How can an organization measure the social impact of its activities? Organizations and companies have focused on this question over past years through a measure called social return on investment (SROI).
The result of conducting an SROI analysis is a ratio of benefits to costs; for example, a ratio of 2:1 means that $2 of social value is created from an investment of $1. Calculating SROI can help discover impact, communicate impact, and influence strategy.
Here are a few at-a-glance takeaways on how the process of SROI works. This is from the 2009 SROI Guide.
1) SROI is outcomes-based. For example, suppose an organization provides one-on-one reading lessons to children to help promote literacy. The output of the program would be the number of lessons provided, while the outcome is how much the program helped increase literacy. The SROI Guide emphasizes that social value should focus on outcomes rather than outputs.
2) SROI is stakeholder-specific. The methodology calculates social return separately for each stakeholder. By doing it this way, it’s easy to involve stakeholders in determining and valuing outcomes.
3) SROI is denoted in monetary terms. Outcomes and investment amounts may be measured in non-monetary units, but all values in SROI should be conveyed in a common unit. Money is the most widely accepted form of measuring value.
4) SROI can be calculated for future as well as past activities. Forecasting SROI in the planning stages of a program may actually be easier than trying to calculate the impact of past activities. It can help an organization create goals that are outcomes-based and ensure that the right data collection will be in place to measure the outcomes.
The most challenging part of the process is figuring out how to put a dollar value on outcomes. In our example above, how do you value the increase in literacy resulting from reading lessons in dollar terms? The SROI Guide recommends identifying indicators of the outcome (like increased test scores by children) and then finding proxies to measure the dollar value of the indicators.
You may also ask yourself: how to separate out other factors that could have affected the desired outcome; was the increase in literacy a result of the reading lessons, or of other factors? One method to measuring this is to subtract out trends in the outcome indicators. A nationwide increase in literacy, for example, should be subtracted out in calculating the impact of the reading lessons on literacy.
If you didn’t learn everything you need to know about SROI in this post, there couple of consulting firms, such as Mission Measurement and Social Venture Technology Group that focus on helping organizations measure social impact; case studies can be found on their websites.
