Part 1 of our SROI blog was a brief overview of what SROI (Social Return on Investment) is and how it’s used, but it’s an ever evolving measure with a lot of nuance, so here we’re going to dive a little deeper.
SROI is an adjusted cost benefit analysis with an emphasis on stakeholders. It is measured in the value of the dollar because a dollar is commonly understood and easy to compare with economic investments, but ultimately is about measuring social value. While there is nuance to every SROI estimation, the main reason it exists is so that we have a common way to evaluate how much of a difference something is making.
Some of the main ways it can be used is as a tool to measure investments, a way for organizations to communicate impact, to provide insights to organizations about how activities create impact, and to continuously manage impact (Centre for Social Impact, 2013).
A little history
The first version of SROI was produced by REDF (Roberts Enterprise Development Fund) as a way to evaluate programs they funded. The types of value that were included in this first iteration were: economic value, social value and socioeconomic value. In 2003 the British “new economics foundation” made a new version that was meant to be easier for organizations to use in impact measurement (Centre for Social Impact, 2013).
Since its creation, SROI has evolved into what it is today, and since it is a relatively new measure it will continue to evolve. SROI doesn’t only measure the returns generated by an investment for the investor, but also the returns that are created for other stakeholders. (WHO, 2017)
Types of SROI
There are two types of SROI – Evaluative and Forecast. Evaluative looks back and takes into account outcomes that have already happened. Forecast looks forward at the value that will be created by future predicted outcomes.
The seven principles
SROI is based on Cost Benefit Analysis and has seven guiding principles as outlined by Social Value International. (social value UK)
1) Involve Stakeholders
- Stakeholders-or the people affected by the changes/activities that are being measured, need to be identified and then used to decide how and what to measure so that the analysis is informed by the people it affects.
2) Understand what changes
- SROI begins with a theory of change (see an example of ours below) Clearly Identify, state and support with evidence how changes are made and whether they are positive or negative and intended or unintended because these changes and the associated outcomes are how value is created.
3) Value the things that matter
- Give outcomes a financial metric so that they can be valued in a way that is commonly understood and easy to compare.
4) Only Include what is material
- It’s important to include relevant information and assess what the result on stakeholders and outcomes a specific piece of information would have when deciding whether or not to include it in the analysis.
5) Do not over claim
- Take into account all scenarios including what would have happened anyway and what was actually caused by the activities so as to not overstate.
6) Be transparent
- Be clear about what methodologies, research, etc was used to reach outcomes.
7) Verify the result
- Get a second opinion to make sure the analysis is objective.
Ecotone and SROI
SROI can sometimes be viewed as a less rigorous Cost Benefit Analysis, and it’s easy for companies to overestimate it, which is why we take steps to ensure the quality of our analysis.
In all of our reports, we emphasize transparency and auditability by including assumptions, research ranked by level of evidence, and relevant findings.
Ecotone’s impact overview includes an SROI, but that isn’t the whole picture of the impact. We first create a logic model which speaks to principle 2 (understand what changes). We use this logic model to identify inputs, outputs and outcomes which are what lead to SROI. We also include KPIs, 5 dimensions of impact and SDG alignment, because while SROI is a good way to measure value, it doesn’t show the zoomed out picture of how an organization is serving its stakeholders.
While SROI is a great tool to assign value to intangible outcomes, it doesn’t provide the entire picture, which is why taking other steps to have a clear view into the impact you’re having on your stakeholders is essential to maximize the good you’re doing.