The end of the year is commonly a time of personal reflection as we take stock of all we’ve accomplished and look ahead to things we’d like to do in the new year. In the social sector, it’s natural to wonder: “Is the world a better place because of the work we’re doing?” Thankfully that is a question we can start to answer by using a tool called social return on investment (SROI).
SROI – What it is (and isn’t)
At its heart, SROI measures whether the benefits of our work outweigh their costs. Like its corporate world counterpart (return on investment), SROI quantifies and monetizes the economic and social value a program is likely to create and compares those benefits to the program’s operating costs over a span of years. For example, a workforce readiness program that increases an individual’s potential to obtain a full-time job may claim societal benefits such as reduced cost of government assistance (housing subsidies, food stamps, Medicaid) and increased cash flow (individual income, tax collection). The associated operating costs include the programmatic and overhead costs to deliver job-attainment services.
While SROI is one way to measure a program’s impact, it does not prove causality and cannot replace measuring actual outcomes. The strength of an SROI model increases as the organization gains evidence of its outcomes through best practices research or self-evaluation studies. This model also is not comprehensive – there are many unquantifiable social benefits, such as increasing self-confidence or family stability.
How to Interpret SROI
Your program’s SROI (aka cost-benefit ratio) should be greater than 1. That is, for every $1 invested in the program, more than $1 in societal benefit should be created to justify the expense. Put another way, your “profit” is your impact. Americans spend thousands of dollars on a college education, expecting to earn more in income through higher-paying jobs than it cost to attain that education. If your program’s SROI is less than 1, the intervention may be generating less benefit to your beneficiaries and society than it costs to operate. When that is the case, the organization may want to consider alternative activities that can produce greater benefit at the same cost.
SROI in Practice
- Storytelling: Community Action Opportunities (CAO) in Asheville, NC provides life coaching and support to help adults leave poverty behind. The organization uses SROI to tell the organization’s story using cost-effectiveness data. For every dollar invested in CAO, the organization produces $7.26 in benefit to society through outcomes such as increased salaries. SROI has also helped the staff monitor trends in the community and address gaps in the program.
- Social Impact Bonds (SIBs): SIB contracts are becoming more prevalent across the country. One great advantage of SIB programs is that governments pay only if nonprofits produce intended results. These programs rely on SROI calculations to measure effectiveness. The investors are typically paid the savings – the difference between what the government would have paid without a successful program and the actual cost of the program’s positive results.
As we move from a donor to investor mentality, social return on investment can serve as a compelling mechanism to tell your story, because it helps your organization focus on the benefits the program creates, as well as ways to improve. If your organization has recently completed an SROI analysis, please share the results and lessons learned with us and our TrendSpotters.