate (or has generated) social value worth five dollars.

THE traditional SROI approach is error-prone, costly, and focuses on impact justification. Does it allow to learn and scale social impact? To understand read on.

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HOW TO CALCULATE SROI?

HOW TO CALCULATE SROI?Read More

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SROI TERMS

SROI TERMSRead More

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PRINCIPLES OF SROI METHODOLOGY

PRINCIPLES OF SROI METHODOLOGYRead More

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SROI METHODOLOGY

SROI METHODOLOGYRead More

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SROI CHALLENGES

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SROI RESOURCES

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SOPACT RESOURCES

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CONCLUSION

CONCLUSIONRead More

Social Return on Investments (SROI)

Social Return on Investment (SROI) measures the social, environmental, and economic value created by a business or project. SROI considers both the financial returns generated by an investment and the social and ecological outcomes it produces.

The SROI methodology involves identifying and valuing all of an investment's social and environmental impacts and then comparing those impacts to the financial cost of the investment. This allows investors to understand the financial return on their investment and the broader social and environmental benefits created.

SROI is often used in impact investing to measure and communicating investments' social and environmental impact to stakeholders. In addition, it can be a valuable tool for investors to evaluate their investments' effectiveness and identify improvement areas.

The SROI process typically involves the following steps:

First, identify stakeholders: Identify all of the stakeholders who are impacted by the investment, including the investors, the business or project, and the broader community.
Map outcomes: Map out all of the outcomes created by the investment, both positive and negative. These outcomes can include income, health, education, or environmental changes.
Value outcomes: Assign a monetary value to each outcome using market valuations or willingness-to-pay surveys.
Calculate SROI: Calculate the SROI by dividing the total social and environmental value created by the investment by the financial cost of the investment.
Communicate results: Communicate the SROI results to stakeholders, including investors, business or project leaders, and the broader community.

Overall, SROI is a valuable tool for impact investors looking to evaluate their investments' social and environmental impact. Considering financial returns and broader societal outcomes, SROI can help investors make informed investment decisions and drive positive social and environmental change.

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 (CSR) 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.

Diagram of Social Value Principles

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. If you have any questions or want to learn more about this topic, please get in touch with us.

In this case “stakeholders” refer to individuals (or groups/organizations) affected by the program or activity that is being implemented. More specifically, the change that is expected to occur affects these stakeholders in some way.

The principle calls on those implementing an SROI methodology to first identify who those affected are and then maintain them as active participants throughout the SROI process. What is measured and how it is done can then be executed in a way that is more relevant to all those affected by the program or activity.

The SROI process demands clear understanding and communication of how change has occurred, and whether it is positive or negative. One should also distinguish between change that was expected and change which was not foreseen (positive or otherwise). With these in mind, organizations are encouraged to clearly articulate the theory behind the change they are affecting through their activities.

One of the distinguishing factors of the SROI process, this principle refers to the assignation of monetary values (also referred to as financial proxies) to the outcomes generated. This gives such outcomes a way to be valued in an ideally more objective and comparable manner.

It is important to include information about the outcomes of an activity and who has been involved in affecting (or has been affected by) that change. Organizations should ask themselves whether including or not including certain information would affect the stakeholders involved (those who affect or are affected by the change experienced).

If there is information that might sway a decision about the activity by those stakeholders it should be included. This lends credibility to an organization’s account of the social value created.

This principle is backed up by the transparency organizations must commit to in the SROI accounting process. It asks the questions, what would have happened without the organization’s activities, how much did the organization’s activities contribute to the outcomes generated, and what contributions did other organizations/entities have on those outcomes?

Detailing the answers to these questions enables an organization to avoid the over-claim pitfall and better inform stakeholders of the effectiveness of the organization’s activities.

There is transparency to be demonstrated in all aspects of the SROI accounting process. This includes tracking and communicating the methodologies used to determine metrics, collection processes, analyses conducted, etc. This also includes communicating with whom you spoke with (stakeholders) and how they affected or informed the decision-making process.

External validation of the results of your SROI analyses and how you arrived at those results will help lend credibility to your process and enable stakeholders at all levels to better evaluate the outcomes you reported. A process called independent assurance can serve organizations seeking such third party verification of the reliability of an SROI analysis.

Frame the limits of your analysis well. This demands clear understanding and identification of the stakeholders involved, as well as their roles throughout the process. Setting a realistic (and relevant!) scope will help avoid scope creep down the line

At this stage organizations focus on visualizing how change is created or will be created. Generally, this is done by creating a “Theory of Change” model, demonstrating the interrelationship of inputs, outputs and outcomes for the activity or activities to be analyzed.

This stage requires identifying the outcome indicators which will be used as change metrics and determining the duration of those outcomes (are they long-lasting? short-term?). It also demands collecting those data.

Impact must be attributed to the activity executed -- in other words the organization must demonstrate that the change that occurred (looking at the outcomes evidence) would not have resulted anyway (without the activity or program).

A stage that requires unique SROI analysis expertise, at this point, an organization determines the ratio which communicates how much value is generated per investment unit (e.g. per dollar).

Stakeholders need to be informed about the results of the analysis. That way, they can continue informing in a relevant way the evolution and execution of the activity being implemented.

Forecast

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

When to use a Forecast approach to calculate SROI:

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 to determine how capital can best 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:

Most useful and best leveraged when an organization is already tracking outcomes data properly or at least has a process already in motion that is accounting for the social value of currently running programs or activities. An evaluative approach needs quality outcomes data.

Better Approach

SROI Challenges

Social Return on Investment (SROI) is a valuable tool for measuring an organization's activities' social and environmental impact. However, there are several challenges associated with the SROI approach.

One of the primary challenges is defining appropriate proxies for measuring the impact of an organization's activities. Identifying and quantifying the indirect impacts of an organization's activities can be challenging, such as changes in attitudes, behaviors, or social norms. These indirect impacts may be significant but can be challenging to measure accurately.

Another challenge is calculating key elements of SROI, deadweight, and other parameters, which refer to the impact that would have occurred anyway, even if the organization had not taken action. For example, if an organization supports a community development project, but the government also provides similar support, measuring the specific impact of the organization's activities can take time and effort.

In addition to these challenges, calculating SROI often requires the involvement of expensive impact consultants who can conduct the necessary research and analysis. This can be a significant barrier for smaller organizations with limited resources.

Furthermore, SROI primarily focuses on justifying impact rather than learning from it. As a result, while SROI can help organizations understand their activities' effectiveness, it may not provide the detailed insights needed to make ongoing improvements to their programs and operations.

At Sopact, we believe the best way to maximize social return on investment is through a systematic impact strategy that involves continuously collecting and analyzing valuable data. This lean approach to data collection focuses on the data that matters most to stakeholders, allowing organizations to continually improve their impact and reduce unnecessary spending that does not align with their mission. By adopting this continuous approach, organizations can maximize their success and ensure their activities create the greatest possible social and environmental impact.

That begs an important question: Why is SROI useful, "Impact Justification"? Is there a better approach that can help understand the impact and scale of social impact?

Alternative to SROI

We strongly believe integrating stakeholder voice with continuous learning and improvement has much better potential, allowing communication impact through holistic impact dimensions and continuously improving outcomes based on a data-driven approach.

SROI Resourcces

Resources to Calculate Economic Value for SROI

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

The following is a preliminary list of resources that might help you 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 the economic social value of community development projects.

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

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

Networks

Largest international network for social value and worldwide chapters

Practitioners

Social Value UK 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. For a more specific financial proxy based on occupation, see the Bureau of Labor Statistics.

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 the businesses created in 2014 (the latest reference available to us). By multiplying $43,432 by the total number of businesses created, we will approximate the new businesses' total economic value.

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 USA: 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 total 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 common job in Wisconsin is $46,170 (Data USA: 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 saved 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 interests per borrower. Then, we multiply the average interests 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 approximately 15 percent. The average gain associated with an increase in effective year built is approximately 6 percent, although this may understate the full value of a property renovation. A change in lot size increases appreciation by approximately 5 percent (Property Renovations and Their Impact on House Price Index)
Rationale: Multiplying the units' average value improved by the appreciation percent according to the improvements, we get the average value of appreciation per house. Then, we multiply the result by the total number of housing units improved to appreciate the total 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: HUD 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 & 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 not to take 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 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 cost saved by the car owners for not having to be treated for stress and anxiety.

SOCIAL RETURN ON INVESTMENTS

Social Return on Investment (SROI)

Social Return on Investments (SROI)

Social Value Principles

Why Do Social Value Principles Matter?

Applying Social Value Principles

Diagram of Social Value Principles

Social Return on investment methodology

Social Value UK outlines six stages to an SROI analysis.

How to calculate SROI?

Forecast

Evaluative

SROI Challenges

Alternative to SROI

SROI Resourcces

Resources to Calculate Economic Value for SROI

Industry-wide calculators

Networks

Practitioners

Outcomes

Social Accounting

The U.S.A. Financial Proxies

Job Creation:

Business Creation:

Microfinance:

Housing:

Car Owners:

Conclusion