The Systematic Stages of Social Return on Investment (SROI) Analysis

Would you be curious to know how SROI analysis is carried out in its entirety? Have you ever wondered how to measure social impact in monetary terms? Let me show you how these processes are done systematically.

Let us start with an understanding of SROI. The framework of SROI seeks to reduce inequality and environmental degradation and improve social wellbeing. SROI is a ratio of benefits to costs and it is calculated by assigning monetary values to economic, social and environmental benefits and costs. To make it clear, a ratio of 3:1 indicates that an investment of £1 delivers £3 of social value. We need a step-by-step approach in carrying out SROI to make sure that all stages are logically connected and every stage is amenable to inspection and verification. Let us examine each stage in detail.

Stage I- Establishing scope, Identifying stakeholders and Deciding how to involve the stakeholders:  

Establishing scope involves getting clarity on for which audience and why the analysis is being done, resources available, the team conducting the analysis and priority areas for analysis. Stakeholders are individuals or organizations who can cause the change or experience the change. If the stakeholders are very different to as to make the analysis difficult, they may be split into groups. Information will be collected directly from the stakeholders through interview or focus group discussion.

Stage II- Mapping Outcomes:

This process describes how inputs of resources deliver outputs and create outcomes for stakeholders. You can call it as ‘theory of change”. Suitable computer package will be used for mapping outcomes. Inputs and outputs are included in monetary values. For example, the cost of engaging a volunteer will be taken just same as the cost of engaging a normal employee to do the same functions performed by the volunteer. The input costs will include wages, National Insurance and pension contributions, cost of desk space, electricity etc. Outcomes are described taking into account organization’s objectives and views of stakeholders.

Stage  III- Evidencing outcomes and giving them a value:

In this step, evidences of change are collected with the help of logically created outcome indicators.. These indicators are developed after asking stakeholders about how and to what extent they experienced change. For example, a fitness club is an activity, fitness exercises are outputs and percentage reduction in falling ill is an outcome indicator. We have to use a complementary mix of measurable subjective (self-reported) and objective indicators. For example, the subjective indicator of a feeling of wellbeing should be supported by the objective indicator of decreased frequency of falling ill. Data collection regarding outcomes may use sampling and statistical tests to arrive at figures. For each outcome, duration of benefit period is assessed accurately.

 You will find the process of assigning values to non-traded entities interesting and creative! In this process we use financial proxies.  Individual social values add to the total social value created by an intervention. Social value is found by any one of the following method. In Stated Preference and Contingent Valuation, stakeholders directly state how they value things either relative to other things or in terms of how much they would pay to have or avoid something. For example, the value of reducing aircraft noise in their town by a half will be taken as how much they are willing to pay for it. Revealed Preference techniques of which Hedonic Pricing is a kind infer valuations from the prices of comparable market- traded goods. This method could be used to value environmental amenities affecting price of residential properties. For example, the value of clean air will be estimated as the premium placed on house prices in areas with clean air. In Travel cost/Time value method time and money spent in availing a service is taken into account. For example, the value of a socializing facility is estimated as the cost of membership in a social club.  Nonetheless, this section requires creativity and research on your part.

Stage IV – Establishing Impact:

Impact refers to change entirely attributable to activities in consideration. To arrive at the accurate impact value, certain elements are deducted from value of each outcome. Those elements are deadweight, displacement, attribution and drop-off. Deadweight is the amount of outcome that would have happened even in the absence of the activity. Displacement measures how much of one outcome displaced other outcomes. Attribution refers to the percentage of outcome occurred as a contribution of other people or organization. Drop-off provides for a decrease in the amount of outcome in future years, it is applicable only in the case of outcomes that last for more than a year.

Stage V- Calculating SROI:

You have come to a crucial stage here! The first step in calculating the ratio is to project the impact value of all outcomes into the future for one common time period, say one year. If applicable to any outcome, the drop-off is deducted for succeeding years. Then net present value (NPV) of benefits is calculated after subtracting the value of inputs (investment) from the present value of benefits calculated using discounting. Then SROI is calculated by dividing present value by value of inputs. Alternately, Net SROI ratio is calculated by dividing NPV by value of inputs. After calculating the ratio, a Sensitivity Analysis is made to understand how the ratio changes with respect to a change in the value of inputs, the quantity of outcomes, financial proxies or elements subtracted from outcome values. Funders may calculate Payback Period to assess risk in the project. While the shorter payback period indicates less risk higher value may indicate significant long-term outcomes together with the need for long-term funding.

Stage VI- Reporting, Using and Embedding:

This is the final stage of SROI analysis. The SROI value will be communicated to the relevant audience who could be stakeholders or the public or the internal management as the case may be.  A standard framework of the report will allow comparison between reports. The report should contain quantitative and qualitative information to detail how the calculation and report is made.

Conclusion:

We have seen how SROI analysis is done in a scientific manner. SROI analysis should pave way for positive changes over time. It will be indicated by how the ratio changes. Sensitivity analysis is to be made use of for improvement in the ratio in further years. There should be assurance recorded in the report about principles, data and analysis made in the whole process.

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