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Home > Business Ethics Checklists > Social Return on Investment

Business Ethics Checklists

Social Return on Investment


Checklist Description

This checklist outlines the concept of the social return on investment and provides an overview of its application.

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Definition

Analyzing the return on an investment in financial terms is intuitively relatively easy, yet many investments can deliver other forms of return that are more difficult to express purely in terms of money.

The social return on investment (SROI) refers to the total social, environmental, and economic value of an activity undertaken by a nonprofit organization or business. SROI has developed from both cost/benefit analysis and social accounting, though the formal concept was originated by the Roberts Enterprise Development Fund, a San Francisco-based philanthropic fund that invests in institutions and organizations working for social returns rather than purely profit.

Social return on investment aims to support a better understanding and management of the outcomes of an existing or potential project. Different individuals or bodies involved in the project, often referred to as stakeholders (for example, those managing, funding, working for, or benefiting from the activity), may place a different emphasis on the relevance of each benefit of SROI.

What sets SROI apart from conventional social accounting is that it aims to put a monetary value on the combined benefits of the activity with a view to maximizing the use of resources. For example, an SROI study could demonstrate that for every $1 invested in a particular social project, a return of $5 was achieved from sources such as healthcare benefits, reduced welfare payments, or lower delinquency rates in the local community. SROI performed retrospectively, known as evaluative SROI, assesses outcomes that have already occurred with a view to judging their overall effectiveness, whereas forecast SROI can be useful in planning terms given its aim of helping to assess the likely total future social, environmental, and economic value of a project or activity.

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Advantages

  • Helps to assess the total value of projects for society.

  • The analysis supports a long-term view of the overall social, environmental, and economic benefits an activity can generate.

  • Can be a valuable tool in promoting existing or potential projects by helping to attract new funding.

  • The technique can also help those bodies funding existing projects to understand the full value of benefits delivered.

  • Thorough SROI analysis can also identify possible undesirable consequences of projects, providing an early opportunity to change strategy or put in place measures to address negative outcomes.

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Disadvantages

  • SROI is dependent on subjective considerations, so attitudes to monetary values may differ between stakeholders. Putting a monetary value on some benefits can be extremely difficult.

  • Adopting an SROI approach to a project can involve significant resources, both in terms of time and level of commitment.

  • Estimating the amount of time needed to implement SROI can be difficult as this depends on the availability of the required data and the skill set of those involved in the study.

  • The findings of SROI can lack credibility to any parties who are opposed to the project in the first place; given its reliance on subjective inputs, opponents may see SROI as a means to justify spending on a “pet” project.

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Action Checklist

  • When considering investing in a project or activity, give an overall thought to the value and implications it might have for society as a whole.

  • Ensure that you are communicating effectively with all stakeholders so that they understand what you are measuring, how you are doing it, and what you are hoping to achieve.

  • Make use of impact maps to foster a better understanding among stakeholders of the relationship between the availability of resources, the possible uses of those resources, and the likely results.

  • Don’t overstate the value of the project—attributing unrelated benefits to the project in an SROI study could undermine the whole credibility of the analysis.

  • Be transparent about the assumptions you are making—SROI is not an exact science and shouldn’t be portrayed as such.

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Dos and Don’ts

Do

  • Plan thoroughly and understand what you aim to achieve from your study.

  • Identify who all the stakeholders are and understand their goals and objectives.

  • Make reasonable and balanced projections and stick to your aims and plans.

  • Ensure that any judgments involved in SROI are fully documented to ensure transparency.

  • Where resources permit, look to underpin the credibility of your analysis by inviting an independent third party to validate your findings.

Don’t

  • Don’t think of SROI as an exact science—values are subjective as different stakeholders may have different priorities in terms of outcome.

  • Don’t become obsessive about the ratio of “money spent versus the total value of benefits received”—rather, use SROI analysis as a basis for a better understanding of the likely outcomes of a project.

  • Don’t undermine the integrity of your findings by trying to put a value on unrelated outcomes that have little or nothing to do with the project.

  • Don’t underestimate the value of effective results reporting—present your analysis to stakeholders and encourage ongoing communication with them.

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Further reading

Books:

  • Nicholls, Jeremy, Susan Mackenzie, and Alibeth Somers. Measuring Real Value: A DIY Guide to Social Return on Investment. London: New Economics Foundation, 2007.
  • Scholten, Peter, Jeremy Nicholls, Sara Olsen, and Brett Galimidi. Social Return on Investment: A Guide to SROI Analysis. Amstelveen, The Netherlands: Lenthe Publishers, 2006.

Article:

  • Rotheroe, Neil, and Adam Richards. “Social return on investment and social enterprise: Transparent accountability for sustainable development.” Social Enterprise Journal 3:1 (2007): 31–48. Online at: dx.doi.org/10.1108/17508610780000720

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