Making social return on investment pay

Heidi Harris of Harris & Harris Accountancy

Heidi Harris of Harris & Harris Accountancy

Heidi Harris takes a look at the measurement of social return on investment in the social enterprise sector, including:

 

  • What is SROI?

  • Links with social impact bonds

  • How effective SROI reporting can be used to support growth and improve service delivery

 

Heidi is director of Fort Dunlop-based social enterprise Harris & Harris Accountancy Services, the UK’s first accountancy firm to trade as a community interest company (CIC). For further information visit www.harrisaccountancy.co.uk

The concept of social return on investment (SROI) hit the headlines in January when the Ministry of Justice announced the launch of the first social impact bond with Social Finance.

The first issue was used to fund social organisations to reduce the re-offending rates of short-sentence prisoners leaving Peterborough prison. In this case, the Ministry of Justice has agreed to make payments to investors in the event that re-offending is reduced below an agreed threshold. Although we await these results, it will naturally require the use of effective SROI figures to justify any payouts.

The phrase SROI is nothing new to the third sector. But, as the Ministry of Justice example illustrates, with the Big Society agenda placing increasing numbers of social enterprises in the accountability spotlight, identifying credible and effective ways to quantify SROI is likely to grow in importance.

Just like standard return-on-investment calculations, SROI provides a ratio that illustrates the financial value of an organisation’s activities. It is a way for social enterprises to illustrate, financially, the value of their work to the local community and the impact their work has made on a range of stakeholders.

Until recently, the process of measuring it has not always been straightforward. For example, an enterprise could measure the value of improving someone’s self confidence in terms of savings on training and HR support; the value of projects to help people back into work in terms of savings on benefits and added tax income through tax and NI contributions; and the value of an activity programme helping young people with mental health issues in terms of savings on medication costs and capability to move on from sheltered housing.

Effective accounting for SROI requires a mix of qualitative, quantitative and financial information to be brought together for evaluation and putting the appropriate steps in place to record these figures places a real burden on smaller social enterprises, requiring a lot of time to be invested.

Fortunately, as the social enterprise sector has grown, so, inevitably, has the need to record SROI in a simple way and Harris & Harris accountancy is now one of just a handful of companies that can offer a new SROI valuation tool.

The so-called ‘social e-valuator’ is an online 10-step system into which businesses and social enterprises enter specified details. The analysis tool then reveals the social– in other words environmental, economic and cultural – impact of a company in monetary terms. The outcome can then be positioned as: ‘For every £1 spent, there is a SROI of £xx’ and the system also highlights which stakeholders benefit most and how this impact can be maximised in the future.

This isn’t just a bonus for businesses looking to justify Corporate Social Responsibility to shareholders – the resultant SROI figures can be incredibly valuable for social enterprises too.

As the social impact bond example illustrates, by using SROI to measure the real value of an organisations’ activities, social enterprises can not only demonstrate the value of their operations to existing clients, but also use them to encourage investment for future growth.

Social impact bonds align the interests of stakeholders around specific social outcomes to create a transparent, win-win situation for all involved. In the Peterborough re-offending example, the public sector pays only for positive outcomes by releasing only a proportion of any savings made to investors; if the project is a success, the investors themselves stand to make better return on their investment than might otherwise be possible in current markets; and the social-enterprise service providers themselves receive cash up front to pay for the delivery of services.

Everyone is incentivised to achieve the best possible outcomes and the focus remains on the social value the service provides. This can also then be easily demonstrated to cynical tax payers in both social value and financial terms.

There are now very real – an, crucially, accurate – ways to measure the impact that social interventions are having on society. As with all accounting procedures, the key is to look closely at every enterprise individually to establish which measures will work best for them.

For further information on the SROI tool, visit www.harrisaccountancy.co.uk or contact Heidi Harris on 0121 629 7823.

Birmingham UK. Freelance research, evaluation and policy consultant specialising in social enterprise and the third sector. I maintain the BSSEC blog and website

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