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Social return on investment is not enough

Finance | Martin Brookes | 10 Nov 2009

Recently the UK homelessness charity, Crisis, announced that it is using SROI analysis to publicise and put a financial value on the benefits of its ‘Skylight’ schemes (pictured). While Crisis should be applauded for this effort — not enough big charities measure their results, and even fewer share the results and the details of their attempts to do this — in this post I want to sanction caution about the use of social return on investment (SROI) as a sole means of capturing charitable impact.

SROI is an approach which allows the user to capture the economic and, potentially, other benefits of charitable activity. Originally developed in the US by the Roberts Enterprise Development Fund, and now being widely promoted in the UK, it has close ties to cost-benefit analysis within economics.

Crisis’ efforts, supported by Oxford Economics which calculated the SROI, are a positive step. The very existence of the SROI and both organisations’ openness to debate and discussion is welcome. It also highlights a significant point about the importance of data for the analysis of charities and their work. While there are some gaps in Crisis’ SROI and Oxford Economics had to make a number of assumptions to fill the holes in the calculation, this calculation wasn’t possible at all a while ago. Until recently, Crisis did not have outcomes data on the people it helped get a job (or not) through Skylight. As I said before, a positive step.

In their SROI, Crisis and Oxford Economics concentrate on the financial returns from the tangible outcomes of the charity’s activities. In this way, like many other charities, the temptation has been to focus on what can be easily monetised. And this is where I think we need to exercise a note of caution when using SROI.

While SROI was envisioned as being flexible enough to capture non-pecuniary benefits, and indeed it can, it does not tell you how to do this. This is where many charities are stuck. As a result it is easy to overlook the more intangible, harder to quantify social benefits — often exactly the sorts of reasons for which charities exist in the first place. Omitting these intangible benefits from an SROI calculation can actually result in negative social returns for work which is socially valuable.

New Philanthropy Capital’s investment in wellbeing is partly a response to this problem with SROI. We are close to the end of a considerable project developing a questionnaire for charities to help them measure and track their impact on adolescent children’s wellbeing — ‘happiness’, as most of us think about it. It has enormous potential to help charities capture, measure and demonstrate their impact and is attracting a lot of interest. You can read more about it here.

I think it is safe to say that if adequate progress is going to be made in understanding and measuring charities’ impact, then SROI alone is not likely to deliver. Measuring well-being, and teaching charities how to capture these results is also vital. SROI is attractive and should be developed further, as should efforts to produce data with which to populate calculations of return. But, also, more people should join NPC’s efforts to design practical tools that capture the impact of charities’ work on wellbeing.

In short, SROI plus wellbeing is a more attractive future than SROI alone.

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