Social Return On Investment
Social Return on Investment (SROI) is a figure from economics that, unlike classic ROI, is not based on monetary profit in relation to used capital, but instead calculates the added value for society based on the investments made.
Background
Services from social institutions or organizations are generally difficult to measure. The same applies to social commitment from companies. With the Social Return on Investment method, an attempt is being made to use an economic model for a social purpose. The added value of social actions for the society can be determined with the aid of an indicator in this manner.
The idea of the SROI was developed in the William and Flora Hewlett Foundation, which is dedicated to countless social activities throughout the world[1].
In this model, values are not only calculated based on economic factors, but the economic and social components must also be included in the ideals as well. A value created in this manner may, depending on the type of investment, be negative if there are not enough investments made in social commitment.
The concept of Social Return on Investment is still being developed today. In many areas throughout the world, attempts are being made to implement the theoretical construct.
Methods
A few prerequisites must be fulfilled to measure the Social Return on Investment. Initially, it is important that the investigated social and/or economic measures are carried out over a longer period of time. Concrete goals will be agreed upon in advance with the recipients of the service, the stakeholders.
The following steps will then occur:
- Calculation of the investments required for the measures
- Determination of advantages that arise due to social measures. These may be saved costs, a reduction in expenses or an improvement in quality.
- The determined advantages are monetized, therefore converted into money. As an alternative to this, independent scales can be used to measure the advantages.
- Taxes and interest are deducted from the savings.
- If there are connections of a financial manner to public or private investors, these will also be included in the calculation of the SROI.
Criticism
The principle of the Social Return on Investment is often criticized, because in theory it places too great of an assumption on the benefits for the society alone. Nevertheless, in practice there are mostly several groups that profit from a social commitment by companies or public entity.
Other weaknesses of the method may be that the accuracy of the measurement is dependent on the circumstances. If it is dealing with measures that are difficult to convert into monetary units or the impacts occur with longer delay, the calculation of the SROI will be imprecise.
Benefits for Companies
The Social Return on Investment method is helpful for companies that want to be socially active, because in this way, the effect of social commitment can be included in economic calculations. Thus, the success of social projects will be easier to measure, because values such as brand recognition or image can be included in the calculation through the exact analysis of the stakeholders and the clearly defined objectives. These indicators are not considered when calculating the normal ROI.
Non-profit organizations can prove to companies that they profit through social commitment with the aid of the SROI.
References
- ↑ About the Hewlett Foundation hewlett.org Called up on 20.08.2014