SROI: government and third sector extend reach of measurement tool

Social Return on Investment (SROI), the social impact measurement tool, has seen a marked flurry of attention in recent months that positions the analysis tool at the heart of the government’s plans in supporting third sector organisations to demonstrate added social, economic and environmental value.

The disparity in how organisations, both funders and the funded, define outcomes and impact has long been an ongoing barrier to impact measurement. To address this issue, an SROI framework, which measures and accounts for a broader concept of value and incorporates social, environmental and economic costs and benefits, was pioneered by REDF, a US venture philanthropy fund.

Writing in the third edition of Philanthropy UK’s A Guide to Giving, Jeremy Nicholls, chief executive of The SROI network, described SROI as a story in which the return ratio provides “a hook for the analysis”. He added that the tool attempts to bring a quantitative approach – ‘providing a 'voice' for values which we would all recognise but find difficult to express in financial terms – thereby allowing us to compare the impacts of an organisation to the investment being made.’

The tool has evolved over recent years into an increasingly recognised global framework, and new approaches are making SROI more accessible to a wider variety and size of organisation.

An aspect of this development is a government-backed three-year programme of work, the Measuring Social Value project, which aims to create a standard tool to measure SROI of third sector organisations. It was launched by the Office of the Third Sector (OTS) in November last year.

Led by The SROI Network, the consortium running the project includes New Philanthropy Capital, New Economics Foundation, the Charities Evaluation Service and the National Council of Voluntary Organisations.

The project is running alongside a complementary project to be funded by the Scottish Government’s Third Sector Division (TSD). This project will have particular responsibility for the development of an SROI portal and of new training materials for practitioners.

An initial outcome of the OTS’s project is the recent launch by the Secretary of State for the then Business, Enterprise and Regulatory Reform, Lord Mandelson, and Liam Byrne, then Minister for the Cabinet Office, of a new Guide to Social Return on Investment, the purpose of which is to standardise practice, develop the methodology, and provide more clarity on the use of SROI.

The guide, which builds on three earlier SROI guides, identifies six stages of analysis:

1. Establishing scope and identifying key stakeholders 
2. Mapping outcomes
3. Evidencing outcomes and giving them a value 
4. Establishing impact
5. Calculating the SROI
6. Reporting, using and embedding the analysis

These stages can fulfil a range of purposes including being used as tool for strategic planning and improving, for communicating impact and attracting investment, or for making investment decisions.

Nicholls sees the guide as a refinement and development that complements other growth in SROI.

“There is much happening in SROI at the moment including training and support and we want to harness this,” he told Philanthropy UK.

“Our next step is to engage investors and commissioners in conversations and get them involved to increase demand and impact. It is a vital time to take SROI to the next level.”