SROI – Ever heard of it?

 

You may think not, but you probably have and you definitely will in the future…. It was one of the hot topics of conversation at the ICAEW Charity Conference I attended in Manchester on 27th November 2012.

 

So what is SROI and is it a new thing?

 

According to Wikipedia, “Social Return On Investment” is a principles-based method for measuring extra-financial value relative to resources invested i.e. environmental and social value not currently reflected in conventional financial accounts. It can be used by any entity to evaluate impact on stakeholders, identify ways to improve performance, and enhance the performance of investments.

 

The ‘SROI badge’ might be new but the concept has developed from the idea of social ‘impact’ which many charities are already thinking about.  The key point is that it is the outcome rather than the output that is measured.

 

 

Could it be useful?

 

The majority of charities report outputs in their annual trustees’ report, eg. the number of people re-housed or the number of substance addicts attending a course during the year.  If these were described more fully or even given a value then we start to talk about outcomes and show real impact.

 

The ‘outcomes’ of charitable activities can be very powerful when trying to persuade funders to part with their money or to provide them with a bigger picture of what their current funds achieve.

 

SROI in practice

 

Taking the example of a charity providing services to people abusing substances, could we turn the output into an outcome to show the real impact of that particular charity’s activities?

 

 

The Inputs (often, but not exclusively,  financial) drive the Activities of the charity.  The Outputs of the charity have various Outcomes and these in turn have a number of Impacts.

 

The Output in our example could be a person attending a series of the charity’s courses.  This in itself is not that inspiring, however, the resulting Outcomes are.  Outcomes can be split into primary outcomes (direct effects) and secondary outcomes (the “…and so….” effects) and could include….

 

 

What does SROI Utopia look like?

 

A lot of (academic) time and effort has been put into showing how to value Social Return on Investment by quantifying the financial effect of the various Outcomes thus demonstrating the real financial effect of that charity’s activities.

 

In effect you could produce a quasi-income and expenditure account of the value of outcomes less the activities costs, giving a net return.

 

Of course any calculated figures would be largely based on assumptions, but careful explanation of these assumptions would justify the values attributed and give powerful reasons why a charity’s ongoing funding is vital.

 

How can charities make use of SROI reporting?

 

A charities annual report is a great place to spread the word about SROI, and by flipping the traditional operations diagram (above) you can really start to think about this from an Outcomes perspective;

 

In doing this the real value of the charity’s services, compared to the financial input, can be judged by the readers of the accounts.

 

Often the ‘cost’ of withdrawing funding can be massively greater than the quantum of the funding itself.  Demonstrating this to funders will have a profound effect on the decisions they take about the level of funding offered to the charity.

 

SROI = Public Benefit?

 

Of course thinking about SROI in this way, almost leads you back to the original aims of the Public Benefit test.

 

I wonder whether the Public Benefit section was really introduced to achieve this sort of dialogue and discussion within charity accounts in the first place?

 

If you would like to have a discussion about the ways in which your charity can benefit from SROI then please feel free to contact me on 01524 62801.