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Measuring
social
impact:
the foundation of social
return on investment (SROI)




SROI Primer Ā©2004 nef   www.neweconomics.org
Chapter One

Introduction
and Purpose
Many organisations have social, environmental and        Essentially, to all of your stakeholdersā€¦ or in other
economic impacts that have an effect on people,          words, the people that matter to your organisation.
their communities and the environment for the
better. They may be a social enterprise, a private       This tour will help you explore how to measure social
business, a voluntary organisation or a government       outputs, outcomes and impact. It offers you a new,
initiative. Some may be largeā€¦ and others run by a       straightforward approach to assessing the monetary
very small group of people. They may work across the     value of some of your social impacts. This is done by
sectorsā€¦ and can have unique objectives or they may      calculating the Social Return On Investment ā€¦
have objectives shared by several other organisations.   or SROI.

So what links these diverse organisations? Well, they
all face the same challengeā€¦ How should they             Why measure social outputs,
measure their social outputs?ā€¦ and how should they
measure the value of achieving their social
                                                         outcomes and impact?
                                                         ā€¢ Improved programme management
objectives? Now, we can often see, or at least assume
                                                                   More effective planning
the benefits of their workā€¦ but in todayā€™s world
                                                                   More effective evaluation
it is necessary to communicate specific details about
                                                         ā€¢ Increased understanding of the impact of your work
those benefits in order for them to be fully             ā€¢ Stronger communication of the value of your work
acknowledged.                                              to ā€˜the people that matterā€™
                                                           (internal and external stakeholders)
My name is Jessica Boyd and Iā€™m going to guide you       ā€¢ Enhanced attention to the social, economic
through this introduction. Weā€™ll be looking at             and environmental value created by your business
measuring social outputs and valuing social                or organisation
outcomes in monetary terms. If you and your
organisation fit into any of the categories mentioned
here, then you will have everything to gain from
following this process. There are two main reasons
why this is important to doā€¦                             I should also mention that we will use the word
                                                         ā€˜socialā€™ here as a short form for ā€˜social, environmental
Firstly, you can use the information to look forward     and economicā€™ throughout.
and plan your business and its objectivesā€¦ or to look
back and evaluate. Knowing how well you are              This web tour has been designed for you to move
achieving your objectives can help you plan your         easily from chapter to chapter. You can also jump
organisation more effectively. It may make you more      straight to the chapter of your choice. You can
attractive to your customers and help you win            download the transcript as well as the slidesā€¦ and
contracts.                                               there are links to useful information on the resources
                                                         page of our Web siteā€¦ as well as a glossary of terms.
Secondly, measuring and communicating the value
of your social outcomes, helps to demonstrate the        So, before we get started, letā€™s hear some of the
importance of your work to you, your staff, your         questions that different organisations are asking.
customers, investors or a government agency.




SROI Primer Ā©2004 nef     www.neweconomics.org                                                                   1.1
Chapter Two

Ask the Right
Questions
ā€œWe change peopleā€™s lives for the better. How do           society, in order to expand their programmes and
I measure that?ā€                                           increase their impact further. The reality is there are
                                                           many reasons to measure your social outputs and
ā€œThere are many different groups of people involved        outcomesā€¦ and there is no one way or right answer.
in or interested in someway in my organisation.
All these stakeholders seem to want different things:
How do I prioritise them?ā€
                                                           Ask the right questions
ā€œI want to bid for work on a new social housing            ā€¢ Who are the people that matter to my business?
project. Theyā€™ve asked about social benefits that are        What are their objectives?
part of working with my company. Whatā€™s the right          ā€¢ How should I prioritise my stakeholders?
answer?ā€                                                     Are their objectives aligned to mine?
                                                           ā€¢ What output indicators illustrate how well
ā€œThey say that what gets measured gets valued, but           I achieve my objectives?
how do I measure a new skill, access to employment         ā€¢ Can I measure the social return that results
or crime reduction?ā€                                         from our impact?

If someone asked you about the value of your car,
or a pair of jeansā€¦ you would be able to tell them.
When accountants assess a businessā€™s financial
statements, they calculate its value in terms of
sales or outputs, versus cost of goods and overheads.
But if you produce a social output, how do you
measure that value and calculate its worth?                The key is to measure what best reflects the interests
                                                           of your business and the interests of your
Well, many organisations are asking that same              stakeholders. Before we look at how we should go
question. Some have investors interested in what will      about measuring social outputs and outcomes, weā€™re
be achieved with their financial input. Some have          going to look at the basic four elements needed for
customers choosing to buy products because of their        this process.
social impactā€¦ like fair trade coffee. Some just want
to be bolder about the positive role they are playing in




SROI Primer Ā©2004 nef     www.neweconomics.org                                                                  2.1
Chapter Three

Terms
and Definitions
There are 4 main elements needed to measure            the impacts. So perhaps 2 of 20 programmers
social value creation: inputs, outputs, outcomes       would have found jobs on their own. That means
and impacts.                                           that the impact of the training programme should
                                                       be calculated based on the other 18 (people)
Now, these terms mean different things to              that started work.
different people, so let me clarify how they are
being used here.

Inputs are the resources you need in order to make     Key Terms
something happen. Theyā€™re measured as a cost.
                                                        Inputs       Outputs         Outcomes          Impacts
For example, the cost of equipment for running
a computer training programme.                         ā€¢ Inputs - resources invested in your activity
                                                       ā€¢ Outputs - the direct and tangible products from
Outputs are the direct result of your business           the activity, i.e., people trained, trees planted,
objective or programme goal. So for example,             products sold
25 people learned new computer skills as a result      ā€¢ Outcomes - changes to people resulting from the
of your training programme.                              activity, i.e., a new job, increased income, improved
                                                         stability in life
An outcome is a change that has occurred over the      ā€¢ Impact = Outcomes less an estimate of what would
longer term. So for example, the number of people        have happened anyway
that started work and improved their personal
circumstances as a result of the training programme.
This outcome can be measured in their own terms,
for example, the value of their increased income.
It could be measured from the perspective              As the following real-life case studies will illustrate,
of a different stakeholderā€¦ like the government.       all of these terms will become meaningful to you
In this case, the value of the outcome would also      only in relation to your business objectives and
include increased taxes paid or reduced support        to the objectives of your different stakeholders.
payments by the state.

Now, if you adjust the outcome to take into account
what would have happened anywayā€¦ you identify




SROI Primer Ā©2004 nef     www.neweconomics.org                                                                   3.1
Chapter Four

What Gets
Measured,
Gets Valued
The first thing that needs to be decided in any          commercial music eventsā€¦ or the number
organisation isā€¦ What outputs do we measure?             of local artists performing at Oceanā€¦ or the
Well, Iā€™m joined by Gabin Sinclair from Ocean, an        number of students participating on the Rising
independent music venue in Hackney, East London.         Tide programmes.
Heā€™s going to tell us about their experience.
                                                         JB: That seems clearā€¦ and what does the Rising Tide
Jessica Boyd: Hi Gabin, could you start by telling       programme actually entail?
us a bit about Ocean?
                                                         GS: Rising Tide provides all kinds of workshops from
Gabin Sinclair: Well Ocean is a state of the art music   music performance to technical and business skillsā€¦
venue, with the vision of contributing to Hackneyā€™s      those for working within the music industry.
regeneration through music.                              For example, we deliver DJ courses, vocal and
                                                         instrumental training and studio or sound production
JB: So you could say that youā€™re helping to improve
Hackney as a place to live and work. Thatā€™s a pretty
big goal.
                                                         What Gets Measured,
GS: Thatā€™s right, but we believe that creating
a vibrant music scene, one that the local
                                                         Gets Valued
community can participate in, will help regenerate        An objective is a ā€˜theory of changeā€™
that community. Getting young people involved
is particularly important.                                Outputs measure progress towards achieving
                                                          that change through an organisationā€™s work
JB: So, how do you go about doing this?

GS: Ocean brings in musicians who otherwise
wouldnā€™t be seen or heard live. Giving them the
opportunity to perform, helps them to be noticed.
We also work with other community groups who want
music to be a part of their programmes. Ocean also
runs Rising Tide which is our education programme
with a more focused target groupā€¦ most of the            courses. In the short term, people gain these specific
students on Rising Tide programmes are aged              skills, but in the longer term, they become more
between 16 and 22.                                       educated and ultimately more employableā€¦ and
                                                         some actually get new jobs because of this process.
JB: I see, so what outputs do you actually measure?

GS: Well, our outputs are the participation rates ā€¦
or you could say, the number of people attending                                                  ... Continued



SROI Primer Ā©2004 nef     www.neweconomics.org                                                              4.1
JB: That sounds great!ā€¦ and have you always              JB: Thank you very much Gabin.
measured the direct outputs of Oceanā€™s work?
                                                         So, in Oceanā€™s example, weā€™ve learned that their
GS: Two thirds of our operating revenue is from ticket   outputs are the numbers of participants involved
sales. The remainder comes from funders who              in the different programmes. Theyā€™ve started to
believe that music can help regenerate Hackney.          measure outcomes, such as long term education and
Some of our funders are interested in our artistic       reduced crime in the area and weā€™ll be looking at how
programme. Others are interested in our education        we can value these social outcomes a little bit later.
or in future skills for employment.
                                                         But first, weā€™re going to explore the importance
JB: So, how do you prove to them that youā€™re             of deciding which outputs and outcomes to measure
achieving your objectives?                               from the viewpoint of your different stakeholders.

GS: We track outputs such as participation or
qualifications obtained on our courses. We track
Rising Tide students who are on accredited courses       What Gets Measured,
more closely because this helps us to assess
whether or not our courses are meeting their needs.
                                                         Gets Valued
                                                          Oceanā€™s theory of change:
                                                          music-related activities can contribute
JB: So, we can understand your outputs as the
                                                          to the regeneration of a community
participation rates across the different aspects of
Oceanā€™s workā€¦ but what about outcomes, how would
                                                          Outputs measured are the number (#) of:
you define those for us?                                  - musicians performing to local tastes
                                                          - local musicians performing
GS: Weā€™re just starting to measure our outcomes           - people coming to music events
such as the value of Rising Tide to our studentsā€™ long    - people enrolled in programmes
term educationā€¦ and the value to society in relation      - students graduating with LOCN credits
to the reduction in crime. Many of our students are
referred to us by the local youth offending teamsā€¦
usually in relation to anti-social behaviour. Our
students get really engaged on our courses, so we        What Gets Measured,
can usually tell whoā€™s behaviour changes and
improves throughout the process. The police will tell
                                                         Gets Valued
you that criminal activity reduces when young people            Output Indicator                 Stakeholders (external)
are involved in activities such as Rising Tide.          # of musicians performing to local   Hackney Council, arts-oriented
                                                         tastes, # of local musicians         investors
                                                         # of people at community             Community leaders, local arts and
JB: So we can see it makes a real impact on the local    and music events                     community groups, Hackney Council
community. Now, how far, would you say, that             # of people enrolled                 Hackney Council, arts-oriented
measuring your outputs and outcomes, helps you           in programmes                        investors, community leaders

to prove that you are achieving your objectives?         # of students graduating with        Hackney Council, local business
                                                         LOCN credits
                                                         Crime reduction rates                Local police, community leaders,
GS: Weā€™ve realised that the stories we tell are                                               local residents
more clearly understood when theyā€™re supported
by figures. We canā€™t count everything, but counting
what we can, makes the information more tangible
to our stakeholders.




SROI Primer Ā©2004 nef     www.neweconomics.org                                                                                   4.2
Chapter Five

Value is in
the Eye of the
Stakeholder
As Gabin explained to us, looking at your outputs      JB: Thatā€™s interesting, could you tell me a bit
can help demonstrate how well youā€™re meeting           more about your stakeholders and how you prioritise
your objectives.                                       their needs?

Weā€™re now going to look at another real-life case      KL: Yes, one of the main stakeholder groups we have
study in order to demonstrate how important it is to   are the local communities that surround our
know the objectives of your different stakeholders     woodland. They were very wary of our motives at first.
as this will lead to new sources of value creation.    It was important for us to get them on board right

Karen Lowthrop is here from Hill Holt Wood, a social
enterprise in Lincolnshire.
                                                       Value is in the
Jessica Boyd: Hi Karen.
                                                       Eye of the Stakeholder
Karen Lowthrop: Hi Jessica.                            ā€¢ Identify and prioritise all your stakeholders
                                                       ā€¢ Consult with them (where possible) to identify
JB: Could you give us some background on your            common priorities
organisation and your overall objectives?              ā€¢ Measure progress towards achieving your objective
                                                       ā€¢ Understand how their objectives match or conflict
                                                         with your objectives
KL: Sure, Hill Holt Wood is a 14 hectare woodland
                                                       ā€¢ Tell your stakeholders what you are doing well,
which we run as a social enterprise. One of the key
                                                         where you could improve and your future goals
objectives is for us to provide training, vocational
training, for 15 to 18 year olds who are at risk of
social exclusion. Also, another key objective is to
encourage free public access to the woodland and
to give information to our local community.

JB: So you run a training programme for young          from the beginningā€¦ and they have formed part of
people at risk of social exclusion.                    the team that has developed this social enterprise.
                                                       This has helped us both with our business objectives
KL: Yes, thatā€™s part of it, but we founded the         and also in restoring the woodland. It is important for
woodland because woodlands play a vital part in the    individuals and groups to take advantage of this very
health and overall wellbeing of communities.           unique environment.
Woodlands are part of the sustainable development
agenda and they do play a role in job creation and
economic output. In fact we employ 14 people now
and that is a significant employer in our area.                                                   ... Continued




SROI Primer Ā©2004 nef     www.neweconomics.org                                                               5.1
JB: But how do you know that you have achieved            JB: Would you say that your objectives have ever been
that objective?                                           out of step with a key stakeholder?

KL: We track users to the woodland, and this helps        KL: Well the young people we have on our vocational
us to explain the value of what we do to other            courses come with many barriers to learning.
stakeholdersā€¦ like government departments who are         Barriers that have prevented them from going into
involved in social development, health and the            educationā€¦ or indeed, have led them into crime.
environment. It has been proved, I think, that            Their objective for coming on the course is to get
woodlands are a very good environment for people          a job, to look for long term employment. Funding
to be in. They can dilute all sorts of stress areas and   dictates to us that we track just the trainees, the
they can be very calm. Exercise and physical work         learners that we train successfully. But the key
also can have very good measurable benefits for           objective is for learners and we donā€™t feel that we
health.                                                   have reached that objective unless our learners
                                                          have got sustainable jobs that they will stay in for
JB: What other issues are important                       some time.
to your stakeholders?
                                                          JB: So we can see, therefore, how knowing
KL: I think the presence of 40 people on site at Hill     stakeholder objectives is important, particularly
Holt Woodā€¦ Itā€™s a ā€™lived inā€™ woodlandā€¦ accessibility      for programme delivery.
of pathsā€¦ encourages a lot ofā€¦ a wide variety
of visitors. They feel secure in a well managed, lived    Thank you very much Karen for sharing your
in woodland. So, more people benefit from social and      experience with us.
environmental value we are creating.
                                                          KL: Thanks Jessica.
JB: And could you explain to us how all this may link
to vocational training?                                   So, with Karenā€™s case study in mind, weā€™re now
                                                          going to look at how social value can be monetisedā€¦
KL: Thatā€™s a good question. Our resources come from       and we will introduce the Social Return On
the natural woodland. We offer courses in ā€˜green          Investment analysis.
woodworkingā€™, construction, woodland skills and
woodland managementā€¦ and thatā€™s just an example
of some. Programme funding comes from government
sources for ā€˜youth at riskā€™ and our classes are very
small. We have four students to one instructorā€¦ and
this allows us to give the kind of attention they need.




SROI Primer Ā©2004 nef     www.neweconomics.org                                                                5.2
Chapter Six

Social Return on
Investment
Weā€™ve looked at measuring outputs and identifying       this by using a case study of an organisation by
outcomes in relation to the objectives of different     the name of Tomorrowā€™s People. Weā€™ll look at their
stakeholders. Weā€™re now going to look at monetising     Get Out to Work programme in Merseyside.
the value of social impacts.
                                                        Merseyside is actually in an area in Britain which
Iā€™m going to hand over now to Jeremy Nicholls from      has a very high rate of unemployment. That means
the New Economics Foundation and to Stephanie           that young people, particularly those with
Robertson... and they will introduce Social Return      criminal records, have a difficult time finding jobs.
On Investment.

Jessica Boyd: Hi
                                                        Social Return on
Jeremy Nicholls: Hi.                                    Investment
Stephanie Robertson: Hello.                             ā€¢ Social investors seek evidence of social
                                                          impact (social return) that results from their
JB: So, Stephanie, what does SROI mean?                   financial investment

SR: Many people will be familiar with the return        ā€¢ They have many different profiles (i.e. philanthropist,
on investment, ROI, as a way of estimating financial      venture capitalist, foundation or government)
value creation. Generally speaking, if you invest
a pound in a project, and more than a pound             ā€¢ SROI indicates the value of the social impact in
is returned within a reasonable time frame, that          financial terms
project is probably worth further consideration.

Investors in organisations that create social value
are thinking the same way. They might be a
philanthropist , a venture capitalistā€¦ they could       Get Out to Work was actually created to address
represent a foundation or perhaps a government          that problemā€¦ and Tomorrowā€™s People works with
department. Thereā€™s many, many different                a number of organisations in the Merseyside area.
profiles. Social Return On Investment, SROI,
is a way to monetise the value of the social impact     Now, Jeremy actually worked with Tomorrowā€™s People
in financial terms.                                     and he did the SROI analysisā€¦ so heā€™s going to talk
                                                        us through.
Basically what weā€™re trying to do is monetise the
value of the social impact of an organisationā€™s work.
Then weā€™re going to compare that social value to the
cost of making that project happen. We can illustrate                                                 ... Continued




SROI Primer Ā©2004 nef     www.neweconomics.org                                                                      6.1
JN: Thanks Stephanie. Well, Iā€™d like to start by          activity, were used to project over the next 5 yearsā€¦
describing the organisationā€™s inputs and outputs.         and each future year was discounted to allow for the
Get Out to Work costs Ā£51,000 a yearā€¦ and it              change in the value of money over time*. This was
measures its success against three targets: Helping       all added up, and resulted in a present day value
163 of its offenders over the first 2 yearsā€¦ ensuring     of Get Out to Work of Ā£543,000.
that at least 12 people get a job at the end of thatā€¦
and reducing the reoffending rate for its client group.
                                                          Building Get out to Workā€™s SROI
At the end of the first year, Get Out to Work had          Inputs                 Outputs           Outcomes                 Impacts
helped 110 peopleā€¦ and 19 of them had found work
and were still employed at the end of 10 months.
Now the reoffending rate was 15% lower than the            Ā£51,000                110 clients      Direct ā€“ 19       Direct ā€“ 17
                                                                                  involved in      clients gain      clients into long
national average for that target groupā€¦ and it was                                programme        long term         term
                                                                                                   employment        employment
by measuring their success against these targets,                                                  (increased        (deadweight
that Get Out to Work was able to calculate the SROI.                                               wages, reduced    accounted for)
                                                                                                   state benefits
This is how they did itā€¦                                                                           paid)             Indirect ā€“
                                                                                                                     15% reduction
                                                                                                   Indirect ā€“        in re-offending
The input was the Ā£51,000 invested. The outputs                                                    15% reduction
                                                                                                   in re-offending
were the 110 people that they helped over the first
year. The direct outcome was that 19 people found
a job and reduced the amounts of money they needed
from the government. The indirect outcome was the
lower rate of reoffending.                                GOTWā€™s SROI Calculation
                                                           Impact 17 clients            Yr 1     Yr 2      Yr 3       Yr 4      Yr 5
Tomorrowā€™s People were able to use government
                                                          Per client benefit
statistics and the results of their own surveys to        Employment: to client        Ā£3,670   Ā£3,830    Ā£3,990     Ā£4,150     Ā£4,320
estimate the value of the increase in income (to each     Employment: to state         Ā£8,940   Ā£9,050    Ā£9,150     Ā£9,270     Ā£9,380
job holder), the reduced payments from government         Reduced re-offending        Ā£12,400 Ā£12,400 Ā£12,400 Ā£12,400 Ā£12,400
and the lower crime related costs. They were also
                                                          Total social benefit        Ā£419,740 Ā£390,990 Ā£356,820 Ā£334,580 Ā£311,840
able to use Labour Force Survey information to
                                                          GOTW share (33% of total)   Ā£138,510 Ā£129,030 Ā£117,750 Ā£110,410 Ā£102,910
estimate that, on average, 2 of the 19 people would
                                                          Present Value (PV) of
have found work without their helpā€¦ and so the            GOTWā€™s share                Ā£133,826 Ā£120,451 Ā£106,204     Ā£96,216   Ā£86,647
value of the social impact of Get Out to Work was         (discounted @ 3.5%)


calculated on the basis of the outcomes for 17            Total PV of GOTWā€™s share = Ā£543,000
people and not 19.

SR: Thatā€™s a really important point. You need
to distinguish between outcomes and impacts               (*A 5-year timeframe is a standard time horizon to
in order to make sure you donā€™t overstate your value.     project return on investment.)
This way, your information will be more credible
to your stakeholders.

JN: Thatā€™s right,ā€¦ and the results of the first yearā€™s                                                                 ... Continued




SROI Primer Ā©2004 nef      www.neweconomics.org                                                                                          6.2
So the SROI ratio shows the value of the social
impact in relation to the investment required
to achieve it. The value of the social impact, in this    GOTWā€™s SROI
case Ā£543,000,ā€¦ divided by the investment, in this
                                                                                          Monetary value of impact
case Ā£51,000. Using this standard calculation, the
SROI ratio for Get Out to Work was 10.5 to 1. That is,    Total PV of GOTW share of
                                                          discounted social benefits            Ā£ 543,000
for every Ā£1 invested, Ā£10.50 is created for society.     over 5 years


SR: Just for emphasis, the SROI ratio is calculated       Investment                            Ā£     51,000

by dividing the value of your social impact by the        SROI Ratio                                10.5 : 1
investment required to achieve that impact.
What the ratio tells youā€¦ it gives you an indication      For every Ā£1 invested, Ā£10.50 is created in
of the value for society thatā€™s created for every Ā£1      benefit for society
invested. However, just remember that SROI is a way       SROI = monetary value of impact / value of inputs
of thinking, and you may not be able to monetise
everythingā€¦ so itā€™s probably more important
to monetise the things that are important to your
organisation and also important to your stakeholders.     SROI Review
                                                          ā€¢ The SROI ratio helps to tell your story,
So I guess thereā€™s 2 things to remember. SROI does          it is not the whole story!
not have to be complicatedā€¦ and also, the SROI            ā€¢ Set objectives and identify output indicators
is just a number that is one part of the story. When      ā€¢ Think through outcomes. Decide which can be
you give that number to your stakeholders, itā€™s             measured and monetised. Find data
important to put it into context with the other details   ā€¢ Calculate outcome. Subtract deadweight
of your programme.                                          to illustrate impact. Check your assumptions
                                                          ā€¢ The SROI ratio is the total monetary value
JB: Thanks Stephanie. Thanks Jeremy.                        of impact, divided by the investment

Well that was a clear introduction to how we can use
a straightforward calculation to help us evaluate our
social impact. Also that SROI could be regarded as
a framework for reporting on our wider impact. The
SROI ratio simply indicates value created for society
based on the initial investment.




SROI Primer Ā©2004 nef      www.neweconomics.org                                                                      6.3
Chapter Seven

The Essentials
and Further
Resources
ā€œIt certainly makes sense to me. I need to decide         on your objectives and the interests of your key
how to measure outputs against my objectives so that      stakeholders will help you to get the results that
I can monitor how well I am achieving these.ā€             you need.

ā€œAh, I see. By understanding my stakeholderā€™s             We hope that you will have found this useful in
needs, I can try and meet them through my                 developing your own measurement systems and
organisationā€™s objectives.ā€                               planning how to communicate the results.

ā€œBy putting myself in my stakeholderā€™s shoes, I can       Go to the ā€˜Resourcesā€™ section of this Web site and
find new sources of value creation.ā€                      youā€™ll find links to additional information on social
                                                          impact measurement, valuing social outcomeā€¦
ā€œThis is really interesting! Iā€™m going to include it in   and SROI. And remember that you can download
my next tender as it may help me win the contract.ā€       the slides as a useful reference document.

Many organisations, from social enterprises and           Thank you very much for watching and good luck!
charities, to government departments and investors,
are looking at ways to measure social outputs,
outcomes and impacts. We hope that more and more
of you will see the benefits of using the SROI ratio      The Essentials
to demonstrate social value creation.
                                                          ā€¢ Understand stakeholder needs and match them
                                                            to your organisationā€™s objectives
Now, not everything can be monetised, but the things
                                                          ā€¢ Decide how to measure outputs against
that can, really help to illustrate the importance
                                                            your objectives
of the work being doneā€¦ and the value flowing from        ā€¢ Putting yourself in your stakeholdersā€™ shoes can lead
achieving social objectives.                                to new ways of understanding value creation
                                                          ā€¢ Report on the whole process, not just the numbers
Weā€™ve gone through the basic steps in this                ā€¢ Government statistics and other data can be used to
introductionā€¦ Firstly, set your objectives and identify     calculate how you create social impact*. Donā€™t over-
what outputs you want to measure. Then think about          state what was actually achieved
your outcomes and decide which of these can be
monetised. Then find the data necessary to do this.
Calculate the value of your outcomes and subtract
what would have happened anywayā€¦ this identifies
the impacts. Finally, you can calculate your SROI         *Government data can help both to estimate the monetary
based on your impact, divided by the investment.          value associated with certain impacts, and to compare
                                                          the outcomes for people or groups involved with your
                                                          organisation to others like them or the general population.
Although this process does take some thought,
it doesnā€™t have to be complicated. Keeping focused




SROI Primer Ā©2004 nef      www.neweconomics.org                                                                     7.1

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Measuring social-impact

  • 1. Measuring social impact: the foundation of social return on investment (SROI) SROI Primer Ā©2004 nef www.neweconomics.org
  • 2. Chapter One Introduction and Purpose Many organisations have social, environmental and Essentially, to all of your stakeholdersā€¦ or in other economic impacts that have an effect on people, words, the people that matter to your organisation. their communities and the environment for the better. They may be a social enterprise, a private This tour will help you explore how to measure social business, a voluntary organisation or a government outputs, outcomes and impact. It offers you a new, initiative. Some may be largeā€¦ and others run by a straightforward approach to assessing the monetary very small group of people. They may work across the value of some of your social impacts. This is done by sectorsā€¦ and can have unique objectives or they may calculating the Social Return On Investment ā€¦ have objectives shared by several other organisations. or SROI. So what links these diverse organisations? Well, they all face the same challengeā€¦ How should they Why measure social outputs, measure their social outputs?ā€¦ and how should they measure the value of achieving their social outcomes and impact? ā€¢ Improved programme management objectives? Now, we can often see, or at least assume More effective planning the benefits of their workā€¦ but in todayā€™s world More effective evaluation it is necessary to communicate specific details about ā€¢ Increased understanding of the impact of your work those benefits in order for them to be fully ā€¢ Stronger communication of the value of your work acknowledged. to ā€˜the people that matterā€™ (internal and external stakeholders) My name is Jessica Boyd and Iā€™m going to guide you ā€¢ Enhanced attention to the social, economic through this introduction. Weā€™ll be looking at and environmental value created by your business measuring social outputs and valuing social or organisation outcomes in monetary terms. If you and your organisation fit into any of the categories mentioned here, then you will have everything to gain from following this process. There are two main reasons why this is important to doā€¦ I should also mention that we will use the word ā€˜socialā€™ here as a short form for ā€˜social, environmental Firstly, you can use the information to look forward and economicā€™ throughout. and plan your business and its objectivesā€¦ or to look back and evaluate. Knowing how well you are This web tour has been designed for you to move achieving your objectives can help you plan your easily from chapter to chapter. You can also jump organisation more effectively. It may make you more straight to the chapter of your choice. You can attractive to your customers and help you win download the transcript as well as the slidesā€¦ and contracts. there are links to useful information on the resources page of our Web siteā€¦ as well as a glossary of terms. Secondly, measuring and communicating the value of your social outcomes, helps to demonstrate the So, before we get started, letā€™s hear some of the importance of your work to you, your staff, your questions that different organisations are asking. customers, investors or a government agency. SROI Primer Ā©2004 nef www.neweconomics.org 1.1
  • 3. Chapter Two Ask the Right Questions ā€œWe change peopleā€™s lives for the better. How do society, in order to expand their programmes and I measure that?ā€ increase their impact further. The reality is there are many reasons to measure your social outputs and ā€œThere are many different groups of people involved outcomesā€¦ and there is no one way or right answer. in or interested in someway in my organisation. All these stakeholders seem to want different things: How do I prioritise them?ā€ Ask the right questions ā€œI want to bid for work on a new social housing ā€¢ Who are the people that matter to my business? project. Theyā€™ve asked about social benefits that are What are their objectives? part of working with my company. Whatā€™s the right ā€¢ How should I prioritise my stakeholders? answer?ā€ Are their objectives aligned to mine? ā€¢ What output indicators illustrate how well ā€œThey say that what gets measured gets valued, but I achieve my objectives? how do I measure a new skill, access to employment ā€¢ Can I measure the social return that results or crime reduction?ā€ from our impact? If someone asked you about the value of your car, or a pair of jeansā€¦ you would be able to tell them. When accountants assess a businessā€™s financial statements, they calculate its value in terms of sales or outputs, versus cost of goods and overheads. But if you produce a social output, how do you measure that value and calculate its worth? The key is to measure what best reflects the interests of your business and the interests of your Well, many organisations are asking that same stakeholders. Before we look at how we should go question. Some have investors interested in what will about measuring social outputs and outcomes, weā€™re be achieved with their financial input. Some have going to look at the basic four elements needed for customers choosing to buy products because of their this process. social impactā€¦ like fair trade coffee. Some just want to be bolder about the positive role they are playing in SROI Primer Ā©2004 nef www.neweconomics.org 2.1
  • 4. Chapter Three Terms and Definitions There are 4 main elements needed to measure the impacts. So perhaps 2 of 20 programmers social value creation: inputs, outputs, outcomes would have found jobs on their own. That means and impacts. that the impact of the training programme should be calculated based on the other 18 (people) Now, these terms mean different things to that started work. different people, so let me clarify how they are being used here. Inputs are the resources you need in order to make Key Terms something happen. Theyā€™re measured as a cost. Inputs Outputs Outcomes Impacts For example, the cost of equipment for running a computer training programme. ā€¢ Inputs - resources invested in your activity ā€¢ Outputs - the direct and tangible products from Outputs are the direct result of your business the activity, i.e., people trained, trees planted, objective or programme goal. So for example, products sold 25 people learned new computer skills as a result ā€¢ Outcomes - changes to people resulting from the of your training programme. activity, i.e., a new job, increased income, improved stability in life An outcome is a change that has occurred over the ā€¢ Impact = Outcomes less an estimate of what would longer term. So for example, the number of people have happened anyway that started work and improved their personal circumstances as a result of the training programme. This outcome can be measured in their own terms, for example, the value of their increased income. It could be measured from the perspective As the following real-life case studies will illustrate, of a different stakeholderā€¦ like the government. all of these terms will become meaningful to you In this case, the value of the outcome would also only in relation to your business objectives and include increased taxes paid or reduced support to the objectives of your different stakeholders. payments by the state. Now, if you adjust the outcome to take into account what would have happened anywayā€¦ you identify SROI Primer Ā©2004 nef www.neweconomics.org 3.1
  • 5. Chapter Four What Gets Measured, Gets Valued The first thing that needs to be decided in any commercial music eventsā€¦ or the number organisation isā€¦ What outputs do we measure? of local artists performing at Oceanā€¦ or the Well, Iā€™m joined by Gabin Sinclair from Ocean, an number of students participating on the Rising independent music venue in Hackney, East London. Tide programmes. Heā€™s going to tell us about their experience. JB: That seems clearā€¦ and what does the Rising Tide Jessica Boyd: Hi Gabin, could you start by telling programme actually entail? us a bit about Ocean? GS: Rising Tide provides all kinds of workshops from Gabin Sinclair: Well Ocean is a state of the art music music performance to technical and business skillsā€¦ venue, with the vision of contributing to Hackneyā€™s those for working within the music industry. regeneration through music. For example, we deliver DJ courses, vocal and instrumental training and studio or sound production JB: So you could say that youā€™re helping to improve Hackney as a place to live and work. Thatā€™s a pretty big goal. What Gets Measured, GS: Thatā€™s right, but we believe that creating a vibrant music scene, one that the local Gets Valued community can participate in, will help regenerate An objective is a ā€˜theory of changeā€™ that community. Getting young people involved is particularly important. Outputs measure progress towards achieving that change through an organisationā€™s work JB: So, how do you go about doing this? GS: Ocean brings in musicians who otherwise wouldnā€™t be seen or heard live. Giving them the opportunity to perform, helps them to be noticed. We also work with other community groups who want music to be a part of their programmes. Ocean also runs Rising Tide which is our education programme with a more focused target groupā€¦ most of the courses. In the short term, people gain these specific students on Rising Tide programmes are aged skills, but in the longer term, they become more between 16 and 22. educated and ultimately more employableā€¦ and some actually get new jobs because of this process. JB: I see, so what outputs do you actually measure? GS: Well, our outputs are the participation rates ā€¦ or you could say, the number of people attending ... Continued SROI Primer Ā©2004 nef www.neweconomics.org 4.1
  • 6. JB: That sounds great!ā€¦ and have you always JB: Thank you very much Gabin. measured the direct outputs of Oceanā€™s work? So, in Oceanā€™s example, weā€™ve learned that their GS: Two thirds of our operating revenue is from ticket outputs are the numbers of participants involved sales. The remainder comes from funders who in the different programmes. Theyā€™ve started to believe that music can help regenerate Hackney. measure outcomes, such as long term education and Some of our funders are interested in our artistic reduced crime in the area and weā€™ll be looking at how programme. Others are interested in our education we can value these social outcomes a little bit later. or in future skills for employment. But first, weā€™re going to explore the importance JB: So, how do you prove to them that youā€™re of deciding which outputs and outcomes to measure achieving your objectives? from the viewpoint of your different stakeholders. GS: We track outputs such as participation or qualifications obtained on our courses. We track Rising Tide students who are on accredited courses What Gets Measured, more closely because this helps us to assess whether or not our courses are meeting their needs. Gets Valued Oceanā€™s theory of change: music-related activities can contribute JB: So, we can understand your outputs as the to the regeneration of a community participation rates across the different aspects of Oceanā€™s workā€¦ but what about outcomes, how would Outputs measured are the number (#) of: you define those for us? - musicians performing to local tastes - local musicians performing GS: Weā€™re just starting to measure our outcomes - people coming to music events such as the value of Rising Tide to our studentsā€™ long - people enrolled in programmes term educationā€¦ and the value to society in relation - students graduating with LOCN credits to the reduction in crime. Many of our students are referred to us by the local youth offending teamsā€¦ usually in relation to anti-social behaviour. Our students get really engaged on our courses, so we What Gets Measured, can usually tell whoā€™s behaviour changes and improves throughout the process. The police will tell Gets Valued you that criminal activity reduces when young people Output Indicator Stakeholders (external) are involved in activities such as Rising Tide. # of musicians performing to local Hackney Council, arts-oriented tastes, # of local musicians investors # of people at community Community leaders, local arts and JB: So we can see it makes a real impact on the local and music events community groups, Hackney Council community. Now, how far, would you say, that # of people enrolled Hackney Council, arts-oriented measuring your outputs and outcomes, helps you in programmes investors, community leaders to prove that you are achieving your objectives? # of students graduating with Hackney Council, local business LOCN credits Crime reduction rates Local police, community leaders, GS: Weā€™ve realised that the stories we tell are local residents more clearly understood when theyā€™re supported by figures. We canā€™t count everything, but counting what we can, makes the information more tangible to our stakeholders. SROI Primer Ā©2004 nef www.neweconomics.org 4.2
  • 7. Chapter Five Value is in the Eye of the Stakeholder As Gabin explained to us, looking at your outputs JB: Thatā€™s interesting, could you tell me a bit can help demonstrate how well youā€™re meeting more about your stakeholders and how you prioritise your objectives. their needs? Weā€™re now going to look at another real-life case KL: Yes, one of the main stakeholder groups we have study in order to demonstrate how important it is to are the local communities that surround our know the objectives of your different stakeholders woodland. They were very wary of our motives at first. as this will lead to new sources of value creation. It was important for us to get them on board right Karen Lowthrop is here from Hill Holt Wood, a social enterprise in Lincolnshire. Value is in the Jessica Boyd: Hi Karen. Eye of the Stakeholder Karen Lowthrop: Hi Jessica. ā€¢ Identify and prioritise all your stakeholders ā€¢ Consult with them (where possible) to identify JB: Could you give us some background on your common priorities organisation and your overall objectives? ā€¢ Measure progress towards achieving your objective ā€¢ Understand how their objectives match or conflict with your objectives KL: Sure, Hill Holt Wood is a 14 hectare woodland ā€¢ Tell your stakeholders what you are doing well, which we run as a social enterprise. One of the key where you could improve and your future goals objectives is for us to provide training, vocational training, for 15 to 18 year olds who are at risk of social exclusion. Also, another key objective is to encourage free public access to the woodland and to give information to our local community. JB: So you run a training programme for young from the beginningā€¦ and they have formed part of people at risk of social exclusion. the team that has developed this social enterprise. This has helped us both with our business objectives KL: Yes, thatā€™s part of it, but we founded the and also in restoring the woodland. It is important for woodland because woodlands play a vital part in the individuals and groups to take advantage of this very health and overall wellbeing of communities. unique environment. Woodlands are part of the sustainable development agenda and they do play a role in job creation and economic output. In fact we employ 14 people now and that is a significant employer in our area. ... Continued SROI Primer Ā©2004 nef www.neweconomics.org 5.1
  • 8. JB: But how do you know that you have achieved JB: Would you say that your objectives have ever been that objective? out of step with a key stakeholder? KL: We track users to the woodland, and this helps KL: Well the young people we have on our vocational us to explain the value of what we do to other courses come with many barriers to learning. stakeholdersā€¦ like government departments who are Barriers that have prevented them from going into involved in social development, health and the educationā€¦ or indeed, have led them into crime. environment. It has been proved, I think, that Their objective for coming on the course is to get woodlands are a very good environment for people a job, to look for long term employment. Funding to be in. They can dilute all sorts of stress areas and dictates to us that we track just the trainees, the they can be very calm. Exercise and physical work learners that we train successfully. But the key also can have very good measurable benefits for objective is for learners and we donā€™t feel that we health. have reached that objective unless our learners have got sustainable jobs that they will stay in for JB: What other issues are important some time. to your stakeholders? JB: So we can see, therefore, how knowing KL: I think the presence of 40 people on site at Hill stakeholder objectives is important, particularly Holt Woodā€¦ Itā€™s a ā€™lived inā€™ woodlandā€¦ accessibility for programme delivery. of pathsā€¦ encourages a lot ofā€¦ a wide variety of visitors. They feel secure in a well managed, lived Thank you very much Karen for sharing your in woodland. So, more people benefit from social and experience with us. environmental value we are creating. KL: Thanks Jessica. JB: And could you explain to us how all this may link to vocational training? So, with Karenā€™s case study in mind, weā€™re now going to look at how social value can be monetisedā€¦ KL: Thatā€™s a good question. Our resources come from and we will introduce the Social Return On the natural woodland. We offer courses in ā€˜green Investment analysis. woodworkingā€™, construction, woodland skills and woodland managementā€¦ and thatā€™s just an example of some. Programme funding comes from government sources for ā€˜youth at riskā€™ and our classes are very small. We have four students to one instructorā€¦ and this allows us to give the kind of attention they need. SROI Primer Ā©2004 nef www.neweconomics.org 5.2
  • 9. Chapter Six Social Return on Investment Weā€™ve looked at measuring outputs and identifying this by using a case study of an organisation by outcomes in relation to the objectives of different the name of Tomorrowā€™s People. Weā€™ll look at their stakeholders. Weā€™re now going to look at monetising Get Out to Work programme in Merseyside. the value of social impacts. Merseyside is actually in an area in Britain which Iā€™m going to hand over now to Jeremy Nicholls from has a very high rate of unemployment. That means the New Economics Foundation and to Stephanie that young people, particularly those with Robertson... and they will introduce Social Return criminal records, have a difficult time finding jobs. On Investment. Jessica Boyd: Hi Social Return on Jeremy Nicholls: Hi. Investment Stephanie Robertson: Hello. ā€¢ Social investors seek evidence of social impact (social return) that results from their JB: So, Stephanie, what does SROI mean? financial investment SR: Many people will be familiar with the return ā€¢ They have many different profiles (i.e. philanthropist, on investment, ROI, as a way of estimating financial venture capitalist, foundation or government) value creation. Generally speaking, if you invest a pound in a project, and more than a pound ā€¢ SROI indicates the value of the social impact in is returned within a reasonable time frame, that financial terms project is probably worth further consideration. Investors in organisations that create social value are thinking the same way. They might be a philanthropist , a venture capitalistā€¦ they could Get Out to Work was actually created to address represent a foundation or perhaps a government that problemā€¦ and Tomorrowā€™s People works with department. Thereā€™s many, many different a number of organisations in the Merseyside area. profiles. Social Return On Investment, SROI, is a way to monetise the value of the social impact Now, Jeremy actually worked with Tomorrowā€™s People in financial terms. and he did the SROI analysisā€¦ so heā€™s going to talk us through. Basically what weā€™re trying to do is monetise the value of the social impact of an organisationā€™s work. Then weā€™re going to compare that social value to the cost of making that project happen. We can illustrate ... Continued SROI Primer Ā©2004 nef www.neweconomics.org 6.1
  • 10. JN: Thanks Stephanie. Well, Iā€™d like to start by activity, were used to project over the next 5 yearsā€¦ describing the organisationā€™s inputs and outputs. and each future year was discounted to allow for the Get Out to Work costs Ā£51,000 a yearā€¦ and it change in the value of money over time*. This was measures its success against three targets: Helping all added up, and resulted in a present day value 163 of its offenders over the first 2 yearsā€¦ ensuring of Get Out to Work of Ā£543,000. that at least 12 people get a job at the end of thatā€¦ and reducing the reoffending rate for its client group. Building Get out to Workā€™s SROI At the end of the first year, Get Out to Work had Inputs Outputs Outcomes Impacts helped 110 peopleā€¦ and 19 of them had found work and were still employed at the end of 10 months. Now the reoffending rate was 15% lower than the Ā£51,000 110 clients Direct ā€“ 19 Direct ā€“ 17 involved in clients gain clients into long national average for that target groupā€¦ and it was programme long term term employment employment by measuring their success against these targets, (increased (deadweight that Get Out to Work was able to calculate the SROI. wages, reduced accounted for) state benefits This is how they did itā€¦ paid) Indirect ā€“ 15% reduction Indirect ā€“ in re-offending The input was the Ā£51,000 invested. The outputs 15% reduction in re-offending were the 110 people that they helped over the first year. The direct outcome was that 19 people found a job and reduced the amounts of money they needed from the government. The indirect outcome was the lower rate of reoffending. GOTWā€™s SROI Calculation Impact 17 clients Yr 1 Yr 2 Yr 3 Yr 4 Yr 5 Tomorrowā€™s People were able to use government Per client benefit statistics and the results of their own surveys to Employment: to client Ā£3,670 Ā£3,830 Ā£3,990 Ā£4,150 Ā£4,320 estimate the value of the increase in income (to each Employment: to state Ā£8,940 Ā£9,050 Ā£9,150 Ā£9,270 Ā£9,380 job holder), the reduced payments from government Reduced re-offending Ā£12,400 Ā£12,400 Ā£12,400 Ā£12,400 Ā£12,400 and the lower crime related costs. They were also Total social benefit Ā£419,740 Ā£390,990 Ā£356,820 Ā£334,580 Ā£311,840 able to use Labour Force Survey information to GOTW share (33% of total) Ā£138,510 Ā£129,030 Ā£117,750 Ā£110,410 Ā£102,910 estimate that, on average, 2 of the 19 people would Present Value (PV) of have found work without their helpā€¦ and so the GOTWā€™s share Ā£133,826 Ā£120,451 Ā£106,204 Ā£96,216 Ā£86,647 value of the social impact of Get Out to Work was (discounted @ 3.5%) calculated on the basis of the outcomes for 17 Total PV of GOTWā€™s share = Ā£543,000 people and not 19. SR: Thatā€™s a really important point. You need to distinguish between outcomes and impacts (*A 5-year timeframe is a standard time horizon to in order to make sure you donā€™t overstate your value. project return on investment.) This way, your information will be more credible to your stakeholders. JN: Thatā€™s right,ā€¦ and the results of the first yearā€™s ... Continued SROI Primer Ā©2004 nef www.neweconomics.org 6.2
  • 11. So the SROI ratio shows the value of the social impact in relation to the investment required to achieve it. The value of the social impact, in this GOTWā€™s SROI case Ā£543,000,ā€¦ divided by the investment, in this Monetary value of impact case Ā£51,000. Using this standard calculation, the SROI ratio for Get Out to Work was 10.5 to 1. That is, Total PV of GOTW share of discounted social benefits Ā£ 543,000 for every Ā£1 invested, Ā£10.50 is created for society. over 5 years SR: Just for emphasis, the SROI ratio is calculated Investment Ā£ 51,000 by dividing the value of your social impact by the SROI Ratio 10.5 : 1 investment required to achieve that impact. What the ratio tells youā€¦ it gives you an indication For every Ā£1 invested, Ā£10.50 is created in of the value for society thatā€™s created for every Ā£1 benefit for society invested. However, just remember that SROI is a way SROI = monetary value of impact / value of inputs of thinking, and you may not be able to monetise everythingā€¦ so itā€™s probably more important to monetise the things that are important to your organisation and also important to your stakeholders. SROI Review ā€¢ The SROI ratio helps to tell your story, So I guess thereā€™s 2 things to remember. SROI does it is not the whole story! not have to be complicatedā€¦ and also, the SROI ā€¢ Set objectives and identify output indicators is just a number that is one part of the story. When ā€¢ Think through outcomes. Decide which can be you give that number to your stakeholders, itā€™s measured and monetised. Find data important to put it into context with the other details ā€¢ Calculate outcome. Subtract deadweight of your programme. to illustrate impact. Check your assumptions ā€¢ The SROI ratio is the total monetary value JB: Thanks Stephanie. Thanks Jeremy. of impact, divided by the investment Well that was a clear introduction to how we can use a straightforward calculation to help us evaluate our social impact. Also that SROI could be regarded as a framework for reporting on our wider impact. The SROI ratio simply indicates value created for society based on the initial investment. SROI Primer Ā©2004 nef www.neweconomics.org 6.3
  • 12. Chapter Seven The Essentials and Further Resources ā€œIt certainly makes sense to me. I need to decide on your objectives and the interests of your key how to measure outputs against my objectives so that stakeholders will help you to get the results that I can monitor how well I am achieving these.ā€ you need. ā€œAh, I see. By understanding my stakeholderā€™s We hope that you will have found this useful in needs, I can try and meet them through my developing your own measurement systems and organisationā€™s objectives.ā€ planning how to communicate the results. ā€œBy putting myself in my stakeholderā€™s shoes, I can Go to the ā€˜Resourcesā€™ section of this Web site and find new sources of value creation.ā€ youā€™ll find links to additional information on social impact measurement, valuing social outcomeā€¦ ā€œThis is really interesting! Iā€™m going to include it in and SROI. And remember that you can download my next tender as it may help me win the contract.ā€ the slides as a useful reference document. Many organisations, from social enterprises and Thank you very much for watching and good luck! charities, to government departments and investors, are looking at ways to measure social outputs, outcomes and impacts. We hope that more and more of you will see the benefits of using the SROI ratio The Essentials to demonstrate social value creation. ā€¢ Understand stakeholder needs and match them to your organisationā€™s objectives Now, not everything can be monetised, but the things ā€¢ Decide how to measure outputs against that can, really help to illustrate the importance your objectives of the work being doneā€¦ and the value flowing from ā€¢ Putting yourself in your stakeholdersā€™ shoes can lead achieving social objectives. to new ways of understanding value creation ā€¢ Report on the whole process, not just the numbers Weā€™ve gone through the basic steps in this ā€¢ Government statistics and other data can be used to introductionā€¦ Firstly, set your objectives and identify calculate how you create social impact*. Donā€™t over- what outputs you want to measure. Then think about state what was actually achieved your outcomes and decide which of these can be monetised. Then find the data necessary to do this. Calculate the value of your outcomes and subtract what would have happened anywayā€¦ this identifies the impacts. Finally, you can calculate your SROI *Government data can help both to estimate the monetary based on your impact, divided by the investment. value associated with certain impacts, and to compare the outcomes for people or groups involved with your organisation to others like them or the general population. Although this process does take some thought, it doesnā€™t have to be complicated. Keeping focused SROI Primer Ā©2004 nef www.neweconomics.org 7.1