What you can gain from social return on investment

Analyses of SROI can be useful to organisations, but are more than a way to get funding, writes Andy Hillier

Hundreds of charities, not-for profit organisations and even companies have carried out some kind of social return on investment analysis over the past decade to quantify the social impact of their work. In fact, many charities and social enterprises boast in their promotional material about their SROI ratio, which states how much social value the organisation generates for every £1 of funding or investment received.

A recent SROI analysis of Turning Point's substance misuse service in Wakefield, published in 2014, found that it generated a social return of between £7 and £9 for every £1 spent.

But is SROI still the best way to understand the social impact of an organisation? The Third Sector Research Centre's 2011 report The Ambitions and Challenges of SROI concluded that the method made it possible for organisations to "inflate the value created" and said there could be misunderstandings about how to interpret SROI.

Ben Carpenter, operations manager at Social Value UK, the membership body for organisations involved in SROI and social value measurement, believes its seven principles of SROI (see box) stand the test of time. "There might seem to be various methodologies for measuring social value, but the general consensus among practitioners, advisers, policymakers and academics is that these principles should be applied," he says. "Furthermore, they are necessary if we want to maximise, not just measure, the value created."

Many organisations initially assess their SROI so they can attract funders or secure contracts. Carpenter says, however, that it is fundamentally about helping organisations understand the effectiveness of their work: "The real usefulness of SROI is that it will throw light on things organisations didn't know. SROI is best seen as an internal process that informs decision-making."

Guidance on calculating SROI is freely available online, which has made it easy for organisations to do their own and come up with ratios - but some very high ratios have emerged. "We've encouraged people to just have a go," Carpenter says. "The downside is that a lot of reports that call themselves SROI reports aren't necessarily applying the principles in the best possible way. That's why we say they should be quality-assured."

Tim Hobbs, head of data and analytics at the Dartington Social Research Unit, a charity working with local authorities, trusts and foundations to develop evidence-based policies in children's services, has doubts about SROI. He says it has helped impact measurement because it has encouraged commissioners and charities to think about their effectiveness, but he believes too many SROI analyses lack rigour. "Some are stronger than others, with the weaker methodologies undermining the stronger," he says. "The evidence underpinning the estimations is quite shaky."

Hobbs says Dartington has found that organisations typically overestimate their impact and underestimate their costs: "The full costs are rarely fully estimated. That's partly because volunteers or in-kind support is rarely accounted for, and people try to make the costs as low as possible because they have commissioners in mind."

Dartington has been developing its own cost-benefit analysis, based on a methodology devised by the Washington State Institute for Public Policy in the US. Hobbs says its cost-benefit analysis uses estimations of impact based on rigorous evaluations combined with longitudinal studies, but accepts that few charities in the UK have sufficiently robust evidence of impact to undergo such an in-depth analysis at present.

Abi Rotheroe, deputy head of the charities team at the think tank New Philanthropy Capital, says SROI remains a useful way to measure an organisation's social impact, but sensible principles need to be applied. She says organisations should always involve stakeholders and focus on measuring the value that matters to them - and they should verify their SROI results.

Rotheroe also warns that such economic analyses aren't necessarily relevant to all organisations: "If you don't have a good estimate of the difference you make, or if there isn't really an audience for how this converts into monetary terms, then you'll be wasting time and resources."

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