Social return on investment (SROI) and its limits

Social return on investment (SROI) is a method for putting a monetary value on the social, environmental and economic changes a programme creates, and comparing that value with what was invested. The result is a ratio: “₹3 of social value for every ₹1 spent”.

SROI can be a useful discipline. It makes you ask what changes for whom, how much of it you can claim, and how long it lasts. But the headline ratio rests on a chain of estimates, and small changes to any of them move it a lot. It should never be read, compared or reported on its own.

This guide is for CSR teams who are offered SROI studies and NGOs deciding whether to commission one. It explains the method as Social Value International sets it out, works through a simplified example in rupees, shows how fragile the ratio is, and suggests alternatives.

What SROI is

SROI draws on social accounting, cost-benefit analysis and evaluation practice. Its main guide, A Guide to Social Return on Investment (2012), is available from Social Value International, the global network that maintains the method. The guide describes SROI as measuring change in ways that are relevant to the people who experience it, using money as a common unit to represent value.

There are two types:

• Evaluative SROI looks back at outcomes that have actually happened. It needs good outcome data.
• Forecast SROI predicts the value a programme will create if it meets its intended outcomes. It is most useful at the planning stage, partly because it shows what you will need to measure.

The method rests on eight principles, as Social Value International now lists them: involve stakeholders, understand what changes, value the things that matter, only include what is material, do not overclaim, be transparent, verify the result and be responsive. The 2012 guide listed the first seven; the eighth was added later.

How an SROI is calculated

The guide sets out six stages:

1. Establish the scope and identify stakeholders: what is being analysed, for whom, and who is affected.
2. Map outcomes: with stakeholders, trace how inputs lead to outputs and then to outcomes, in an “impact map”.
3. Evidence outcomes and give them a value: find data showing each outcome happened, and choose a financial proxy, a money value, for each.
4. Establish impact: subtract what would have happened anyway and what others caused (the adjustments below).
5. Calculate the SROI: project the value over the years it lasts, discount it to today’s value, and divide by the investment.
6. Report, use and embed: share the findings, act on them and build the measurement into how you work.

The ratio is the present value of the benefits divided by the value of the inputs. A variant, the net SROI ratio, divides the net present value (benefits minus investment) by the inputs. Both are acceptable, but a report must say which it uses.

The adjustments: what you can’t claim

The guide is frank that deadweight “will always be an estimate”, and that without a good comparison group you may have to rely on a best estimate. On discounting, its examples use 3.5%, the rate the UK Treasury recommends for the public sector, and it calls the choice of rate controversial. It doesn’t set a rate for India: choose one, say why, and test others.

A simplified worked example

Notice what isn’t in it. Udaan counted only one outcome, the one it could evidence. It didn’t value the women’s confidence, their children’s schooling or any harm, such as long factory hours. A full SROI would map those outcomes with the women themselves, which is where most of the judgement comes in.

Testing the result: sensitivity analysis

The guide asks every SROI to test how much the ratio changes when the estimates change, and to report how far each estimate would have to move to bring the ratio down to 1:1. For Udaan:

The ratio would fall to 1:1 if deadweight were about 58%, attribution about 52%, or the extra earnings about ₹36,000 a year. That is useful to know: it tells Udaan, and anyone reading its report, how much rests on its comparison group and its earnings data.

Now the danger. Suppose Udaan had also counted “increased confidence” for all 200 women and valued it at the price of a private counselling course, say ₹8,000 each a year for three years. With the same adjustments, the ratio would jump to about 2.15 : 1, on an assumption nobody could check. That is how impressive ratios are made.

What SROI is good for

Used well, SROI has real strengths:

• It puts stakeholders’ own views of what matters at the centre.
• It forces you to think about outcomes, not outputs, and about what you can honestly claim.
• A forecast SROI at the design stage shows which outcomes and adjustments you will need evidence for, so you can build the data collection in.
• Comparing your own ratio over time, with the same method, can show whether a programme is improving.

The serious limits

• Ratios aren’t comparable. Social Value International’s guide says plainly that it isn’t appropriate to compare organisations’ ratios alone, because each analysis rests on different stakeholders and judgements. A CSR team choosing between a 4:1 and a 2:1 proposal on the ratio alone is choosing between two sets of assumptions.
• Many outcomes have no market price. Dignity, safety, learning or a child’s health can be given proxies, but different analysts choose very different ones.
• The adjustments are often guesses. Without a comparison group, deadweight and attribution can be anything the analyst thinks reasonable. Our guide to baselines and evaluation explains how comparison groups are built.
• It can hide who gains. A rupee of value counts the same whoever receives it, unless the analysis deliberately weights it, so a ratio says nothing about whether the poorest benefited.
• It is easily misread. “₹3 for every ₹1” sounds like a financial return. The funder gets nothing back: it is an estimate of value created for other people, much of it not in cash.
• Doing it properly costs money, and the guide’s own principle of verifying the result calls for independent assurance.

Simpler alternatives

For most CSR and NGO decisions, simpler measures built on the same outcome evidence are clearer and harder to inflate.

• Cost per outcome. Udaan spent ₹40 lakh and 90 women found work: ₹44,444 per woman in work. Allowing for the 27 who would have found work anyway, it is ₹63,492 for each of the other 63. Anyone can check that number.
• Cost-effectiveness comparison. Compare the cost per additional outcome of programmes aiming at the same outcome, such as two skills programmes, measured the same way. This is how many evaluators compare options without valuing everything in money.
• Cost-benefit analysis. Economists’ fuller version values costs and benefits for society using standard economic methods. It is rigorous, demanding, and suited to large programmes and public policy.
• Outcomes and costs side by side. Report what changed, for whom, against a baseline, with the cost. Often that is all a CSR committee needs.

If you commission or read an SROI

Ask these questions before you trust a ratio:

When you report an SROI publicly, give the ratio with its main assumptions and its range, never on its own. Our guide to communicating CSR has more on using numbers honestly.