Introduction To sROI Calculation

Aug 25, 2020 | by Phoebe C

Today, in this episode, we will talk about how to calculate sROI or Social Return On Investment. So let’s dive in! Social Return on Investment (SROI) is a framework for measuring the value created in social, human, or environmental terms and using monetary figures to represent it. Mostly calculated in the form of a ratio, it tells you how many dollars worth social value was created per dollar spent.

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Also, an important thing to remember is that we use dollars to assign social value because money is universally understood in the same way. As SVI puts it, “SROI is about value, rather than money. Money is simply a common unit and as such is a useful and widely accepted way of conveying value.”

Calculation or analysis of sROI is very comprehensive. It is not a shallow method to randomly assign some monetary value to the change you create. We will touch upon each of the 6 stages very briefly, but we will soon be posting a series of articles that talk about each stage with clear examples in a very detailed way for you. So you can sign up for our newsletter on our website to make sure you can get information about those articles when they are available. 

Calculation or analysis of sROI is very comprehensive. It is not a shallow method to randomly assign some monetary value to the change you create. Click To Tweet

Introduction to sROI analysis

There are 6 stages in the process of calculating sROI for your Impact projects or interventions:

Stage 1: Establishing scope and identifying stakeholders 

In the first stage, you define the scope of your sROI analysis. That’s the first step that will allow you to make sure that you focus on what is important for you to record & what is feasible. Most of the time, it will be about finding a balance between these two.

Once you have established your scope of work, you need to identify the stakeholders that you will be involving during your sROI analysis. Stakeholders in the Impact field are defined as people who are affected by the change brought by your intervention. That change could be positive effects or negative effects, and intended or unintended. It is important, especially when you are doing evaluative sROI to include stakeholders from all these groups – those who experienced positive effects and those who experienced negative effects whether intended or unintended. You would also need to plan how many of these stakeholders would you involve, at what stages & how would you involve them.

Stage 2: Mapping outcomes 

In the next stage, you would work on your Impact map or Theory of Change using the data you obtained from your stakeholders. If you are already familiar with Theory of Change, then great, otherwise we also have a lot of content available for that as podcasts or blogs

At this stage, you would first need to identify your inputs & value your inputs. Inputs could be anything that you will be using to bring the change with your intervention. Things for which you already have a monetary value or even things like volunteer hours, for which would need to assign a monetary value.

After this, you would need to clarify the outputs you would be achieving as a result of your activities like 30 women received training to make organic soaps.

The last step of this stage would be describing the Outcomes. It’s very important to not confuse the output & outcome. If you have already used the Theory of Change or are familiar with it, you would know the difference between the two. The outcome will allow you to exactly understand the change you brought for stakeholders. For example, if you trained 30 girls for STEM training in order for them to become financially independent, then the increase in income they earn by selling their organic soaps would be the outcome. There can be more than one outcome, of course, and different outcomes for different stakeholders. So it is important to take this & other factors like your stakeholders’ views, or how much time it would take for your stakeholders to start experiencing the change when deciding which outcomes to measure.

Stage 3: Evidencing outcomes and giving them a value 

Now that you mapped out your input, output & outcomes. In this stage, you need to do a valuation of your outcomes. In order to do that firstly, you need to choose indicators for each of your outcomes. These indicators will help you see if the change has happened and how much. As in our previous example, the intended outcome was financial independence for rural women. There could be different indicators to see if this change happened like women setting up their own business, the actual income of women from selling soaps, women getting jobs because of their new skills.

Once you have determined your indicators, you need to start collecting data from your stakeholders. As well as determine that for how long the outcomes lasted or the change was experienced. You can either directly ask your stakeholders but in some cases, it might not be as straightforward and might need you to look into different research or secondary data available to estimate the duration.

The last step and one of the most important steps of this stage is attaching a monetary value to your outcome. This is done by using the concept of financial proxies to agree on a value experienced by different stakeholders & using that to estimate the total value created by your intervention. There are different kinds of financial proxies for example in some cases it could be an increase in savings, or cost saved. It is highly dependent on your intervention and the change you are trying to bring.

Like any other stage in the analysis of sROI, stakeholder’s views & opinions are very important while determining indicators, duration, and the value.

Stage 4: Establishing impact

The fourth stage is called Establishing Impact. This stage helps you understand if the impact  or the outcome you created would have happened with or without your intervention, how much of it happened because of your intervention and how much because of other factors. This stage can be brutal, especially if you are doing an evaluative sROI analysis. To spend so much time & money in an intervention only to realize that the change would have happened anyway. However, it is still really important to do it so you can make sure that your resources are used where actually needed and where you can actually make a difference. It could be a hard pill to swallow, but if you are in this position then, it is important to stay open-minded.

In order to establish Impact, there are 4 steps. The first one called Deadweight, helps you understand if the change would have happened even without your intervention. I like to go back an example that we used previous also, that if you ran a health awareness campaign about the importance of vaccines in rural area to make sure more newborns receive proper vaccinations while at the same time the ministry of health has made vaccination free, then it is quite likely that the impact created was not solely because of your intervention. Mostly calculated as a percentage, there are a few different ways to calculate it each with their pros & cons. You will find more information about it in our article, so you can sign up to our newsletter on our website to make sure you can receive information when that article is available.

Displacement is another concept that is sometimes important to calculate to understand your true impact. Displacement helps you evaluate how much your outcome has displaced another outcome.

The next assessment in this stage is to calculate the Attribution rate. This will help you understand what percentage of your outcome was contributed by other organizations or initiatives. Going back to our previous example, it’s possible that your intervention is making more parents take their new born babies for proper vaccination, but some of them have also been influenced by the fact that the vaccination is free now. So this will help you understand what % of the outcome of increased vaccination rates is being affected by your initiative.

After calculating the attribution, it will really help you understand what the drop off rate is. This is only calculated for interventions, which created outcomes that lasted more than a year. As time passes, the contribution of your intervention to the outcome either might decrease or the outcome itself decreases. In financial terms, it is somehow like the concept of depreciation of the value of your assets in the accounting arena.

Now, the next and last step of this stage is to finally calculate your Impact. A simple way to do that is to first use your financial proxies to value the total impact created for each outcome and then subtract the percentages calculated for deadweight, attribution & drop-off. After you do that for each outcome, you can add it all to get your total Impact.

Stage 5 : Calculating the SROI

Now you have all the basic data you need to calculate your ratio, which will help you understand the social return on investment. There are lots of different formulae involved in this stage, but for the purpose of this podcast, we will just briefly explain what each of the steps entails. You can check the formulae in the article on our website instead.

In order to do that there are 4 main steps:

Project into future. Here you project the value you achieved by your outcome into the future according to the duration you accounted for your outcomes to last and the drop off after the first year.

Secondly, you calculate the Net Present Value. This stage uses the concept of discounting to calculate the Present value of the benefits and then deduct the cost or the investment to achieve the Net present value.

The next step involves calculating the ratio, which you can do for either present value or net present value. SROI is a ratio of present or net present value to the value of your inputs.

Next stage, which is especially useful if you are doing forecast analysis is Sensitivity analysis. This allows you to manipulate the figures you assumed for deadweight or duration or anything else to see what level you need to reach for each of them to have a positive sROI. This can also help you see what changes you might need to make in your intervention in order to reach that goal of positive sROI.

Next step, which is not mandatory, is to estimate the Payback period. This helps you see at what time the social impact value will start to exceed the investment. 

Hurrah! You have your sROI analysis completed now and have an sROI ratio in your hands.

Stage 6: Reporting, using and embedding

Last stage of SROI is to make sure you can communicate this to people. The main idea behind doing all of this is to make sure that you remain accountable to your stakeholders and transparent. Your reporting should also take these principles into account and make sure you can communicate the results in a way that it is understandable. Your report should ideally have information about your assumptions, scope, quantitative analysis backed by qualitative data, details of how you got there including the process of calculation and how you collected this data. And of course a summary.

This is not all, your job does not end with reporting. It’s important that you use this data to design better and more impactful interventions. So if you did forecast analysis, then that means concrete changes in the plan and if it was evaluative, then for your organisation in future interventions take the learnings into account. Making sure there is proper knowledge transfer to the other members of your team.

Last but not least, is Assurance. This means that what you are reporting is verified – for both proper use of principles and data. sROI is not just a list of formulae to calculate a ratio. It is based on principles that help us understand the change we are making and increasing the positive change we are making. So staying true to these principles is of utmost importance.

That my friends, brings us to the end of this episode. As promised, soon you will find detailed articles explaining each step with examples & required formulae.

If you have any questions, feel free to contact us via email at contact@artemis.im or through our website. 

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