2.7. Performance measurement
2.7.8. Performance measurement system for social enterprises
2.7.8.1. Social return on investment (SROI)
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72 Social return on investment is a process for understanding, evaluating, and reporting the social, economic, and environmental value formed by a programme, intervention, policy, or organization (Banke-Thomas et al., 2015). Its main element is the SROI ratio. This ratio calculates how many dollars/euros worth of social value is created for one dollar/euro invested in a particular intervention/programme (Maier et al., 2015). For example, a ratio of 5:1 indicates that an investment of $1 delivers $5 of social value. The SROI measures the value of social benefits created by organizations relative to the cost of achieving those benefits, as illustrated below (Luke, 2016; Muyambi et al., 2017).
SROI = net present value of benefits/net present value of investment
Compared to other social impact measurement tools, such as social accounting and audit (SAA) and global reporting initiatives (GRI), SROI is the only measurement framework that captures change across the theory of change (logic) model (Banke-Thomas et al., 2015). The theory of change is a model that explains the relationship between inputs, activities, outputs, outcomes, and impacts. SROI provides a monetary value of the social, economic, and environmental ratio (Tuan, 2008; Zappalà & Lyons, 2009; Banke-Thomas et al., 2015). Like the theory-based evaluation, SROI practises the theory of change to describe what programmes achieve. Additionally, SROI explains how variations exists across the continuum of the logic model, beginning from inputs and outputs, into outcomes (Muyambi et al., 2017).
SROI focuses strongly on the involvement of stakeholders, more than cost-benefit analysis (CBA), where less emphasis is placed on stakeholder consultation (Arvidson et al., 2013). Stakeholders are a source of information (Millar & Hall, 2013). They are classified as primary and secondary stakeholders (Hall, 2014), who affect or are affected by the programme (Millar & Hall, 201;, Muyambi et al., 2017). Stakeholder engagement increases the SROI process’s transparency (Hall et al., 2015). By using SROI analysis, stakeholders identify the outcomes of the intervention and the benefits related to their experience (Hall et al., 2015; Muyambi et al., 2017). SROI extends CBA by incorporating broader socio-economic and environmental outcomes (Banke-Thomas et al., 2015).
A controversial issue exists in the literature regarding the nature of SROI. Some scholars propose SROI as a tool for social accounting and PM (Millar & Hall, 2013, Arena et al., 2015a), considering it a similar management tool to a balanced scorecard (Chmelik et al., 2016). As a tool for
73 forecasting analysis, SROI is identical to formative evaluation. SROI is implemented during a programme’s planning stages to evaluate planned outcomes that are generated if activities meet their expected results (Nicholls et al., 2009; Millar and Hall, 2013).
However, other scholars perceive SROI as a method of evaluation research (Arvidson et al., 2013;
Hall, 2014; Maier et al., 2015). As a framework for evaluation, for instance, Arvidson et al. (2013) highlighted how the SROI framework is related to dimensions of evaluation and practice theories.
These dimensions include questions about what the evaluation is desired for (summative, formative); multiple stakeholder involvement and variety of interests (political aspects);
understanding and defining impact; and using the evaluation.
Comparable to summative or impact evaluation, evaluative SROI analysis appears at the end of programme implementation. The report is used to evaluate effectiveness and impact. Compared to impact evaluation, SROI analysis can assign value to programme outcomes to indicate cost- effectiveness (Muyambi et al., 2017).
The merits and strengths of the SROI method
Social return on investment analysis provides many benefits and contributions. One advantage SROI analysis delivers is identifying a substantial impact on society (Rauscher et al., 2012). SROI analysis informs the benefit of projects/programmes comprehensibly by using the broadly accepted language of money (Rauscher et al., 2012). Other benefits include expanded accountability and transparency to funders/donors and other stakeholders (Mook et al., 2015). In addition, strengthening the legitimacy of services (Arvidson et al., 2013; Millar & Hall, 2013; Maier et al., 2015); and enhanced communication and programme stakeholders (Mook et al., 2015; Muyambi et al., 2017) are merits of SROI. Furthermore, SROI contributes to policy improvement; resource management, reporting techniques; and learning within the organization (Mook et al., 2015;
Muyambi et al., 2017); enabling effective and efficient resource allocation by providing information (Maier et al., 2015; Muyambi et al., 2017). The SROI process also affords users, staff, and board members opportunities for learning that simplify the organizational mission and strategy (Arvidson et al., 2013; Mook et al., 2015). Such opportunities lead to improvements in performance management policies and data quality, supporting impact assessment and improved communication with external stakeholders regarding the impact of social economy organizations (Nicholls et al., 2009; Mook et al., 2015). In addition, “SROI can add value as a monitoring and
74 evaluation tool and improve organizational or intervention sustainability” (Nicholls et al., 2009:579).
Limitations and weaknesses of the SROI method
SROI mainly focuses on expressing social benefits in monetary term (Arvidson et al., 2013). SROI usually uses public funding proxies (auxiliary constructs) (Rauscher et al., 2012). SROI relies on public sector savings to present two challenges: Firstly, SROI does not include a social value, such as improving individual value, i.e., the beneficiaries’ quality of life (Arvidson et al., 2013; Arena et al., 2015a). Secondly, the extent to which these savings should relate to variable or total costs is contested (Arvidson et al., 2013). In addition, the subjectivity in monetization processes and decisions anticipated to utilize financial proxies are the other weaknesses of SROI (Watson et al., 2016). Financial indicators show that an approximation of the financial worth of the real cost has been unknown. SROI monetization follows a subjective process which depends on personal judgment. The emphasis on monetization may result in the misapplication of SROI tools. At the same time, there is a challenge in monetizing some outcomes (for instance, advanced community relationships and well-being) (Watson et al., 2016). There is a lack of clear criteria on when alternative generated costs or achieved savings are to be used as the basis for the evaluation. In addition, if the assessment is done using alternative generated costs, no standards on the amounts defined for these are available (Rauscher et al., 2012). Also, there is a risk in SROI analysis of focusing solely on the ratio, without examining its content, which would offer a richer insight into the value produced by groups (Nicholls et al., 2009).
The difficulty with comparing SROI values (Rauscher et al., 2012), and the emphasis on financial statistics, may push other social values and create a shift from what SEs work. The shift include neglecting an organization’s mission and stakeholders' objectives (Muyambi et al., 2017). It is challenging to include circumstances that have been indirectly created in the analysis. Occurring indirectly, the situation very likely to occur after an extensive delay, with a vague, broad sphere of impact, which is challenging to monetize (Rauscher et al., 2012). Furthermore, for small organizations that have not developed specific skills concerning monetary quantification, the application of SROI is challenging (McLoughlin et al., 2009). SROI provides little evidence of how and why impacts occur (McLoughlin et al., 2009). These limitations make the SROI approach an inadequate tool for assisting SE managers in decision-making (Arena et al., 2015a).
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