S ocial R eturn O n I nvestment Michael Weatherhead

Social Return On Investment

Michael Weatherhead

nef consulting (the new economics foundation)

michael.weatherhead@nef-consulting.co.uk

The Session

• In a nutshell…

• Why is it needed? The problems

• Where did it come from?

• How do you do it?

• Who does it work for?

new economics into action

In a nutshell…

• Based on traditional cost-benefit analysis

• Uses principle of social auditing

• Captures social value by translating social outcomes in financial values

new economics into action

…still in a nutshell…

• SROI Ratio = [value of benefits] [value of investments]

E.g. ratio of 3:1 = for every £1 invested in organisation, £3 of social value generated

• ‘Social’ includes environmental and economic = triple bottom line

new economics into action

Problem 1

new economics into action

Problem 2

new economics into action

What matters most

– social and environmental well-being – gets left out

What gets measured is what gets valued

We measure what we can count (often the financial)

We allocate resources to those things

we value

Problem 3

new economics into action

How does it help?

• Framework for measuring what matters– Triple bottom line– Giving voice to those normally excluded from

decision-making

• Basis for debating the allocation of (scarce) resources to maximise social, environmental and economic outcomes– Organisations– Society

new economics into action

History

Mid 1990s:REDF &

Jed Emerson

Early 2000s: new economics

foundation

Mainstreaming:nef consulting

& others

new economics into action

How do you do it?

new economics into action

Engage stakeholders to develop an impact map

Indicators, data collection and monetisation

Model and calculate SROI

Report and embed

new economics into action

Boundaries & Stakeholders

Materiality check

•either most affected

or

•whose influence can most directly affect the outcome

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OutcomesOutputsActivitiesInputs

Impact Map

new economics into action

Impact Map: example

Stakeholder Input Activity Output Outcome

Participants(32)

SkillsTime

Trained in computer recycling

IT skill setNo. of recycled computers

Increased self-confidenceImproved mental healthSustainable employmentImproved life stability

Participants’ families

Time Encourage family member

Continued participation

Improved mental health of participantsIncreased income for familyLess time spent on care for family member

Local government

N/A N/A No. of computers recycled and diverted from landfill

Reduced landfill expenditure Improved local environment

National Health Service

N/A N/A Prolonged support for participants Improved skills for participants

Reduction in care costsImproved mental health of participants

How do you do it?

new economics into action

Engage stakeholders to develop an impact map

Indicators, data collection and monetisation

Model and calculate SROI

Report and embed

new economics into action

Reduced social isolation •Participants are trying new things and socialising more•Participants report increase in self-confidence and social skills•Participants join clubs and/or develop new social networks

Indicators

• A way of knowing the outcomes have occurred

Monetisation

• For some outcomes, financial values are already available and monetisation can be a simple step

new economics into action

Stakeholder (beneficiary) Outcome Monetised value

Local Authority Reduction in waste going to landfill as a result of recycling programme

• Cost of sending one tonne to landfill (£39, source: Local Authority)

State Improvement in mental health

• Saving in government spending on mental health (£20,500 for each in-patient, source: NHS)

Monetisation cont’d

• Where no direct financial value is available, we use financial proxies– Definition: A proxy is a value that is deemed close to

the desired indicator, for which exact data is unavailable

new economics into action

Stakeholder Outcome Indicators Value

State Improved overall physical health

• Reduced healthcare needs

• Healthcare costs (NHS)

Individual Improved physical health

• Reduced visit to GP surgery• Participant reports an improvement in health•Increase in exercise

• Cost of visiting private GP clinic• Cost of health insurance• Cost of gym membership

Stakeholder Outcome Indicator Value

Child Improved mental and emotional health

Positive outlook and less stressed/ anxiety

Cost of x no. of sessions/week of CBT

Parent Better family relations Perception of relationship with child

Annual cost of having a child (Liverpool Victoria study)

Child 1) Improved educational performance

School performance (reports)

cost: average annual salary 16-17yr old in full time work

Child 2) Better social (non-family) relationships

More friends, better relationships with staff

Amount spent on school counsellor

Parent 3) Reduced social isolation

Frequency of interaction outside of immediate family circle

Econometric calculation as to value of seeing friends

Exercise: Indicators & Proxies

How do you do it?

new economics into action

Engage stakeholders to develop an impact map

Indicators, data collection and monetisation

Model and calculate SROI

Report and embed

• Deadweight• Attribution• Displacement – Are the benefits net benefits, or

are they being displaced from elsewhere?• Negative Outcomes – Is it possible that an

intervention is having negative unintended consequences?

Impact = Outcomes – (DW + A + D + NO)

new economics into action

Impact

• Deadweight – What change would have happened anyway, in the absence of your intervention?

new economics into action

Deadweight

• Attribution – How much credit can your organisation take for the outcomes?

new economics into action

Attribution

• Benefit period – the length of time over which outcomes are expected to endure– e.g. reduced reoffending will endure for ex-offenders

even after they finish a training programme

• Drop-off – the rate at which benefits decrease over time– e.g. it is likely that some of the ex-offenders will re-

offend

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Future Projections

• Types– Financial – e.g. grants, sales income– Physical resources – e.g. buildings,

equipment– Volunteers– Gifts in kind

• If just looking at one project within organisation, need to work out its ‘share’ of inputs

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Inputs

• Sensitivity analysis – tests how the SROI ratio changes when key assumptions are altered (e.g. the value of proxies)

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Sensitivity Analysis

How do you do it?

new economics into action

Engage stakeholders to develop an impact map

Indicators, data collection and monetisation

Model and calculate SROI

Report and embed

• How would you use SROI for your organisation/in your work?– Make the case– Prove and Improve – learning tool

new economics into action

Report & Embed

Types of SROI

Evaluative SROI – based on actual outcomes data to assess the value that has been createdBest: When something is already up and running

Forecasted SROI – based on projections of what is expected to take place if the objectives

of the project/organisation are metBest: When something is in the planning stages

new economics into action

Who does it work for?

• Third sector

– to understand the value they are creating, communicate with funders and stakeholders, and improve.

new economics into action

Who does it work for?

• Public sector

– to maximise public benefit when allocating resources.

new economics into action

Who does it work for?

• Private sector

– to consider more fully (beyond the financial) how business activities are creating value (or not).

new economics into action