Using Social Return on Investment (SROI) to Evaluate Partnerships

Social Return on Investment (SROI)  can quantify the success of partnerships that prove impossible to calculate using conventional economics.

A quick glance at the UK 2006 Companies Act shows that the directors must act to promote the success of their company for the benefit of its members [shareholders]. Taken at this level it seems to rule out any corporate philanthropy at all.

Fortunately directors in many well-run companies go on to read that this should be done with regard to ‘the impact of the company’s operations on the community and the environment’, amongst other matters – and so give generously to a wide variety of good causes, often through partnerships with charities and NGOs.

For them, though, the scrutiny of the shareholders will always be there, or as one senior executive said to us, ‘we can spend a few million – but anything more that that we have to really justify’.

For shareholders, analysts and managers the answer is always in the numbers, and these numbers should ideally have dollar or pound signs attached. So the obvious way to evaluate charity or NGO partnerships is to represent them in financial terms. But valuing a community or environmental benefit credibly can be exceptionally tricky.

We deploy Social Return on Investment (SROI) analysis in our projects to make some sense of the mass of data and possibilities. By using proxy values such as the financial value of a life saved, and assumptions such as the number of lives improved or saved, we can develop an estimate of the ‘social’ value of the activity and so the notional financial return on the investment.

Of course it’s not that simple in practice. For example: there are several different ways to calculate the value of a life saved and for those methods that are related to national wealth (GDP) the average values between nations can vary hugely. We are usually interested in not just saving lives but improving quality of life, in which case another ‘currency’ – disability adjusted life years (DALYs) – could be more useful . This has the added intentional benefit of valuing all lives equally.

Then there are the assumptions of how effective a particular activity or intervention has been in saving or improving those particular lives – and so there is need to filter out the whole host of other factors that could affect the outcome.

In short this is complicated stuff. Which is why some analyses are developed in a sort of ‘black box’ where a gratifying SROI Ratio is spat out at the end but it is not at all clear by what magical process it was generated nor how it should be used.

Our view is that SROIs can play a major role not only in justifying why investments make sense or represent social value, but in focusing them more effectively in the future. So each analysis has the opportunity to inform not just that investment but also other philanthropic initiatives with similar intent or interventions.

To do this requires transparency and openness, and so we go to some trouble to make our calculations comprehensible not just to the experts but to the lay reader with a taste for a bit of a puzzle.

This opens the analyses (and us) up to scrutiny and comment and helps to inform future studies and firm up the understanding of exactly how and where partnerships generate value.
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If you would like to find out more about how to evaluate your project or partnership, do get in touch